Federal government rejects Saskatchewan's plan to replace federal carbon tax, and rolls out stricter rules for provinces

The federal government has rejected Saskatchewan’s plan to replace the federal carbon tax, while at the same time announcing stricter requirements for provinces looking to avoid the federal carbon pricing system starting in 2023.

Saskatchewan Premier Scott Moe says the rejection “can only be viewed as an arbitrary and political decision,” in a statement issued Monday.

Saskatchewan’s submission was “in close alignment with other provincial programs previously accepted,” noted Moe.

The premier was likely referring to New Brunswick’s carbon pricing system, which was approved by the federal government. New Brunswick’s government implemented a 6.6 cent-per-litre carbon levy on gasoline, but cut its gas tax by more than four cents at the same time.

Offsetting the carbon tax with reduced fuel taxes, as New Brunswick has done, will no longer be allowed according to new requirements for provincial carbon pricing published by the federal government on Monday.

Environment and Climate Change Canada says it is updating the benchmark that provinces have to meet if they want to avoid the federal carbon backstop for 2023 through 2030 in an effort to make sure the national minimum standards are “fair, consistent and effective.”

“One type of action that is to be avoided is the provision of instant rebates on fossil energy purchases, for example by reducing specific fuel taxes in order to offset increased carbon prices. This kind of rebate counteracts the incentive to reduce GHG emissions,” says a guidance document published by ECCC on July 12.

Any provincial system must cover the same proportion of emissions and must not weaken the price signal versus the federal backstop, according to ECCC. Protections against carbon leakage — the loss of business to competitors in other countries — must also be restricted to sectors at risk, says the department.

The new requirements for provinces coincide with the Liberals’ plan to raise the federal carbon tax by $15 per tonne of CO2 equivalent every year from 2023 through 2030.

According to Moe, the federal government indicated it will not be accepting any further submissions from provinces until 2023.

“While Saskatchewan will be fully evaluating the federal decision and exploring all avenues possible to protect our residents from the federally imposed carbon tax, we hope that the federal government does not take the same arbitrary and political approach to ongoing areas of federal-provincial negotiation, such as the federal child care funding, which Saskatchewan will continue to pursue,” says Moe.