loading . . . Campaign Offers a Confusing Set of Choices on Sensible Climate Policy For those voters who care about economically friendly climate policy, the federal election campaign has so far offered a confusing set of choices from the two leading political parties. From consumer and industrial carbon pricing to the oil and gas emissions cap and expanded resource development, the Conservative and Liberal promises raise more questions than they answer. Consumer Carbon Pricing The consumer carbon tax and associated cash rebates are now gone. For the past few years, Conservative leader Pierre Poilievre had been promising to eliminate the consumer carbon tax, and he successfully whipped up much public opposition to the policy. Despite his long-term support for the policy, and presumably to take some wind out of Poilievre’s political sails, the new Liberal leader Mark Carney committed to eliminating the consumer carbon tax. His first policy action as prime minister was to set the tax rate to zero as of April 1st, with the final cash rebates to follow shortly. This experience raises two points, one about policy and one about communications. As for policy, the obvious question is: what, if anything, will replace the consumer carbon tax? In 2022, households and small businesses accounted for just under 60 percent of total GHG emissions across the country, those same emissions that were covered by the consumer carbon tax. So, what policy will now be used to reduce these emissions? Will the carbon tax be replaced by nothing, in which case we will be that much further from achieving our emissions-reductions targets? Or will the carbon tax be replaced with regulations, subsidies or other financial incentives, in which case we will all need to bear the considerably higher taxes and other costs associated with those policies? There is a good reason why economists overwhelmingly support the consumer carbon tax: it is not just a way to reduce household and small-business GHG emissions, it is the lowest cost way to do so. The second point is about communications. Since their inception in 2019, the consumer carbon tax and rebates have been victims of both misinformation and unclear explanation. The Conservative and other opponents railed against the tax but never mentioned the offsetting rebates; meanwhile, the governing Liberals were incapable of explaining the good sense and important role played by the rebates. The objective of the policy was never to reduce emissions by impoverishing people; the objective was to alter their choices in a low-carbon direction and to maintain their purchasing power in the process. The vast majority of Canadians (roughly 80 percent of those living outside of B.C. and Quebec) actually had higher overall purchasing power as a result of the tax-rebate combination. Now that the policy is gone, however, the communications patterns have flipped. The Liberals now cynically celebrate their support for Canadians by delivering lower gasoline prices but conveniently fail to mention the fact that with the rebates also gone, most Canadians will actually be worse off financially. And the Conservatives don’t correct the point because to do so would be to admit that the rebates were helpful in the first place. Industrial Carbon Pricing This brings us to the industrial carbon pricing “backstop” system put in place by the Trudeau government. Mark Carney has announced his intention to maintain and strengthen this system, presumably to increase the level of the carbon price. Until the current election campaign started, Pierre Poilievre had been noticeably silent on this front; many believed that while Poilievre was clearly committed to killing the consumer carbon tax he might maintain the industrial system because it is much less visible and harder to understand, and thus had not become a political flashpoint. But once Carney committed to eliminating the consumer carbon tax, it was probably inevitable that Poilievre would up the ante by committing to kill the industrial system as well, thereby driving a wedge between the two parties’ policy positions. Pierre Poilievre claims that the industrial carbon price drives up costs for Canadian industries and damages their competitiveness. He often equates the damage done by this policy to the damage that will be done by U.S. tariffs on Canadian industry. But he is either intentionally misrepresenting the policy or he doesn’t understand how it is designed. The Output Based Pricing System (OBPS) does two things at once. First, it attaches a price to a firm’s carbon emissions. Second, it provides those same firms with the equivalent of a cash subsidy based on their level of output. The combination of these two components is that businesses have a powerful financial incentive to reduce their carbon emissions but not by reducing their production or employment. Instead, they have an incentive to reduce emissions by adopting cleaner production methods. The OBPS is not perfect but the overall system is working well and is designed precisely to address Poilievre’s concern about protecting the competitiveness of Canadian industry. The fact that several large energy firms are now speaking out against the policy does not prove that they would prefer other types of climate regulations to the industrial carbon price; more likely it shows that they would strongly prefer no climate policy to industrial carbon pricing, and that they perceive that eliminating existing climate policy is a politically realistic possibility—especially in today’s chaotic world in which Canada is faced with dire economic threats coming from U.S. trade and tariff policy. Research by the Canadian Climate Institute suggests that the OBPS (and its provincial counterparts) will account for roughly 35 percent of emissions reductions up to 2030, while the consumer carbon tax (if it continued) would have accounted for about 11 percent. If the Liberals form the next government and Mark Carney carries through on his promise to strengthen the system, the emissions reductions from the OBPS will presumably increase, and fill at least part of the gap left by the elimination of the consumer carbon tax. If the Conservatives are elected and Pierre Poilievre eliminates the OBPS, then the hole in Canada’s climate policy will be much bigger. Will the OBPS be replaced by some other higher-cost policy or will the hole remain unfilled? Oil and Gas Emissions Cap In late 2024, the federal government published its draft regulations for the emissions cap for the oil and gas sector, which will require Canadian oil and gas producers to reduce their collective GHG emissions by about 30 percent over eight years. The policy involves implementing a separate cap-and-trade system for that sector, and layering it on top of the existing industrial carbon pricing system. The result would be that oil and gas producers would face a significantly higher carbon price than the one faced by large firms in other heavy industries. And since oil and gas production is heavily skewed toward Alberta, the cap would have a much larger impact in Alberta than in any other part of the country. Mark Carney has announced that, if the Liberals are re-elected, his government will retain the emissions cap. This is a curious choice for a few reasons. First and foremost, a central part of the Carney brand is as a leader who truly understands the workings of the economy and how to design sensible economic policy. Yet most economists recognize that the oil and gas emissions cap will be a very high-cost way to reduce emissions. If oil and gas producers face a much higher carbon price than do firms in other industrial sectors, this will force higher-cost emissions reductions in that sector when lower-cost reductions will go unexploited elsewhere. Total costs for the economy will therefore be higher than what is necessary to achieve the same emissions reductions. A lower-cost approach would be to scrap the emissions cap and raise the industrial carbon price that applies equally to all heavy industries. A second and related point is that there is a serious risk that the planned emissions cap will end up working like a production cap because oil and gas producers may be unable to switch their production methods sufficiently to reduce emissions without cutting production. In this case, the associated loss of income would represent a significant cost for the sector and for the country. The third reason why supporting the emissions cap is an odd choice for Carney is that it is hugely politically divisive, pitting Alberta against most other parts of the country. If Mark Carney really wants to solidify his economic credibility and distance himself from the previous Trudeau policies, and maybe even win some seats in Alberta and Saskatchewan, then cancelling the emissions cap is an obvious choice. Conservative leader Pierre Poilievre, not surprisingly, has promised to eliminate the oil and gas emissions cap, as he sees it as a threat to the sector, a sure way to stifle economic growth in the country, and as an overreach by the federal government. Though one is still left to wonder what a Poilievre-led Conservative government would do (if anything) to reduce GHG emissions in Canada, it is undeniable that his plan to scrap the emissions cap is more economically coherent than Mark Carney’s pledge to retain it. Resource Development, Regulations, and New Technologies Given the economic threats coming from the United States, there is now understandably much talk in Canada about the need to develop more of our natural resources—including oil, natural gas, and critical minerals—and to ensure that we can get them efficiently to global markets, relying less on our previously assured access to the enormous American market. Both Mark Carney and Pierre Poilievre have adopted this position, and both have vowed to improve and streamline Canada’s regulatory and approvals processes for major resource projects. Poilievre has promised to repeal the Impact Assessment Act immediately; Carney has vowed to retain the IAA but to nonetheless speed up the approvals process significantly. Poilievre’s position is consistent with his promise to scrap the oil and gas emissions cap, as he sees both the cap and the IAA as clear impediments to the further development of Canada’s oil and gas resources. While supporters of the cap, including Carney, are careful to point out that it is an emissions cap and not a production cap, it is probably fanciful to believe that emissions intensity in that sector can fall so much that the emissions cap can be satisfied and that oil and gas output can be increased significantly at the same time. If Canadians have been convinced by current circumstances of the need to get a greater amount of our oil and gas to global markets, then almost certainly the emissions cap will need to be scrapped—and we need to accept the real possibility that Canada’s GHG emissions from that sector will increase. With greater oil and gas production and exports, and the associated rise in GHG emissions, how then will we achieve our 2030 emissions targets? There are several possibilities: One obvious option is to scale up the industrial carbon-pricing system. Oil and gas emissions would rise as production in that sector increases, but emissions would fall in other parts of the economy. This would likely be Mark Carney’s preferred option, although he has not yet accepted the idea of scrapping the emissions cap which is central to the premise of this question. Pierre Poilievre talks about scaling up the existing tax incentives for the development of new technologies. But this is likely too small a tail to wag too big a dog. The Canadian Climate Institute has estimated that these polices (in their current form) will generate only about 2.5 percent of Canada’s emissions reductions to 2030. Relying on these kinds of policies as a primary driver of emissions reductions would therefore require an enormous fiscal commitment to scale up these policies, one that Poilievre may be unlikely to make. Another possibility, and one discussed explicitly by Pierre Poilievre, is that Canada could develop its oil and gas (and other) resources and export them to other countries who then use them to reduce their GHG emissions. For example, Canadian LNG could be produced and exported to China or India and be used within those countries to displace their current burning of coal. That substitution, if it occurred, would reduce global GHG emissions. This last possibility raises all kinds of questions. Would low-cost Canadian LNG really displace foreign coal as an energy source, or would it actually be more likely to displace foreign renewable power, in which case global emissions would rise rather than fall? Even if Canadian resources exported to other countries resulted in lower global emissions, would Canadians accept the resulting increase in Canada’s GHG emissions? Could Canada argue successfully in the international UN forums that we will abandon our existing GHG target because of our clean exports which reduce global emissions? If emissions from Canada’s oil and gas sector continue to rise, but we have more stringent climate policies that drive larger emissions reductions in other parts of the economy, will that outcome be perceived as fair and politically acceptable within Canada? These questions defy easy answers. Summing Up Conservative leader Pierre Poilievre has a set of campaign promises that are clearly coherent in terms of promoting economic development—scrapping all carbon pricing and the emissions cap and developing and exporting more natural resources—but there is almost nothing on the Conservative table in terms of credible and sensible domestic climate policy. His desire to rely on technological development and tax-related incentives to reduce emissions is to put too much hope on too small a policy instrument. His hope that Canada can reduce global emissions by exporting our cleanly produced resources is more sensible but opens up some very challenging questions related to our international negotiations and agreements. Liberal leader Mark Carney has a collection of campaign pledges with its own problems. His elimination of the consumer carbon price is obviously an unfortunate setback for climate policy. His support for strengthening industrial carbon pricing is sensible, although his promise to retain the emissions cap layered on top of this industrial pricing system is highly questionable, both on economic and political grounds. In addition, his desire to develop more natural resources and to reduce our dependence on the U.S. market is very likely inconsistent with maintaining the oil and gas emissions cap. If Carney wants to achieve the Canadian government’s current emissions targets for 2030 while also promoting the development of more natural resources, he needs to come up with some new and creative policy ideas. As I said in the opening paragraph, when it comes to sensible climate policy in Canada, so far there are more questions raised than answered in the 2025 federal election campaign. Hopefully some of these questions will be answered in the weeks before April 28. About the Author Chris Ragan is an Associate Professor and the founding Director of McGill University’s Max Bell School of Public Policy. Ragan was the Chair of Canada’s Ecofiscal Commission, which launched in November 2014 with a 5-year horizon to identify policy options to improve environmental and economic performance in Canada. He was also a member of the federal finance minister’s Advisory Council on Economic Growth, which operated from early 2016 to mid 2019. During 2010-12 he was the President of the Ottawa Economics Association. From 2010-13, Ragan held the David Dodge Chair in Monetary Policy at the C.D. Howe Institute, and for many years was a member of the Institute’s Monetary Policy Council. In 2009-10, Ragan served as the Clifford Clark Visiting Economist at Finance Canada; in 2004-05 he served as Special Advisor to the Governor of the Bank of Canada. Chris Ragan’s published research focuses mostly on the conduct of macroeconomic policy. His 2004 book, co-edited with William Watson, is called Is the Debt War Over? In 2007 he published A Canadian Priorities Agenda, co-edited with Jeremy Leonard and France St-Hilaire from the Institute for Research on Public Policy. The Ecofiscal Commission’s The Way Forward (2015) was awarded the prestigious Doug Purvis Memorial Prize for the best work in Canadian economic policy. Ragan is an enthusiastic teacher and public communicator. In 2007 he was awarded the Noel Fieldhouse teaching prize at McGill. He is the author of Economics (formerly co-authored with Richard Lipsey), which after sixteen editions is still the most widely used introductory economics textbook in Canada. Ragan also writes frequent columns for newspapers, most often in The Globe and Mail. He teaches in several MBA and Executive MBA programs, including at McGill, EDHEC in France, and in special courses offered by McKinsey & Company. He gives dozens of public speeches every year. Ragan received his B.A. (Honours) in economics in 1984 from the University of Victoria and his M.A. in economics from Queen’s University in 1985. He then moved to Cambridge, Massachusetts where he completed his Ph.D. in economics at M.I.T. in 1989. https://www.mcgill.ca/maxbellschool/article/campaign-sensible-climate-policy
