John Ivison: Trudeau's Liberals just made sure carbon pricing will live on after they’re gone

The whole non-event of the fiscal update could cheerfully have been ignored, save one measure of consequence

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It is a truism that all governments eventually die from swallowing their own lies.

Justin Trudeau’s contention that the Liberals have “always exercised fiscal restraint” is a prime example of this kind of political choking hazard.

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Likewise, Finance Minister Chrystia Freeland’s fall economic statement was bulging with statements that, if not outright whoppers, were certainly distortions.

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In short, she said that Canada will have the strongest economic growth in the G7 next year; that Canada is the global investment destination of choice; that the economy is creating great jobs; that the economic plan is working; that Canada will avoid recession; and that household disposable income has risen, compared to pre-pandemic levels.

Freeland came across as someone who fills in her crossword in ink, so sure is she of its accuracy. “Canada is not and never has been broken,” she said. “We are an imperfect but remarkable creation of generations of Canadians who did their part to build a better country in good times, and in tough times, calloused hand by calloused hand.”

But the numbers in her own document tell a far less reassuring story. Growth is expected to be muted. The expectation among private sector economists is that nominal growth will be lower than 10-year bond rates next year, not a good place to be. Unemployment is forecast to rise to 6.5 per cent by the middle of next year, from 5.7 per cent now.

Surprisingly, the government has held the line on the deficit this year, as compared to its forecast in the spring budget, at $40 billion. But that is because the $21 billion in net new policy actions taken since last spring are back-end loaded, which will drive up deficits in future years (in the budget, the government said the deficit for 2025/26 would be $26.8 billion; the fiscal update pegs that number at $38.3 billion).

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Public debt charges will be $46.5 billion this year, rising to $60 billion by 2028/29. The spending tables indicate that next year, the federal government will spend more money servicing the debt than it does on health transfers to the provinces.

You should, of course, take all of this with a truckload of salt. The numbers are always manipulated to make the government look good, such as last year when the fall statement asserted that the budget would be back in surplus by 2027/28. This year’s guestimate for that year is a deficit of $23.8 billion.

Given the tacit admission that there was no fiscal room to do much, Freeland cobbled together some minor tweaks, with minimal cost implications, that gave the appearance of activity on the government’s priorities of affordability and housing.

The government will make changes to competition law to crack down on predatory pricing; it will cut hidden “junk fees” on consumer goods; it will remove GST on counselling and psychotherapy; it will introduce a mortgage charter to force banks to tailor mortgage relief for people hit by high interest rates when they renew; and so on.

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There was more money for affordable housing, but no commitment to reduce the number of non-permanent residents flooding into the country, with the result that the population is growing twice as fast as the housing stock (more people brings higher economic growth).

Such was the desperation to pad the document with good news that an amendment to the Air Passenger Protection Regulations was proposed that would ensure that airlines seat all children under 14 next to their accompanying adult without paying an additional seat-selection fee. Not even the mean-spirited Conservatives could argue with that, surely? There was no explanation why such a measure needed to be included in a fiscal update.

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The whole non-event could cheerfully have been ignored, save one measure of consequence: the announcement on carbon contracts for difference that has the potential to transform Canada’s industrial decarbonization strategy.

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The government said that the Canada Growth Fund, set up in haste last year as a response to President Joe Biden’s Inflation Reduction Act, will be the principal federal entity issuing carbon contracts for differences and “on a priority basis” will allocate up to $7 billion of its $15 billion in capital.

The essence of carbon contracts for difference is that they backstop the future price of carbon and provide a degree of predictability to businesses planning to invest in low-carbon technology.

This insurance policy against the future value of carbon credits means that low-carbon projects counting on selling carbon offset credits for revenue can plan on doing so, without having to worry about the price of credits crashing or, crucially, about the actions of future governments.

Clean Prosperity, a climate policy organization, estimates that broad-based contracts for differences, available to all industrial emitters, could deliver up to 33 megatonnes of emissions reduction by industry.

Under output-based pricing for large emitters, companies are taxed on roughly 20 per cent of their emissions. If facilities cut emissions below a certain threshold, they earn credits that can be sold to other emitters.

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The government will, in effect, issue a price assurance on the value of those credits in future years that it hopes will accelerate investment in large-scale decarbonization efforts.

While Conservative Leader Pierre Poilievre has been clear that he will axe the consumer carbon tax, he has been less assertive about what he would do on industrial pricing. When he was pressed by reporters, he said the Conservative election platform will deal with the issue “when the carbon tax election happens.”

The Liberals say the Canada Growth Fund is already in the process of negotiating carbon contracts for difference with a number of project proponents. If Poilievre were to blow up the industrial-pricing scheme, as well as the consumer tax, he would potentially be exposing the federal government to billions of dollars in losses.

Conversely, if he were to ensure the carbon markets function predictably, the insurance won’t be needed and the $7 billion can stay in the bank.

The Conservatives have likely already reached the conclusion that they can’t kill both consumer and industrial schemes.

The declining cost of technologies like heat pumps and electric vehicles means Poilievre could conceivably argue that the consumer tax could be killed without giving up on efforts to reduce greenhouse gas emissions. But there really is no substitute for industrial pricing.

The upshot of the contract-for-difference commitment in the fall update is that if, as seems likely, the Liberals do choke on their own lies, their industrial carbon pricing policy will live long after they are gone.

National Post

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