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Ottawa may have to pay for carbon credits to meet climate targets

Minister of Environment and Climate Change Catherine McKenna responds to a question in the House of Commons in Ottawa on Feb. 19, 2016.

Sean Kilpatrick/THE CANADIAN PRESS

Prime Minister Justin Trudeau expects to achieve broad agreement on a national climate plan when he sits down with Canada's first ministers Friday, but the deal will not be unanimous and may require Ottawa to buy costly international carbon credits to meet its international 2030 targets. If concluded, the pan-Canadian pact would endorse the need for carbon pricing and promise massive investments in hydro power lines, clean technology and public transit aimed at combatting global warming – just weeks before climate-change skeptic Donald Trump becomes president of the United States.

U.S. Vice-President Joe Biden, who arrived in Ottawa Thursday night, will brief the first ministers on what to expect from the Trump administration before the official climate talks get under way.

"It's important to keep talking about the strong relationship between Canada and the U.S., and all the things we can do to continue to make sure that it benefits both citizens," Mr. Trudeau told reporters Thursday before he played host to a dinner in Mr. Biden's honour.

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Saskatchewan Premier Brad Wall is the one vocal provincial holdout on carbon pricing. He's threatening court action against Mr. Trudeau's plan to impose carbon levies if the province doesn't act. The premiers of British Columbia, Manitoba, and Newfoundland and Labrador say they support some form of carbon pricing but are balking at Mr. Trudeau's plan for a $50-per-tonne price by 2022.

"It's great that Ontario and Alberta have both announced plans to do carbon pricing but there are still only two provinces who are doing it," B.C. Premier Christy Clark said, referring to existing carbon-pricing plans in her province and Quebec.

Ms. Clark wants assurances that all provinces will move together before committing to raising B.C.'s price to $50, as Mr. Trudeau is proposing. And she complains that the cap-and-trade plans in Quebec and Ontario will leave the effective price in those provinces much lower than the price would be in B.C. or Alberta.

"When everyone else catches up, we should then talk about what we should do about next steps about increasing it," the B.C.Premier said.

However, a senior federal official said Mr. Trudeau is unwavering on his plan that sets a $50 floor price for provinces that have carbon taxes, and an emissions-reduction target for those like Ontario and Quebec that use cap and trade.

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"The question we have to figure out tomorrow is whether premiers really want a deal," the official said Thursday.

Ottawa and the provinces are moving forward with a host of measures to reduce greenhouse-gas emissions but they fall short of the pledge Mr. Trudeau made at the UN-sponsored Paris climate conference last year to cut emissions to 30 per cent below 2005 levels by 2030.

With all the policies in place or currently being implemented, Ottawa forecasts that Canada will emit 44-megatonnes of GHGs above its 2030 target of 523-megatonnes, sources said Thursday. However, Ottawa says the gap will be closed by emissions reductions from planned investments in public transit and clean technology, and from increased carbon prices after 2022.

The government also holds out the prospect of purchasing international credits to fulfill its United Nations commitment. In a graph provided to the provinces and obtained by The Globe and Mail, Ottawa said it will work at the UN to establish the rules for international trading. "Once [the rules are] established, we will evaluate both the need for and opportunity of utilizing international credits," it said.

Federal Environment Minister Catherine McKenna said the pan-Canadian plan "gets to our targets," though she acknowledged some of the carbon cuts will be secured through trading international emissions credits, including with California.

While the measures are costly, "the costs of inaction on climate change are much greater," Ms. McKenna said in an interview from Nanjing, China, before flying back to Ottawa for the talks.

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The determination of Mr. Trudeau to curb greenhouse emissions by setting a price on carbon and phasing out coal-fired power plants comes at a time when Canada's biggest trading partner has elected Mr. Trump and a Republican-controlled Congress that opposes climate-change policies. Mr. Trump has vowed to pull out of the Paris climate-change pact and to help the U.S. coal industry.

Critics in Canada, mainly from the Conservative Party, fear a tax on carbon could make Canadian industry uncompetitive when U.S. energy prices potentially come down as a result of Mr. Trump's policies.

"In the U.S., the new administration is getting ready to slash taxes for businesses and families. It already has advantages over Canada in energy costs," Interim Conservative Leader Rona Ambrose told the House of Commons. "Canada's competitiveness is at risk and jobs are going to go south even faster."

Mr. Trudeau suggests a credible climate plan is an important part of Canada's effort to develop its resources in a responsible manner in order to access new markets through projects like the Trans Mountain pipeline, which his government approved last week.

"That is going to allow us to diversify our energy markets and allow Alberta producers to finally get global prices for their natural resource," he said in the House Commons.

The challenge for Mr. Trudeau in Friday's talks is to get a commitment from a number of provinces to meet his $50 carbon price by 2022.

Newfoundland and Labrador Premier Dwight Ball said his government is putting in a "framework" for an eventual carbon price on its large industrial emitters. But he has not committed to impose a provincewide carbon price that would meet the federal standard. "We need flexibility" from the federal government, he said.

Similarly, Manitoba Premier Brian Pallister committed in his new government's Speech from the Throne this fall to implement a carbon price. But Mr. Pallister has not said what level of tax he's prepared to impose, or whether it would meet the federal floor price.

A compromise on health care is also in the works when Mr. Trudeau holds a dinner for the premiers Friday night. The provinces had asked for a one-year extension of the Harper government health accord – which ends in March – that provides 6-per-cent annual funding for health care. The rate drops to 3 per cent in March.

"At the moment, the federal government is offering about a 3-per-cent increase," the B.C. premier said. "We need to find a way to bridge it for at least the next year."

Sources say Mr. Trudeau will reject the one-year extension but might be willing to increase the escalator above 3 per cent along with billions of dollars in new funding specifically dedicated to home care and mental health.

"We think there is a deal to be had," a senior federal official said. "We are absolutely willing to be flexible but it's unreasonable to expect us to increase health transfers at a rate double our economic and revenue growth," the federal source said. "But beyond that there is room to talk here."

Ontario is "absolutely open" to that approach, a provincial official said. "If there is a pot of money and certain chunks of that money – all of which are subject to an escalator – to be invested into these discrete areas, yeah, that would work."

Health Minister Jane Philpott has been pushing a plan for $3-billion in additional funds toward home care over the next four years – something the provinces and territories seem to like. That consensus may result in new mental-health initiatives, with measurable and reported outcomes, being announced at the Friday meeting.

It is unlikely that all of the outstanding issues around health will be resolved by the Prime Minister and the premiers, but there is much interest in getting an agreement in principle on a new health accord resolved by the end of the year.

"We cannot wait any longer, maybe weeks, but not months. Everybody has to make their budgets and we have to know what the amount of money will be in transfers for next year," Quebec's Canadian Relations Minister Jean-Marc Fournier told The Globe. "If it's impossible and it's too late, certainly the provinces are asking for the six-per-cent [annual increase] to be maintained for one year."

As a result, federal and provincial finance ministers are talking about inviting the health ministers to their meeting. which is scheduled for Dec. 19. It is possible Ottawa may give them more that 3 per cent and the two levels of government could split the difference, especially if they are getting additional funds for targeted initiatives like mental health and home care.

With reports from Nathan VanderKlippe, Gloria Galloway and Bill Curry

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Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

Ottawa Bureau Chief

Robert Fife is The Globe and Mail's Ottawa Bureau Chief and the host of CTV's "Question Period with The Globe and Mail's Robert Fife." He uncovered the Senate expense scandal, setting the course for an RCMP investigation, audits and reform of Senate expense rules. In 2012, he exposed the E. More

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