Will Slow and Steady Win the Race?

September 3, 2019

The Liberal Government, under the leadership of Prime minister Justin Trudeau has made climate policy a cornerstone of its policy action.

Early in the mandate they attended the UN Climate Conference at which the Paris Declaration was signed and loudly proclaimed that “Canada was back” when it came to global climate leadership. Early in 2016, Canada’s First Ministers met and agreed to the Vancouver Declaration which initiated the process that led to the Pan-Canadian Framework on Clean Growth and Climate Change. The Government left Canada’s climate targets as set by the Harper Conservatives – 30% emission reduction below 2005 levels by 2030 – but insisted that they would actually deliver on the commitment.

So began a period of sector-specific climate action and spending program development. The Government revised coal-fired electricity phase-out regulations to require all plants to come offline by 2030. They doubled the amount of federally protected nature in Canada. They set up the Canada Infrastructure Bank and signed Integrated Bilateral Agreements with provinces – both large-scale funding measures with specific carve-outs for green infrastructure. And they rolled out a myriad of smaller funding programs to drive energy and environmental innovation.

While they rolled out these sector-specific regulations and funding programs, the Government was consulting on big, multi-sector pieces like carbon pricing, the Clean Fuel Standard and a national greenhouse gas (GHG) emission offset system.

As the Government’s mandate winds down it continues to consult on the design and implementation of these pieces. In fact, comments on elements of each were due into the Government this week, less than two months out from the election. Prime Minister Trudeau and his Government will require a second mandate if they are to see this work come to fruition.  

Carbon Pricing

The design of the federal carbon pricing system is largely in place, although some details remain around how the Government ought to return the proceeds to the jurisdictions in which they are collected. This was the subject of the Discussion Paper on which comments were due today.

The uncertainty does not stem from legislative and regulatory design. It comes from Provincial pushback against its application. The bottom line is that the Trudeau Government has been unable to get Conservative Premiers to buy into the system. Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick are all actively resisting its application to their provinces.

On June 21st Alberta became the latest province to launch a constitutional challenge against the federal carbon pricing system. The reference case was filed with the Alberta Court of Appeal. Courts in both Ontario and Saskatchewan have heard similar cases and both have sided with the federal government. However, both Saskatchewan and Ontario have appealed the ruling to the Supreme Court of Canada. The Supreme Court has agreed to hear the Saskatchewan appeal (no word yet on Ontario’s appeal – they only just filed on August 28th).

The Saskatchewan appeal will tentatively take place in December, 2019. Saskatchewan has asked the Court to delay the hearing so that it may better coordinate with the other provinces that have either filed an appeal of their own (Ontario) or are generally supportive of the appeal (Manitoba, New Brunswick, Alberta and Quebec). Quebec supports the appeal not because it opposes carbon pricing but because it believes the federal carbon pricing system is a policy overreach that could set a precedent in other areas.

The Liberal carbon pricing system is under threat from the provinces through the courts. It is also under threat from her majesty’s loyal opposition. Conservative Leader Andrew Scheer has been very clear that his first order of business if elected Prime Minister on October 21st will be to cancel the carbon tax. He will keep in place a system for large emitters but will likely have a much easier time working with Conservative Premiers on the design of the backstop system.  

Ultimately, the Liberals must win a second mandate in order to protect their progress on having all provinces and territories adopt a carbon pricing system – either willingly or by federal imposition.  

Clean Fuel Standard

The CFS aims to reduce the carbon intensity of fuels through a performance-based approach that would incent the use of a broad range of low carbon fuels, energy sources and technologies, such as electricity, hydrogen, and renewable fuels, including renewable natural gas. It will establish lifecycle carbon intensity requirements separately for liquid, gaseous and solid fuels, and would go beyond transportation fuels to include those used in industry and buildings.

The Liberals spent the first three years of their mandate socializing the concept with industry, the environmental community and other key stakeholders. They have worked to show, through multiple discussion papers and rounds of consultation, that the regulation will be meaningful and complimentary to the carbon pricing system without being overly punitive, duplicative or administratively complex. It is fair to say that many industrial sectors in Canada remain skeptical.

Partly for this reason and partly due to the amount of bandwidth and political capital spent on the carbon pricing system, the timelines for the design and implementation of the CFS has slipped. It is now very much a second-mandate deliverable. The current projected timelines are as follows:  

• July 2019: Discussion paper for the liquid fuel stream followed by consultations on proposal (comments were due August 26th)
• Early 2020: draft regulations for the liquid fuel stream
• 2019 to 2020: Ongoing consultations on the design of the gaseous and solid fuel stream regulations
• Late 2020: draft regulations for the gaseous and solid streams
• 2021: Final regulations for all three streams
• 2022: liquid stream comes into effect
• 2023: gaseous and solid streams come into effect

Federal Offset System

The ‘newest kid on the block’ is the development of a national offset system. The Government is in the early stages of consulting on this mechanism.

To quote a Government discussion paper released in late June:

"Offset credits represent GHG emissions reductions or removal enhancements resulting from voluntary actions taken to reduce or avoid emissions from sources or increase removals by sinks. Each offset credit generated by an offset project represents one tonne of carbon dioxide equivalent (CO2e) reduced or removed from the atmosphere, compared to what would have happened in the absence of the offset project activity."

Offset credits are a compliance tool under the federal carbon pricing system. An offset credit is a substitute for direct emission reductions on the part of the covered facility and provides an opportunity to reduce the cost of compliance. However, there is currently no national offset system. The Government hopes to change that but will need a second mandate to achieve it.

Left Too Late?

Following the Liberal victory in 2015 there was a quiet confidence amongst officials and staff that they had at least eight years, or two majority mandates, over which to implement their vision. The first two years were spent consulting rather than legislating. In years three and four they turned their attention to drafting and tabling legislation and regulations, but it is difficult to move big ideas forward quickly.

Perhaps, though, this was the only way. The Liberals were not short of ambition when they took power. They declared Canada was back and they meant it. Perhaps a slow and steady approach is what is needed to implement the deep and meaningful transformation the Liberals believe they were elected to carry out, while bringing the Canadian public along in step.

Now weeks out from the next election the Liberals and their supporters are hoping that the pacing proves prescient and that the Liberals will be returned to power on October 21st to finish the job.