Canada: Donald Trump, Paris and the Climate Policy Two­-Step

By Kai Alderson, Vancouver, Fasken Martineau DuMoulin

Trump and the Changing Political Landscape in the U.S.

President Donald Trump has announced that the U.S. will withdraw from the Paris Agreement. While this decision is hardly a surprise, given it was part of the President’s campaign platform, the final decision may induce an acute sense of carbon policy déjà vu among Canadian observers.

Canada’s climate policy is experiencing the latest iteration of a familiar pattern: the climate policy two­step. First, Canada agrees to ambitious targets in lockstep with our U.S. neighbours; then, Canada watches as our U.S. neighbour alters, delays or backpedals on its climate policy, forcing Canada’s leaders to choose between exposing Canadian firms to unbalanced competition from the south or reneging on Canada’s own global commitments.

In the past, Canadian federal governments, both Liberal and Conservative, have responded to the climate policy two­-step by trimming Canada’s ambitions to match the shifting winds out of Washington. As the Trump administration withdraws from the Paris Agreement, is Canada destined to return to this path?

Not necessarily. There are good reasons to expect that this time, it may be different:

• Canadians support action on climate change. According to polls taken in early 2017, nearly two thirds of Canadians support the Government of Canada’s plan to institute new climate regulations, including a national price on carbon, regardless of a new direction from the Trump administration.
• Cleaner energy costs are coming down. Recent technological innovations, promoted in part by past government interventions, are substantially reducing the cost of carbon reduction and clean energy alternatives. Markets, businesses and consumers are now positioned to drive a larger share of the de-­carbonization of the Canadian economy, at a lower cost to Canadian businesses and taxpayers.
• Canadian progress set by Provinces. It is Canada’s provinces that have acted as climate policy pacesetters, less so the federal government. Today, the provinces of B.C., Alberta, Ontario and Quebec, together representing 87% of Canada’s GDP and 86% of Canada’s population, have announced or enacted world-­leading carbon pricing schemes based on a carbon tax or cap­-and-­trade. B.C. seems likely to move even faster, now that the B.C. Green Party holds the balance of power in the B.C. legislature and has made increasing the carbon tax a key priority.
• States and industry will take up the baton. Similarly in the U.S. the States have been more consistent with their carbon initiatives, less so the U.S. federal government. As the U.S. withdraws from the Paris Agreement, existing state­level initiatives, such as the Regional Greenhouse Gas Initiative and California’s cap­-and-­trade system will continue. State­level initiatives offer market opportunities for Canada’s businesses and clean tech entrepreneurs and continued opportunities for cross-­border policy coordination and cooperation at the sub-­national level, including linkages between cap­-and­-trade programs in California, Quebec and Ontario.
  Given the size of California’s carbon markets, these cross-­border linkages may become a policy driver in Canada, with Ontario and Quebec needing to adopt higher standards to participate in the California system if recently tabled amendments to California’s cap-­and-­trade legislation are passed into law and implemented. Industry too has expressed broad­-based support for global efforts to fight climate change and U.S. companies are likely to continue their own carbon reduction efforts despite the abdication of U.S. federal leadership in the area.

Given the U.S. withdrawal, some adjustments may be needed to the federal government’s proposed national carbon pricing scheme (or provincial carbon schemes) to protect energy-­intensive, trade exposed sectors of the Canadian economy. But unlike past iterations of Canada’s climate policy two­-step, the U.S. withdrawal from the Paris Agreement is unlikely to fundamentally alter Canada’s course.

© 2017 Fasken Martineau DuMoulin LLP