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Made-in-Manitoba carbon tax response

Published by CME Manitoba on March 09, 2017

By Ron Koslowsky, CME Manitoba Vice President

Carbon tax is a hot button issue these days. Prime Minister Justin Trudeau has given the provinces until 2018 to develop a carbon tax response as part of a pan-Canadian framework; either by instituting a cap-and-trade approach or setting a carbon price per tonne.

What is a carbon tax?
Usually defined as a tax on greenhouse gas emissions from fossil fuel sources, a carbon tax puts a price on gas. The intent is to send a price signal to drive market changes, reducing emissions over time.

A provincial response to a federal initiative
Premier Brian Pallister is ruling out a cap-and-trade system for Manitoba as the province enters the industry and consumer consultation phase of policy development. A made-in-Manitoba response, the province argues, must be recognized at the federal level as Manitoba has already invested significantly through hydro and other projects in green energy. Moreover, a large agricultural sector (an industry which has been exempted from carbon taxes elsewhere) also supports the business case for policy grounded in prairie reality.

Manufacturing industry perspective
On February 22, 2017 CME held a manufacturing-industry consultation session to discuss the impacts of a made-in-Manitoba carbon tax strategy on the sector. This meeting built on an earlier discussion CME had with the province; the outcome of which was to bring the subject to manufacturers directly. Key points included:

  • There is a strong connection between profitability and better environmental performance.
  • LEAN helps companies reduce waste in ways that are also beneficial for the environment.
  • It’s a complicated ecosystem: carbon tax is only part of the solution.
  • Pricing structure (graduated vs. immediate rollout) impacts behavior.
  • Exempting agriculture creates an unfair playing field.
  • Even with a carbon tax, there is little incentive to ‘go green’ given current and projected Hydro rates.
  • In a global environment, manufacturers can’t pass pricing impacts along to customers.
  • A carbon tax that puts manufacturers at a disadvantage in a global economy could drive manufacturers out of province to less regulated regions. Jurisdictions without carbon tax become more attractive as the carbon tax rises, resulting in ‘carbon leakage’. Emissions stay the same but the local economy suffers.
  • Pre-emptive investment (some form of pump priming) could assist the industry to invest in offsetting measures prior to the carbon tax rollout.
  • A border tax adjustment for exports would be helpful, but would be under federal mandate and not likely at this time.
  • Carbon tax must be revenue neutral. Money that comes out of the manufacturing community needs to go back through re-investment. Carbon tax cannot be an income redistribution plan.

Summary

A carbon tax burden may weigh more heavily on manufacturing than other industries. More so than other sectors, manufacturers operate in an increasingly competitive global environment, competing against jurisdictions with much less stringent regulatory requirements. While other industries may be able to pass a portion of the tax impact onto customers, it is very difficult for manufacturers to do so. As an example, fuel costs incurred by transportation companies will simply be passed on to manufacturing clients. Manufacturers absorb the brunt of the impact themselves. Coupled with exempted sectors, the carbon tax could have a multiplied and disproportionate impact on Manitoba manufacturers.

The federal government is firmly committed to carbon tax policy. One way or another, a carbon tax will be reality by 2018. It’s in our best interest to work together on a made-in-Manitoba solution that takes into consideration the unique pressures facing manufacturers. As such, consideration must be given to including agriculture in the equation. CME is eager to support our partners in government as they will need to carefully balance sustainability considerations for environment and industry alike.

Manufacturing, like nature, is very sensitive to the environment in which they find themselves.

Want more information? Be sure to register for Dare to Compete 2017 and sign up for David McLaughlin’s carbon-tax focused breakout session.

 

 

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