The long-anticipated Conservative climate plan provokes praise from some and critique from others. But what's in it? Josiah Haynes takes a closer look.
On April 15th, the Conservative Party of Canada released its anticipated climate plan, Secure the Environment. Conservative leader Erin O'Toole told Resource Works: "Our plan trusts Canadian families to be part of the climate change plan. When compared to the Trudeau Carbon Tax, our plan is just as effective in emission reduction but vastly superior in preserving jobs and growing the Canadian economy. We will fight climate change and protect the environment, but we won’t do it on the backs of hardworking Canadians.”
Immediately, the plan received a variety of reactions. Dan Kelly of the Canadian Federation of Independent Businesses tweeted his initial approval, noting the Plan's Low-Carbon Savings Accounts (LCSA). At the same time, Dr. Jennifer Winter of the University of Calgary said: "The Conservative plan is likely to be regressive, whereas the lump-sum rebates [of the Liberal plan] are progressive."
So what is the Conservative climate plan, and how does it compare to the Liberal climate plan?
In short, it's a reduced consumer carbon tax in the form of paying into LCSAs where additional money spent on fuel can be reinvested in products designed to lower emissions; an attempt to harmonize North America's industrial carbon taxes, with a $170/tonne tax should that fail; tariffs on carbon-intensive goods from jurisdictions without a carbon tax; significant investments in nuclear small modular reactors (SMRs), carbon capture utilization and storage (CCUS), hydrogen technology, and electric vehicle (EV) manufacturing; a new Low-Carbon Fuel Standard (LCFS) and new quotas on renewable natural gas (RNG) and vehicle supply; and a new plan for hydrogen fuel, a liquified natural gas (LNG) export plan, and a Clean Buildings Plan.
Low-Carbon Savings Accounts
The plan marks the Conservative's first official acceptance of carbon pricing to meet Paris targets. The plan aims to efficiently lower greenhouse gases (GHGs) while minimizing damage to the economy.
To do that, the plan proposes to lower the Liberal's $170/tonne consumer carbon tax to a mere $20, increasing to $50 by 2030. But instead of receiving a rebate after taxes, the Conservative plan gives consumers value in a LCSA for every purchase of hydrocarbons. The LCSAs will be tax-free, like RESPs. Yet, in some ways, the LCSAs will function like Air Miles cards, where customers receive points that can only be spent on certain items. For Air Miles users, that's flights; for LCSA users, that's a menu of government-approved green goodies like bikes, transit passes, energy-efficient home improvements, or even electric vehicles (EVs) and more.
LCSAs will also be available for farms and small businesses with a tailored menu including energy-efficient equipment or infrastructure upgrades, biofuels, hybrid and EVs.
It's worth noting that it's not quite accurate to call it a consumer carbon tax. Unlike a tax, the money does not go to the government. Instead, it is simply redirected to the consumer's LCSA. Nonetheless, consumers are still obligated to pay into the system—instead of receiving a rebate for what they spend at the pump, they can only spend the value returned to them within a LCSA and only on government-approved, privately supplied products.
The menu items available for purchase would be provided by private companies—creating a new marketplace, or single platform, for green items. In fact, a consortium of companies would run the LCSA program, similar to the INTERAC system used for Canadian debit cards (an interbank network linking financial institutions and other enterprises to exchange electronic financial transactions).
Industrial carbon pricing
The Conservative plan promises to replace what it calls "arbitrary carbon price increases" on industrial emitters with a carbon price based on the international rates in Europe and the US. Under the plan, the carbon tax would increase "in line with the prices in Europe and US states with leading climate policies."
If such a tax threatens to prevent reaching Paris goals after two years, the Conservative plan would simply increase the industrial carbon tax until it reaches $170/tonne in 2030.
Noting the challenge industrial carbon taxes pose for Canadian companies competing with companies in jurisdictions without carbon taxes, the plan proposes North American standards for trade-exposed sectors. The standards would be equal or greater to the current targets for trade-exposed sectors in the current Output-Based Pricing System. "This will allow us to achieve greater emissions reductions without simply driving jobs out of Canada," the plan reads.
With the dual goal of protecting trade-exposed industries and preventing carbon leakage, the plan promises to study imposing Carbon Border Tariffs on imports equivalent to the carbon price a domestic competitor would have to pay to produce the product. Producers in countries with comparable emissions reduction mechanisms to Canada's would be exempt.
Investment in green technology
To compensate for reduced carbon taxes, the Conservative plan proposes to reach Paris targets through several new programs and investments.
The plan promises to invest $1 billion in SMRs "to get this zero-emissions source of electricity and heat to the point that it starts to be deployed."
It budgets $5 billion until 2030 to invest in CCUS through the direct funding of research and development (R&D), tax credits, and an early mover bonus to companies putting CCUS in place before 2030, more than satisfying recommendation 14 of the Task Force for Real Jobs, Real Recovery. The tax credit would encourage the rapid deployment of CCUS in the energy sector and other high emitters that currently have few alternatives to burning fossil fuels to bring down upstream emissions. The plan also highlights direct R&D funding for Direct Air Capture, a technology used to capture CO2 from the air for storage or use.
Instead of prioritizing public transit, the plan promises a $1 billion investment to help build "electric vehicle manufacturing in Canada, including investing in battery production, parts manufacturing, micro-mobility solutions and electric trucks."
Complementing the $1 billion investment in EVs is a $1 billion investment in "deploying hydrogen technology including hydrogen vehicles."
Inspired by BC's policy, the plan would implement a LCFS to decrease the carbon intensity of gasoline and diesel fuel pools by 20% by 2030. Various renewable and low-carbon fuels qualify for compliance under this policy, like ethanol, biodiesel, hydrogenation-derived renewable diesel, and electricity.
Secure the Environment also mandates that RNG comprise 15% of the natural gas used for electricity generation by 2030. RNG is a carbon-neutral fuel created by capturing emissions from organic waste, landfills, and wastewater treatment plants--emissions that would otherwise be wasted or burned.
Similarly, the Conservatives follow British Columbian policies to mandate that 30% of light-duty vehicles sold in Canada be zero emissions by 2030. The plan "will keep increasing the requirement beyond 2030 to continue on our path toward net-zero." Plug-in electric and hydrogen fuel-cell vehicles would qualify for compliance under the policy.
New plans & strategies
In addition to the new spending commitments above, Secure the Environment also promises a National Clean Energy Strategy focusing on hydrogen and LNG. The hydrogen element would "explore how Canada can become a world leader in the production of blue and green hydrogen." At the same time, the LNG component would emphasize exports to displace coal in electricity generation.
The Conservatives also promise a Clean Buildings Plan upon two pillars: a Net-Zero Foundations Program and Energy Savings Performance Contracting (ESPC).
The Net-Zero Foundations Program would develop new building codes to support net-zero goals for new and retrofitted buildings, develop curriculum for trade schools and institutes in design and construction, improve certification standards, and pilot new solutions to lower the cost and speed up the pace of retrofits.
Meanwhile, the ESPC program would be modelled after Quebec's SOFIAC program to create a regulatory and financing framework to partner with the private sector to implement energy-saving building retrofits.
From Our Country to Secure the Environment
Conservative Party leader Erin O'Toole's 2020 leadership campaign suggested new ideas, including an endorsement of free enterprise within a regulated capitalist structure supportive of unions and skeptical of big business and "corporate and financial power brokers who care more about their shareholders than their employees." His "Canada First" strategy spoke of greater economic self-sufficiency and hinted at a willingness to use greater government power to achieve policy goals. With its lowering of the carbon tax paired with economic planning and mandatory quotas on RNG and EVs, Secure the Environment is a manifestation of that philosophy.
Secure the Environment is not without its critics. The Canadian Taxpayers Federation writes: "When he was running for leader, O’Toole pledged to taxpayers that he would fight carbon taxes. If he goes through with this scheme, he will be breaking his promise to Canadians."
While the dramatic shift from carbon tax opposition to adoption may come as a surprise, Secure the Environment appears to be heavily inspired by O'Toole's Our Country platform from the Conservative leadership race.
That plan promised a climate strategy that "focuses on making industry pay rather than taxing ordinary Canadians, by forging a national industrial regulatory and pricing regime across the country." While the $50/tonne carbon tax and LCSA in Secure the Environment are new additions to O'Toole's former plan, the industrial carbon tax should not come as a surprise.
In addition, Our Country promised R&D funding for CCUS and SMRs, a federal LNG export strategy, "building climate resilience into our infrastructure," and developing incentives to increase carbon sequestration through forest management practices, soil management, and the protection and enhancement of wetlands. All of these commitments are pillars of Secure the Environment.
With that background in mind, let's analyze the plan.
If there is going to be an industrial carbon tax, seeking harmonization with other jurisdictions is a positive step forward. In particular, the proposed North American Standard and Border Carbon Adjustment are welcome initiatives to prevent both carbon leakage and the uncompetitive taxation of energy-intensive, trade-exposed industries.
The R&D funding announced in Secure the Environment is arguably one of the plan's greatest strengths. SMR technology presents enormous potential for Canada, especially in the north, where clean and affordable energy is often nearly impossible to access. Similarly, the R&D announced for CCUS, especially the tax incentives and early mover bonus, could have game-changing results if further research makes the technology more economical.
The $1 billion announced for EV manufacturing presents an exciting opportunity, especially considering Canada's natural mineral wealth and the strength of the Canadian and British Columbian mining sectors.
The National Clean Energy Strategy is another highlight. BC's substantial natural gas reserves of 670 trillion cubic feet can turn Canada into an LNG superpower. FortisBC, Woodfibre LNG, and LNG Canada are already building the export facilities to turn that vision into a reality. Asia is hungry for the affordable and clean LNG required to displace coal and Secure the Environment's LNG export strategy is a welcome recognition of the role government can play in encouraging the growth of this strategic industry.
While short on detail, the promised hydrogen plan to "explore how Canada can become a world leader in the production of blue and green hydrogen" signals a positive direction on hydrogen. While we wait to see how it may differ from the current federal hydrogen strategy, the specific inclusion of blue hydrogen is a good sign. As Chris Reid told our Resource Innovation Forum, we need all kinds of hydrogen: "we have to be careful that perfect doesn't play the enemy of the good."
The Clean Buildings Plan is another positive addition to the Conservative climate plan. While building codes fall into provincial and territorial jurisdiction, the federal government has been involved in building codes since 1937 through the National Research Council of Canada. Federal agencies continue to support and coordinate codes with other levels of government. Improving the energy efficiency of existing homes via ESPC and improving codes and certification for new buildings via the Net-Zero Foundations Program represents low-hanging fruit to both reduce emissions and improve energy efficiency.
Finally, Secure the Environment promises to create an accelerated Impact Assessment process for projects that will reduce GHG emissions. This simple but important promise could potentially have significant implications for projects like oil and gas pipelines and export facilities that can help reduce global emissions, like Trans Mountain's Expansion Project, which suffered an unreasonably burdensome assessment and regulatory bureaucracy.
Nonetheless, Secure the Environment has its share of imperfection.
The decision of what to do with the revenues of carbon pricing is the matter of some academic and policy debate. BC think tank, the Fraser Institute, argues that carbon pricing should be revenue neutral to mitigate economic damage by reducing taxes in other areas to make up for the added tax burden of the carbon price. In the early days of BC's own carbon tax, the first in the country, this was the approach taken, although today BC's carbon tax is increasingly applied to funding the Clean BC Strategy.
Additionally, carbon pricing should replace emissions-related regulations instead of simply layering the tax on top of existing regulatory burdens. Instead of using carbon tax revenues to reduce other taxes, the Conservative plan channels revenues to LCSAs, which "add complexity, administrative and compliance costs, and grant yet more power to bureaucrats to determine what qualifies for purchases from such accounts," writes the Fraser Institute.
Further, while the effort Secure the Environment makes to protect trade-exposed industries with the Carbon Border Adjustment tariffs is laudable, one wonders whether domestic tax credits would be less intrusive. Perhaps high emitting, trade-exposed Canadian industries should receive carbon credits or reduced taxes instead of protectionist sheltering. Protecting trade-exposed industries through tax incentives, rather than tariffs, may lessen the inevitable burden on consumers.
While investing in EV and hydrogen is a positive part of the plan, mandating that 30% of light-duty vehicles sold be zero emissions by 2030 challenges the consistency of a party ostensibly committed to economic freedom, not to mention the challenge of ensuring the accessibility and affordability of zero-emissions vehicles, hydrogen fuel, and charging stations nationwide within the given timeline. To be sure, electric vehicles are continually improving. Given continued improvement, one day, there may neither the need nor the desire for conventional gas-fueled vehicles. But EVs are not there yet, and if EVs are truly superior to gas-fueled vehicles, there would be no need for quotas. Better to simply invest in improving EV performance and affordability and let the consumer decide.
Finally, Secure the Environment includes the surprising promise to study "the potential for introducing new taxes on frequent flyers, non-electric luxury vehicles and second homes to deter activities that hurt the environment." Readers of the plan may be surprised to hear a party known for championing low taxes and opposing big government giving serious thought to taxes like these, which would arguably do more harm than good.
As the Fraser Institute writes: "Put simply, the Conservative climate plan relies less on market mechanisms and more on government regulations and bureaucracy."
Still, according to Navius Research, Secure the Environment is generally an improvement over the current Liberal policy.
Under the Conservative plan, GHGs are "13 Mt higher in 2025 and 6 Mt lower in 2030 relative to announced federal policy.” Yet "Canada’s GDP is 0.7% higher in 2030 than it would be in response to announced federal policy.”
According to Navius, mandates and programs in the plan "achieve greater reductions than an increase in the consumer carbon price from $50/tonne to $170/tonne."
In short, the plan achieves equal or greater emission reductions while doing less economic damage than the Liberal plan.
Secure the Environment is what many would call the Conservative Party's first serious climate policy. Certainly, the plan fails to take advantage of the opportunity to replace the Liberal carbon tax with a revenue-neutral price accompanied by deregulation in compensating areas. Yet with its reduction of the carbon tax, protection of trade-exposed industries, R&D investments, accelerated assessments, and National Clean Energy Strategy, the plan marks a significant step forward for both the Conservative Party and Canada as a whole.
If the Conservative Party wins the next election, it has the opportunity to repair what was lacking from Secure the Environment and build on the plan's notable successes.
Josiah Haynes is a Writing and Research Coordinator at the Resource Works Society.