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Finlayson Op-ed: Trump's energy, environmental policies threat to Canadian business (Troy Media and Times Colonist)

By Jock Finlayson

As President-elect Donald Trump prepares to assume office, it is clear that major changes are in store for American climate and energy policy.  Mr. Trump’s cabinet appointments, read in conjunction with the Republican Party’s platform in the 2016 election, leave little doubt that the United States will be adopting an approach to climate and energy policy that differs markedly from the one embraced by the outgoing Obama administration. 

With Mr. Trump at the helm, the U.S. may explicitly repudiate the greenhouse gas reduction targets America accepted as part of the 2015 Paris climate change agreement.  President Obama’s ambitious Clean Power Plan, which aims to accelerate the de-carbonization of electricity generation, is likely to be delayed, shelved or struck down by the U.S. Supreme Court. President-elect Trump has pledged to boost U.S. oil and gas production and encourage stepped-up exploration activity on federal lands and offshore.  He has also signalled that he will approve the proposed Keystone Pipeline project that Mr. Obama pointedly rejected.  Above all, there is now zero chance that the United States will be implementing any kind of national “carbon pricing” policy over the next several years.    

All of this poses a dilemma for Canadian policy-makers, who have been striving to fashion a “pan-Canadian” strategy to address climate change, notably by putting a “price” on carbon and other greenhouse gas emissions.  While some Canadian politicians claim we can set our climate and energy policies without paying attention to what the United States does, they are fooling themselves.  It has long been recognized, both in Ottawa and in most provincial capitals, that Canada’s economic interests are best served by working in tandem with the United States on issues like climate change and energy security.  Donald Trump’s arrival in the White House doesn’t invalidate the logic behind this traditional Canadian position.

The new federal-provincial agreement, reached by Ottawa and eight provinces (Manitoba and Saskatchewan have refused to sign), proposes to establish a minimum, nation-wide carbon price of $10 per ton in 2018, rising to $50 by 2022.  In principle, a national framework for carbon pricing is preferable to the existing mish-mash of varying provincial levies and regulatory requirements.  But it will be challenging to follow this path given the policy preferences of the Trump administration.   

To see why, imagine that Canada moves to an across-the-board carbon tax equal to $50 per ton of emissions by 2022, while the effective national carbon price in the United States remains where it is today, near zero.  A rough estimate is that this would result in a $20-25 billion jump in annual energy costs for Canadians, at a time when Americans would be facing no similar increase.  Governments can be expected to return some of the carbon-related tax revenue to households and businesses, via offsetting tax reductions and other measures.  That said, in this scenario business investment in the energy industry, as well as in segments of the broad manufacturing sector, would almost certainly drain out of Canada into the U.S. to take advantage of appreciably lower energy costs there – both for primary energy sources (crude oil, natural gas, and coal) as well as for fossil fuel inputs that are used in some parts of manufacturing (e.g., chemicals, plastics, fertilizers, etc.).  

With higher energy and fossil fuel input costs, Canada would lose ground vis-à-vis the U.S. from a competitiveness standpoint in most traded-goods industries, including energy, mining, materials, forest products, agri-food, vehicle manufacturing, metal fabrication, chemicals and petrochemicals, and cement, to name a few.  Transportation costs would also be higher in Canada because of escalating carbon-based taxes on petroleum – thus penalizing Canadian industries that need to ship their goods to market.   Moreover, Mr. Trump’s intention to slash business income taxes means that the competitive advantage enjoyed by the U.S. thanks to relatively cheap energy would be compounded by lower tax rates on American businesses. 

It is true that putting a price on carbon is the most efficient way to foster reductions in fossil fuel use, and therefore in carbon emissions.  And relatively small-scale carbon levies are unlikely to produce large economic effects, especially if the resulting revenues are recycled through other tax cuts and incentives. But marching to a $50 carbon price in Canada while the United States stands pat risks diminishing the economic viability of a number of industries that account for the bulk of our exports and play a vital role in sustaining regional economies across the country.  The message for Canadian policy-makers is clear: yes to carbon pricing, but tread carefully!

Published in Troy Media  and Times Colonist.