To maintain competition with US, Canada scales back carbon tax

Canada has announced plans to reduce a carbon tax intended to curb emissions from major contributors to greenhouse gases following outcry from businesses that it would affect their competition with US firms.

Initially, a levy on 30% of businesses’ emissions was proposed by Prime Minister Justin Trudeau, who came into power in 2015 with promises of fighting climate change in the country. This tax would affect any firm across Canada’s ten provinces if the area had not already implemented its own carbon pricing system.

As such a tax does not exist in the US, Canadian companies complained that it would put them at a competitive disadvantage.

In response to objections, the government has scaled back the tax to 20% for the majority of sectors and 10% for industries under threat, such as iron, steel and cement.

The first charge of C$20 per tonne will take effect in January 2020 and will rise to C$50 by 2022.

Caroline Theriault, a spokesperson for the Environment Minister Catherine McKenna, told Reuters the updated levy “really ensures our industries remain competitive but also that we are able to meet our emissions reductions targets”, adding that talks were due to continue with industry members prior to proposals being drawn up later this year.

The planned repeal of an existing carbon pricing system in the province of Ontario means that heavy carbon emitters in the area will have to pay the new federal tax, something which is significant as it is a hub of Canadian industry.

Canadian Vehicle Manufacturers’ Association president Mark Nantais told Reuters that companies would likely move production to areas without emission limitations if the tax were too high, a practice known as ‘carbon leakage’.

He added that Canada is “a prime candidate for carbon leakage … you just pack up your business and go to someplace that doesn’t have a carbon tax and you continue to produce vehicles.”

The carbon tax reduction is the latest in a series of challenges faced by Canada as the country attempts to maintain business and avoid damages from measures introduced by President Trump, such as tariffs on Canadian steel and aluminium and a cut in domestic corporate taxes.