Pricing on Carbon: Ottawa Prepares “Poilievre Insurance” in Budget

Federal Liberals want to make their price permanent on carbon in their Tuesday budget.

The Trudeau government wants to oblige future governments that would abolish or modify carbon pricing to compensate companies.

The Trudeau government wants to tie the hands of future governments that might be tempted to eliminate or reduce carbon pricing.

According to information obtained by Radio-Canada, the Liberals are about to unveil a mechanism internally dubbed the Poilievre Insurance that would force the federal government to compensate companies if the price on carbon were to be reduced or dropped.

The Trudeau government is working on establishing carbon contracts differences. Minister Chrystia Freeland will make the announcement in her budget on Tuesday.

With the help of these agreements, Ottawa would thus guarantee the trajectory of the price on carbon for a long period. It would commit to paying significant monetary compensation to companies that make investments to reduce their emissions, in the event that the price on carbon is lowered or eliminated.

This would put an end to political uncertainty about the future of carbon pricing. A long-term government guarantee could encourage more companies to invest in their decarbonization.

Pierre Poilievre campaigned within his party promising that he would get rid of the carbon tax if he became prime minister.

The Conservative leader's promise to eliminate carbon pricing if elected causes a lot of hesitation in the business community when it comes time to invest in reducing emissions.

The government wants to eliminate the political risk, for companies, explains a source who spoke on condition of anonymity.

The Trudeau government has announced that the tariff will reach $170 per ton of carbon in 2030, which should normally encourage investments in green technologies.

One ​​of the risks for companies , is that policies change, the increase is less than expected or carbon pricing is canceled completely. Why would a company invest to reduce its emissions, if the price on carbon is to be abandoned?

The idea is to ensure market predictability, according to Caroline Brouillette, interim director of the Climate Action Network.

Seeing the upcoming rise in the price of carbon, a company will want to perhaps invest in the electrification of its activities. However, if a future government were to withdraw this pricing, these investments would become less competitive, she explains.

These contracts for the carbon difference would also make it easier for companies to obtain financing from banks, by offering them government guarantees in the event of a loss linked to a change in carbon policy.

These contracts would, for the time being, target large-scale decarbonization projects, which require major investments. We can think of the oil or cement sectors, cites our source as an example.

A reflection is underway to establish a similar mechanism for smaller projects.

This measure also serves a political objective. It would allow Justin Trudeau to secure his political legacy around carbon pricing. It is also a way of annoying the Conservatives.

The Conservatives' promise to eliminate the price on carbon would then come at a significant cost.

If this mechanism is adopted, it would force the Conservatives to quantify in their next election platforms the cost of these compensations to companies, which could amount to several billions.

The idea, says Caroline Brouillette, is to depoliticize the issue of federal carbon pricing and make it an economic issue. If a future government were to withdraw it, then it would have to pay for this insurance policy.

However, the acting director of the Climate Action Network insists that carbon pricing is not the panacea, in the fight against climate change.

The Trudeau government has invested a lot of energy in its price on carbon, but it is only one tool in the box tools to deal with the climate crisis, believes Caroline Brouillette.

The Climate Action Network calls for government investments equivalent to 2% of GDP in climate action, which are really solutions and which are not subsidies to fossil fuels in the end, says Caroline Brouillette.

Could contracts for the carbon difference be considered as disguised subsidies to fossil fuels? The question arises, she believes.