Federal carbon price plan sparks fears among five Canadian industries

Oct. 4, 2016 – The national minimum price on carbon proposed by Prime Minister Justin Trudeau on Monday has sparked fears from several Canadian industries that their costs and product prices will rise and their ability to compete with international rivals will suffer.

The actual impact is unclear, they say, as implementation details are missing from the federal plan to impose a carbon price in provinces without one. The federal program would impose a minimum carbon price of $10 a tonne in 2018, rising by $10 per year until reaching $50 per tonne in 2022. The funds raised are to go back to the provinces but what happens then is also not known.

Here is how the new policy is expected to affect five industries in Canada.

Auto manufacturing
Truck and car plants don’t generate a lot of emissions, says Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, but some of their suppliers do and extra costs from a carbon tax would likely be passed along. That would hurt overall cost competitiveness with the United States and could lead to new or expansion plants — and associated jobs — landing there instead of in Canada. About 98 per cent of Canada’s car industry is in Ontario, a province that has signed on to a cap-and-trade system with Quebec and California. Nantais said he fears the federal carbon price as it grows will outstrip the real cost of carbon under the provincial cap-and-trade system and costs will rise.

Manufacturing/exporting
Mathew Wilson, senior vice-president with the Canadian Manufacturers and Exporters, says his members most worry that new carbon prices will create a competitive edge for other jurisdictions that don’t play by the same rules. Members produce everything from steel to high-technology hardware. While their emissions vary enormously, all are expected to pay more for the energy and supplies they use due to carbon prices. He said his organization will be calling on the Trudeau government to ensure carbon pricing is not only revenue neutral, but that revenue from industry be returned to industry in a way that ensures it can still be competitive.

Fuel refining
If implemented today, the federal carbon price would apply to refineries in Saskatchewan, New Brunswick and Newfoundland because those provinces don’t have an existing carbon price scheme, says Peter Boag, president of the Canadian Fuels Association. Refineries in British Columbia, Alberta, Ontario and Quebec either already pay or are set to pay carbon levies. He said so-called “carbon leakage” is a key concern for his members because if refinery costs rise, customers may turn to buying fuel from international suppliers. That could move economic benefits out of Canada but still allow emissions from across the border to enter the atmosphere.

Mining
A typical mine in Canada spends about 30 per cent of its budget on energy, ranging from diesel for trucks to electricity used to process base metals in a refinery, says Pierre Gratton, president and CEO of the Mining Association of Canada. He said the impact of the federal carbon price will vary across the country depending on energy source. For instance, miners in B.C. can often access emissions-free hydroelectric power, while those in northern Canada often must use fossil fuels. He said the association supports carbon pricing but wants to see a truly revenue neutral system, noting that B.C.’s carbon tax results in mining companies paying out more than they get back in reduced taxes.

Agriculture
The federal carbon price could increase costs for Canadian farmers who must burn fossil fuel to plant and harvest their crops, hurting international competitiveness, says Ron Bonnett, president of the Canadian Federation of Agriculture. He called on the government to consult with the industry before implementation in 2018. He added farmers could benefit from the policy if they are able to sell carbon credits from farming practices that sequester carbon or result in reductions in greenhouse gas emissions.

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