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Ottawa holds trump card to push provinces on carbon pricing

In government, sometimes less is more. The Trudeau government thinks it can get more done on greenhouse-gas reduction by doing very little itself – and leaving the heavy lifting to the provinces. In the short run, it's almost certainly right. In the long run? We'll see.

Last weekend, Environment Minister Catherine McKenna said that Ottawa will ensure that every province puts a price on carbon, and if a province fails to do so, the federal government will impose a pricing system of its own. If most of the premiers were Conservatives, this would be the equivalent of a declaration of federal-provincial war. But they aren't, and so it mostly isn't.

The four biggest provinces all have carbon pricing systems, or are setting them up. They're onside with Ms. McKenna – or more precisely, she's onside with them. She's leading by following their lead.

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Quebec has a cap-and-trade system, which uses a complex pollution-credit trading regime to put costs on polluters, and Ontario is joining it. British Columbia has a clear, straightforward carbon tax on carbon-based fuels, such as gasoline and diesel, with the revenues raised used to pay for cuts to the province's personal and corporate income tax rates. Alberta is bringing in a hybrid system, a kind of modified carbon tax.

Each of these systems is different in terms of design and pricing. But they all meet Ottawa's basic demands: They price carbon and in ways that will lead to some emissions reductions.

Those four provinces, covering 80 per cent of the national population, are being held up as models by Ms. McKenna. It doesn't look like she'll need to ask British Columbia, Ontario, Quebec or Alberta to do much of anything, other than cajoling the other provinces into emulating them.

And in dealing with provinces that aren't on side, Ms. McKenna comes armed with a negotiating trump card: If they won't tax carbon themselves, Ottawa could do it for them – and keep the money. Think of it as the Canada Health Act in reverse.

Health is a provincial jurisdiction, but the federal government lays down some (loose) principles, which are linked, loosely, to federal transfer payments. If a province were to scrap its public health system, Ottawa could pull funding. The feds are similarly laying down a broad principle on carbon, namely that provinces must price it. But each province can design its own levy, keep all of the revenues and use the cash however it wants, for tax cuts, public transit, green research, deficit reduction, whatever.

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But if a province fails to bring in a carbon levy? Then Ottawa could impose one, solely on that province. And if Ottawa ever does that, it will decide where the money comes from and how it gets spent. It's a threat designed to drive any holdout premier bananas. The goal is to ensure that carbon pricing is national, yet, entirely in provincial hands.

Last weekend, Ms. McKenna all but promised that Ottawa and the provinces would reach a deal and she has every reason to feel confident. After all, premiers representing eight out of 10 Canadians are already on side.

But this is merely round one. Reducing greenhouse gases through carbon pricing is a long game, which will require ever-higher carbon prices. For example, if Ottawa wants to meet its long-term GHG targets (a 30-per-cent reduction in emissions by 2030 and deeper cuts in the decades following) it will have to do a lot more than just ask provinces with carbon levies to accept words of thanks and congratulations. Instead, Ottawa will have to tell even model provinces such as Alberta, Ontario, Quebec and British Columbia to keep raising their carbon price, to ensure emissions continue to drop.

That's Ottawa's long-range challenge. This autumn, Ms. McKenna merely has to get a few wayward provinces to introduce carbon pricing. Future occupants of her office will have to ask provinces to increase their carbon prices, repeatedly. Provincial politicians may balk – as B.C. Premier Christy Clark did not long ago, when her own expert panel told her to jack up that province's carbon tax. Stay tuned.

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