August 1, 2018 / 5:58 PM / 2 months ago

Canada to soften carbon tax as firms fret about U.S. competition

OTTAWA (Reuters) - Canada will soften the impact of a planned carbon tax on major emitters of greenhouse gases after businesses complained it would make them less competitive with the United States, officials said on Wednesday.

FILE PHOTO: Canada's Prime Minister Justin Trudeau looks on at the start of the Climate Action Special Executive Session at the Commonwealth Heads of Government Meeting (CHOGM) in Valletta, Malta, November 27, 2015. REUTERS/Darrin Zammit Lupi

The move underlines the challenges facing Canada as it tries to deal with Washington under U.S. President Donald Trump, who has slashed domestic corporate taxes and imposed tariffs on Canadian steel and aluminum.

The Liberal government of Prime Minister Justin Trudeau - which took power in 2015 vowing to tackle climate change - had initially proposed a levy on 30 percent of industries’ emissions in any of Canada’s 10 provinces that did not introduce their own carbon pricing systems.

FILE PHOTO: Catherine McKenna, Minister of Environment and Climate Change in Canada, answers a question during the Concordia Summit in Manhattan, New York, U.S., September 19, 2017. REUTERS/Jeenah Moon

Firms complained this would make them less competitive, given the United States has no such carbon tax.

The levy has now been cut to 20 percent for most sectors and 10 percent for vulnerable industries such as iron, steel and cement. The initial charge of C$20 a tonne will start in January 2020 and rise to C$50 by 2022.

“This really ensures our industries remain competitive but also that we are able to meet our emissions reductions targets,” said Caroline Theriault, a spokeswoman for Environment Minister Catherine McKenna.

The decision is significant because the new right-wing government in Ontario - the heartland of Canadian industry - intends to scrap an existing carbon pricing system. This will have the inadvertent effect of forcing heavy emitters in Ontario to pay the new carbon tax.

FILE PHOTO: A resident views the first iceberg of the season as it passes the South Shore, also known as "Iceberg Alley", near Ferryland Newfoundland, Canada April 16, 2017. REUTERS/Greg Locke

Dennis Darby, president of the Canadian Manufacturers and Exporters lobby group, said the government’s plan to trim the carbon levy was prudent.

“With the U.S. tax changes last year, the playing field has been very much tilted in favor of the United States when it comes to attracting manufacturing and capital,” he said in an interview.

Theriault, speaking by phone, said Ottawa would continue to consult industry before issuing a full set of draft proposals later this year.

The official opposition Conservative Party, level with the Liberals in opinion polls ahead of a 2019 election, vowed to scrap the carbon tax if it won power.

Official data shows Canada currently has no chance of meeting its 2030 emissions reductions targets.

Keith Stewart of Greenpeace decried what he called “a step back” and said Canada could not claim to be a leader on fighting climate change if it were not prepared to take significant steps to reduce greenhouse gas emissions.

Reporting by David Ljunggren in Ottawa; Editing by Matthew Lewis

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