• Canada’s climate change policies have always proved controversial. Part of the electorate defends the need to lower Canada’s carbon dioxide (CO2) emissions, while others believe that the country’s economy relies on oil production.

• The Conservative Party leader, Erin O’Toole, has unveiled an alternative carbon pricing plan that would replace the federal carbon tax brought in by the Liberal Party government in 2019.

• Under the Conservative plan, the consumer carbon price would top out at C$50 (US$40)/tonne, compared with C$170/tonne planned by the Liberals.

• The middle-of-the-road approach risks alienating those Conservatives opposed to any form of carbon pricing while failing to win over swing voters seeking greater action on climate change.

The existing federal carbon tax for consumers will rise from C$40/tonne currently to C$50/per tonne in 2022, and the Liberal minority government intends to lift it by C$15/tonne each year from 2023, until it reaches C$170/tonne in 2030. To help to offset the cost, most households receive a fixed rebate, although the amount varies between provinces. The more individuals reduce their fuel consumption, the bigger the gap between what they pay in additional charges and the reimbursement received. This acts as a further incentive to change behaviour.

Facing the new reality

The Conservatives have long opposed the tax, which, they argue, damages jobs (especially in the large energy sector) and the country’s competitiveness, unfairly penalises farmers and those living in rural areas, and could be used as a future tax grab by the federal government. However, in recognition that the national debate on addressing climate change has moved on since the 2019 federal election, Mr O’Toole’s new climate strategy goes much further than that on which his predecessor, Andrew Scheer, campaigned, and includes a carbon pricing mechanism. Crucially, the package would enable Canada to meet its existing 2030 emissions reduction commitments, according to independent analysis.

Under the proposed carbon plan, which Mr O’Toole insists is not a tax—although it essentially amounts to the same thing—the consumer carbon price would be set initially at C$20/tonne and rise to a maximum of C$50/tonne. Instead of a rebate, credits for the payment of the carbon charge would accrue in personalised “carbon savings accounts”, which individuals would put towards purchasing green items, for example a bicycle or an electric vehicle. The Conservative plan retains the existing carbon pricing system that applies to large industrial emitters. In other respects, Mr O’Toole’s climate change strategy goes further than the Liberal government’s existing plans, in part to compensate for the lower carbon price. It contains more ambitious clean fuel regulations and building retrofit plans, and mandates that zero-emission cars make up at least 30% of light-duty vehicle sales by 2030.

Mixed reactions

Justin Trudeau, the prime minister, argues that the consumer carbon pricing mechanism proposed by the Conservatives will provide a less powerful incentive to curb fuel consumption than the federal carbon tax. Mr Trudeau claims that under Mr O’Toole’s plan, “the more you burn, the more you earn”. Critics also argue that by topping out at C$50/tonne, the carbon levy would be too low to have a meaningful impact on emissions reduction. The carbon savings account approach could also be tricky to implement.

The climate change proposals are the most ambitious and credible that the Conservatives have yet put forward. However, the goal posts are likely to move again in the coming days, when the Liberal government is expected to announce deeper emissions reduction targets following an online climate summit with the US president, Joe Biden. Meeting these goals will require even tougher policies. Moreover, there is a risk that Mr O’Toole’s attempt to secure the middle ground on the issue will end up pleasing no one. Conservative Party members and supporters staunchly opposed to any form of carbon tax, notably those from the oil- and gas-producing provinces of Alberta and Saskatchewan, will be unhappy with the carbon pricing component. And although the new plan signals that the party is serious about tackling climate change, it may not be enough to win over the swing voters in other provinces that Mr O’Toole needs to form the next government.

We monitor the world to help you prepare for what’s ahead. Find out more about EIU Viewpoint, all the political, economic and market insights you need to succeed.