Don’t go back on carbon pricing; pendulum policies push away investment

Donald Trump is not much of a believer in human involvement in climate change—neither in its cause (or even just its acceleration), nor in slowing it down. But what he does in his own country clearly has global ramifications. His rejection of environmental policies such as carbon pricing have many on this side of the border now worrying about whether Canada, with both its existing and soon-to-be-implemented carbon pricing regimes, can be competitive. This is not an unfounded concern. An added cost, taken on its own and without other factors can, initially, reduce an individual enterprise’s competitiveness. And at a country level, taken alone without other mitigating factors, it could reduce Canada’s competitiveness in terms of attracting investment. But the actual cost increases involved are, relatively-speaking, not that large; more importantly, most will (we hope) be offset by reductions in other taxes so as to encourage reduction of carbon use while remaining tax-competitive. Some of the innovations we’re already seeing that are aimed at reducing carbon footprint are also reducing other input costs. Carbon pricing may ultimately make enterprises engaged in those innovations more competitive, rather than less. And for Canada as a whole, our attractiveness for investment, both foreign and domestic, is based on far more. We are by no means a “low cost” destination for most investment—nor do we want to be. Much of what makes us attractive for investment includes things like publicly-funded health care, public safety and security, a stable political environment, vibrant liveable cities, high levels of education and excellent educational offerings, and overall quality of life for employees. Canada, on so many levels, is a great place to live and to do business. Carbon pricing is not the problem. We are, however, struggling in our efforts to be attractive to investment on other fronts. We have developed a reputation for not being able to get needed infrastructure built—and even when we do, it’s very slow and expensive. We continue to struggle with inter-provincial cooperation—or more precisely, the lack of it. Canada is a small enough market as it is; inter-provincial trade and other barriers don’t help. Recent announcements in this regard are encouraging, but we’ve seen these types of announcements before, but with little result—we hope this time will be different. We have a regulatory system that is more complex and time-consuming than it needs to be. To make matters worse, it is sometimes undermined or overwhelmed by special interests on the one hand, and sometimes overruled by politicians with political motives on the other. Too often, we seem incapable of true partnership with indigenous communities, hindering their chances for real economic engagement on terms that work for them. To add to all of that, we continue to lack clear criteria for foreign investment, and have been sending mixed messages to the global investment community about what types of foreign investment we’ll accept, or from whom. All of these problems add up to a fundamental concern for investors—more than almost anything else, foreign investors, indeed, any investors, need certainty. Some politicians are latching on to—promoting, in fact, for political purposes—this idea that, alone, carbon pricing is rendering Canada less competitive and less attractive for investment, and are calling for reversal. This is short-sighted and only adds to the lack of investment certainty that we are already struggling with. Under the guise of wanting to make Canada more competitive, reversing our carbon pricing policies would have exactly the opposite effect. Many of the states in the U.S. are not giving up their own efforts to reduce greenhouse gas emissions because of the changes in the White House. And Donald Trump will not be in office forever. But most importantly, Canada needs to stay this course, not only for the environment, but for practical economic reasons. We want and need investment, and policy-making that swings like a pendulum scares it off. Martha Hall Findlay is the president and CEO at the Canada West Foundation.