Canada's energy minister defends carbon tax carve-out for heating oil

By Steve Scherer

OTTAWA (Reuters) - Canadian Prime Minister Justin Trudeau's decision to grant a three-year carbon tax exemption for heating oil is meant to provide targeted relief to rural and low-income households, the country's energy minister told Reuters, while defending the overall need for carbon pricing to meet climate goals.

But critics have argued that Trudeau's surprise move last month will dilute the government's signature climate policy since 2019, which survived a challenge by right-leaning provincial premiers in Canada's Supreme Court.

The reversal has been a political boost for Conservative Party leader Pierre Poilievre, who has opened a wide lead against the Liberal prime minister in opinion polls, though an election is not due until 2025. Poilievre, who has yet to outline his own climate policy, has vowed to "axe" the carbon tax if elected.

"Heating oil is two- to four-times more expensive than natural gas. It went up by 75% in 2022," Energy and Natural Resources Minister Jonathan Wilkinson said in a recent interview. "If you look at the people who typically are using heating oil, it is people who generally are less well off."

According to official data, only about 3% of Canadians use heating oil, with most of them concentrated on the Atlantic Coast, where Liberals have a strong contingent of parliamentarians.

Trudeau's political legacy is tied to the success of the carbon tax and he has ruled out any further exemptions, despite calls by the provincial premiers to extend the exemption to natural gas, which would allow the whole country to benefit.

But advocates say the carbon pricing scheme has been undermined by the move.

"Framing this as an affordability issue is playing into the misperceptions of carbon pricing," said Dale Beugin, executive vice president of the Canadian Climate Institute.

'MAJOR CAPITAL INVESTMENTS'

Canadians who pay the federal carbon tax receive quarterly rebates, irrespective of how much they reduced emissions, and 70%-80% of people received more money through rebates than they paid out in carbon taxes, he said.

"It creates a sliver of expectation that the policy will change again, and if you make a big enough noise, the government will recant," Beugin said.

Wilkinson said carbon pricing is "an effective way to address climate change" and a significant chunk of the emissions reductions associated with the government's climate plan are associated with the price on pollution.

Around 50 countries have some form of carbon pricing, double the number 10 years ago, yet they are politically controversial.

In Canada, the carbon tax has two levels: one for consumers when they pay for fuel and another for industrial emitters based on their output. Industry makes up some 40% of Canada's emissions, said Michael Bernstein, executive director of Clean Prosperity, a climate policy advocacy group.

Trudeau has signed on to the Paris climate accords and is targeting net-zero emissions by 2050. When contacted for this story, Poilievre's office did not say whether the Conservative leader was in favor of scrapping industrial carbon pricing nor whether he had a net-zero target.

"Trudeau is desperate to distract from the failure of his carbon tax chaos and is now unfairly punishing families who don't live in Liberal-held ridings," said Sebastian Skamski, a spokesperson for Poilievre.

"Common-sense Conservatives will focus on technology, not taxes."

Wilkinson said Poilievre's lack of a climate plan is hurting Canada as companies planning billions of dollars of clean tech investments need policy certainty.

There are "a number of companies that are reflecting on major capital investments in the absence of having some certainty in a number of different areas. Carbon pricing is one," the minister said.

(Reporting by Steve Scherer; additional reporting by Nia Williams; Editing by Paul Simao)