It was a revealing moment during the English-language leaders’ debate when Stéphane Dion was asked how he intended to implement his Green Shift plan despite opposition to it from several premiers, including some Liberal ones. His response was that prime ministers are elected by Canadian voters, not by the premiers. What Dion was saying was that he was prepared to ignore the reality that the provinces also have jurisdiction over environmental issues and their cooperation would be essential in implementing his plan. Prior to the debates Dion and the Liberals also chose to ignore the warnings of academics that his Green Shift plan had profound regional implications and would hit western Canada especially hard. I, for one, wrote two articles trying to warn them that if they did not change the structure of their carbon tax to address its unfairness to western Canada, they risked rekindling the western alienation and regional discontent that followed the National Energy Program, implemented by the Liberal government of Pierre Elliott Trudeau in the 1980s.

Pre-election warnings were obviously ignored by the Liberals. What they could not ignore was the verdict of western Canadian voters that was delivered in the election. From Manitoba to British Columbia, western Canadian voters rejected the Liberal Party in record numbers. As the Liberals embark on their rebuilding process it is important for them to understand how weak they are in the region and why so many western Canadians distrust their party.

From Manitoba to British Columbia, western Canadian voters rejected the Liberal Party in record numbers.

What is most striking about the Liberals’ Green Shift plan is that it cites other studies that support a national carbon tax, at the same time as it ignores the fact that those same studies emphasize the need to address regional inequities in designing a federal carbon tax.

Like other plans supporting a carbon tax, the Liberal Green Shift plan proposes to shift taxes from income to carbon as a way to put a price on carbon and reduce greenhouse gas emissions. But the Green Shift is more than just an environmental plan and a change to the Canadian tax system. It also proposes to redistribute income among groups and regions and it affects the fiscal power balance between the federal and provincial governments. As is the case with other tax shift plans, the Liberal Green Shift states that some of the money collected from the carbon tax would be returned to Canadian taxpayers and corporations through personal and corporate tax cuts. However, the Green Shift is also part of the Liberal 30/50 plan, which seeks to reduce poverty in Canada by 30 percent and cut child poverty in half within five years. To achieve this policy goal more than 20 percent of the revenue collected from taxing carbon would be used for social programming: tax benefits targeted specifically to low- income Canadians and families with children. Also, in the whole document there was no mention of the provinces or of the regional implications of the Green Shift, even though the academics who originally proposed the idea of shifting taxes from income to carbon specifically mentioned the regional inequities that would have to be addressed by any national carbon tax.

The idea of shifting taxes from income to carbon was proposed by Jack Mintz and Nancy Olewiler in “A Simple Approach for Bettering the Environment and the Economy: Restructuring the Federal Fuel Excise Tax” (www.sustainableprosperity.ca). They argued that a carbon tax would make those polluting the environment pay for the damage being done, and reducing income taxes would promote savings, investment and risk-taking.

However, Mintz and Olewiler warned of the potential federalprovincial and regional problems with imposing a federal carbon tax. They noted that both the federal and provincial governments have jurisdiction to legislate with respect to the environment and to levy carbon taxes. Hence, they urged the federal government to work with the provinces in coordinating and harmonizing environmental levies.

Mintz and Olewiler also stated that a “critical issue” is the fact that a carbon tax “will be borne much more heavily by some jurisdictions than others… [and] could have significant regional effects depending on how the revenue is used to reduce other taxes.” In other words, without any offsetting measures, a carbon tax would hit some regions harder than others. They recommend that to offset the regional unfairness of a carbon tax for energyproducing provinces, some of the carbon tax revenue should be used to fund tax credits for environmental technologies, such as carbon storage and recapture technologies. What is key in the Mintz-Olewiler proposal is their recommendation that a significant part of the revenue collected from a carbon tax be used to address regional inequities that are an inevitable part of imposing such a tax.

Other academics joined Mintz and Olewiler in recommending ways to address the regional unfairness of a national carbon tax. In Hot Air, an excellent study of environmental policy, Jeffrey Simpson, Mark Jaccard and Nic Rivers suggested that the federal government could levy a national carbon tax and transfer the money to a fund that would be redistributed to each province according to its carbon tax contribution. This would mean that the federal government could put a uniform price on carbon across Canada without unfairly penalizing energy-producing provinces. To take this proposal one step further, the federal government could specify that the money be used to develop new technologies to lessen greenhouse gases or to mitigate the effects of the tax on low-income earners or those living in remote communities.

Another interesting proposal that would address regional problems in imposing a national carbon tax was advanced in the Globe and Mail by Professors Thomas Courchene and John Allan from the Institute of Intergovernmental Relations at Queen’s University. They ask a critical question: Who should be assigned the carbon footprint for producing oil? They argue that instead of the environmental costs of producing oil being assigned to the jurisdictions responsible for the production, those costs should be passed on to the consumers. That is, as the oil travels from the wells to the final user, at each stage consumers should pay their share of the environmental costs in proportion to their use of the oil. If this approach were adopted, then, producing provinces would not bear the disproportionate burden associated with production of a commodity widely used and greatly in demand by consumers. Courchene and Allan ended their article with an ominous warning about implementing a carbon tax without addressing regional fairness: “If our policy-makers are not careful, they may lead us into the carbon equivalent of the national energy policy.”

While the Liberals often cited Courchene and Mintz as supporters of a carbon tax, they ignored their advice about addressing its regional implications. Courchene and Allan advocated imposing a carbon tax at the consumer level; the Liberal Green Shift imposes the tax at the wholesale level. Rather than accepting the advice of Mintz and Olewiler to use a significant portion of the revenue collected from a carbon tax to address regional inequities, the Liberals chose to use $3.7 billion of the $15.4 billion to be collected from the carbon tax to alleviate poverty and support families with children.

In June 2008, in an op-ed in The Globe and Mail, I tried to warn the Liberals of the political consequences of failing to address the regional unfairness of a national carbon tax. My appeal was not for the Liberals to drop the idea of a carbon tax but for them to modify the structure of the tax to address regional problems.

A carbon tax that has no mechanism to address regional inequities poses a major problem for three of the four western provinces.

A carbon tax that has no mechanism to address regional inequities poses a major problem for three of the four western provinces. Alberta and Saskatchewan are major energy producers and both rely on coal for some of their power; hence, they are major emitters of greenhouse gases and they would be hit very hard by a carbon tax. At the same time, they have relatively small populations and would not be major beneficiaries of the offsetting income tax cuts or money used for social programs. The carbon tax would have the effect of transferring revenue from Alberta and Saskatchewan to be used in other regions. Especially troubling to residents of these two provinces is the fact that out of 42 federal seats in Alberta and Saskatchewan, the Liberals now hold only one. The combination of a plan that redistributes money out of western Canada being proposed by the Liberal Party, which has virtually nothing to lose in the region, rekindles memories of the National Energy Program.

The Green Shift also posed a serious problem for British Columbians who are already struggling to cope with their new provincial carbon tax. Since its implementation, opposition to the BC tax has increased as residents of northern and more remote communities complain about the unfairness of taxing fuel when there is no choice but to drive in such communities, and concerns have been raised about the disadvantage faced by BC companies whose competitors do not pay a carbon tax.

The British Columbia example also shows the problem of proposing a carbon tax at the federal level without working with the provinces. If the federal government was to impose a carbon tax, either British Columbians would be forced to pay both a federal and a provincial carbon tax, which would put unsustainable competitive pressure on British Columbia companies and anger its citizens, or the federal government would have to recognize that provinces that already have carbon taxes would be exempt from paying the federal tax. Yet if British Columbia can impose a provincial carbon tax, what is to prevent every other province from doing the same? But if all or most provinces have a carbon tax with the revenue remaining within the province, the federal government would be deprived of the money that it needs to pay for income and other tax cuts.

The Liberals ran third, behind the NDP, in every western province.

Pre-election appeals to the Liberals to modify their carbon tax proposal to address western concerns were ignored. The election results speak for themselves. Of the 92 seats in western Canada the Conservatives won 72, the NDP 13 and the Liberals 7 (of the 7 won by the Liberals, 2 were won by margins of less than 100 votes). The Liberals ran third, behind the NDP, in every western province.

The solid phalanx of Conservatives from Alberta was broken not by the Liberals but by the NDP which won a seat in Edmonton. Especially interesting are the data on which party placed second in western Canadian ridings. The New Democrats came second in 46 ridings and the Liberals came second in only 24 ridings. For instance, in inner-city Winnipeg the NDP won three seats, but it was the Conservatives, not the Liberals who placed second in all three seats. Similarly in rural Saskatchewan, all the seats were won by the Conservatives but in all of the seats it was the NDP not the Liberals that placed second. An interesting number for Liberals in western Canada is 24: it is the number of seats in which they came second but it is also the number of seats in which they placed fourth behind the Greens and independents.

In terms of seats, popular vote and their standing relative to the NDP the Liberals lost ground in western Canada. But even before the election the Liberals were weak in the region, a fact that is reflected in their standing (or lack thereof) in provincial legislatures. In British Columbia there is no Liberal party that is affiliated with the federal Liberals. Gordon Campbell’s Liberal Party is a separate entity that is composed of former Liberal and Social Credit supporters. In Alberta, the Liberals are the official opposition but hold only 9 of 83 seats, and they lost ground to the Conservatives in the recent Alberta election. In Manitoba, where there is an NDP government, the Conservatives are the official opposition and the Liberals have only two seats. In Saskatchewan, where there was an election recently, the Liberals got less than 10 percent of the vote and elected no members.

Western Canadians are very aware of the fact that their economic strength is not reflected in their power to determine federal elections.

Some of the reasons for the weakness of the Liberal Party in western Canada are reflected in the Green Shift. Western Canadians are very aware of the fact that their economic strength is not reflected in their power to determine federal elections. The region has less than one-third of the seats in the House of Commons and westerners know all too well that elections can be won in Ontario and Quebec. Hence, they are very sensitive to a party that is seen to be an eastern-based party that ignores western interests or is prepared to sacrifice western interests for the sake of winning votes elsewhere. This sensitivity explains why western Canadians across the region reacted negatively to the Green Shift, whether or not it affected them directly.

The case of Manitoba is interesting. Unlike the three other western provinces Manitoba would not have seen adverse effects from the Liberals’ Green Shift plan; indeed, as a province whose main source of power is hydroelectricity it might have been a significant beneficiary of the plan. Yet two of the three Manitoba Liberal incumbent MPs were defeated in the October 14 election (with one seat going to the Conservatives and the other to the NDP). The Manitoba result reminded me of a conversation with a prominent Manitoba New Democrat when Paul Martin, as Liberal prime minister, was duelling publicly with Ralph Klein, who was Conservative premier of Alberta. I asked the prominent Manitoban what would happen if the duel broke out into an all-out war between Martin and Klein. He cautioned that many Manitobans did not like Klein or his ideology, but when push came to shove, he said, they would side with Alberta because when it came to understanding western Canada and protecting its interests, Manitobans did not trust the Liberals.

As the Liberals assess the last election and look to the future, they should understand that the Green Shift plan reinforced many westerners’ view that the Liberal Party is an easternbased entity that does not understand western Canada and can not be trusted to protect its interests. If the Liberals want to gain more support from the many centre-left voters in three of the four western provinces, they must first adopt policies that show they understand and care about the region.

An important first step for the Liberals will be to clarify their position on a federal carbon tax. In the unlikely event that they want to continue to advocate a carbon tax, they have to be precise and generous in using some of the money collected from such a tax to address regional inequities. If the Liberals do not plan to continue to support the idea of a carbon tax, then they have to state that position clearly and unequivocally. Any equivocation will allow the Conservatives in the next election to rally western support to their party with the argument that the Liberals have a “hidden agenda” to impose a carbon tax. The spectre of a carbon tax imposed by a party already distrusted by many in western Canada would allow the Conservatives to repeat their performance in this election. In this election, the Conservatives swept the region, which means that many left-of-centre voters supported the party despite many of its policies, because they were trusted to protect western Canada and its interests. Restoring trust is an essential first step in any future Liberal comeback in the region.

Finally, the Liberals might also want to ask themselves an important question: Can the Liberal Party call itself a national party when it has only 7 of 92 seats in Canada’s most prosperous and rapidly growing regions?

Janice MacKinnon
Janice MacKinnon is a professor of fiscal policy at the University of Saskatchewan and a former Saskatchewan finance minister. She was formerly the chair of the Board of the IRPP from 2006-2012.

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