2023 brings a new-look NWT carbon tax. It may not be pretty.

The Northwest Territories is being forced by new federal regulations to change its carbon tax from April 2023. The impacts could be significant.

The territorial government has spent months trying to find ways to limit the damage, but any proposals that bend or break new federal rules must have Ottawa’s approval – which so far has not been granted.

The biggest change is a federal move to stop provinces and territories offering “carbon tax rebates that directly offset, reduce, or negate the impact of the carbon tax,” in the words of the GNWT two months ago.

In plain English, that means scrapping the NWT’s home heating rebate – a rebate that is a bedrock of the territory’s current approach to the carbon tax.

At the moment, 100 percent of carbon tax on home heating fuel is issued as a rebate at source for NWT customers. That means carbon tax is charged on your heating fuel, but every cent you would have paid is immediately given back to you without you having to do a thing.

The territorial government says the rebate prevents an extra tax on heating for northern homes, which already face Canada’s bleakest conditions and often have limited or no access to heat from renewable sources. But Ottawa has banned full rebates like this one from April onward.

The NWT is also being told to scrap its rebate for large emitters, which was designed to make the territory a more attractive place for mines while paying money into a fund that helps mining companies in the NWT reduce their emissions. (The territory has been told it can’t tie a rebate to emissions and so is now promising a rebate for mines tied to “a pre-determined, facility-specific fixed baseline.” The detail of that plan is not yet clear.)

The overall consequences could be far-reaching, and the GNWT is scrambling to find solutions that limit the extra costs for residents.

But doing that fairly – without being able to issue a rebate that exactly matches everyone’s costs – is proving difficult. Meanwhile, the territorial government itself and many community governments can expect higher tax bills as a result of the coming changes.

“I’m not sure that the public get just how big a change this new act is,” said Yellowknife North MLA Rylund Johnson, who will chair a public hearing on January 16 scrutinizing proposed NWT legislation to meet Ottawa’s demands.

“With the existing home heating subsidy to date, people have not felt the carbon tax as directly on their heating bills. Now, come April 1, there’s going to be a 17-cent increase on everyone’s heating oil. At four cents every year after that, it’s a massive increase that I can’t see anyone being happy about.

“So the first step is for everyone to fully understand this isn’t just the same old carbon tax we’ve been living with – and the public hearing is key to that.”

What will replace the rebate?

The territorial government maintains its commitment, in broad terms, to reducing emissions and tackling the climate crisis. The GNWT acknowledged the coming tax change in an October 31 news release that sought to project a business-as-usual air.

In that news release, the territory said it would combat the loss of the heating fuel rebate by increasing the annual cost-of-living offset (or Colo) payment made to each NWT resident. From April 2023 onward, the news release stated, each adult resident will receive $473 in Colo payments annually, an increase of $135. Your heating fuel bills will go up – significantly in some instances – but you’ll get a bigger direct payment from the GNWT each year to help.

However, there is a problem. Heating fuel does not cost the same amount for every resident. There are huge variations depending on the kinds of fuel available, the cost of offering that fuel, and the climate where you live. Heating costs are nowhere near the same, for example, between the Beaufort Delta and the South Slave.

Behind the scenes, the territorial government is trying to come up with a better system.

Finance minister Caroline Wawzonek, whose department oversees development of the territory’s carbon tax, said both the region you live in and the size of your household could mean you lose out from April 1.

“The downside is that there are some communities – not the majority, but some – where the impacts will be significantly more than the rebate that they are now receiving,” Wawzonek said at a November briefing with MLAs.

“And there will be some households that are much larger where they, too – depending on their heat usage or depending on their rebates – may find that they are not necessarily getting a rebate that matches the costs that they’re seeing.”

Lesa Semmler, the Inuvik Twin Lakes MLA, was appalled.

“Some of those communities in the Beaufort Delta are twice as high as what you’ll be giving out,” Semmler said at the same meeting, referring to the increased Colo payments versus the cost of heating fuel in Arctic coastal communities.

“Not only will somebody be paying twice as high, but then you’re going to be giving the rebate to everybody else around them,” Semmler added. (While every adult resident receives a Colo payment, not every adult resident pays a heating bill.)

“You’re pricing us northerners out from living here. We can’t afford to live here any more,” the MLA said.

“You’re sitting here saying to the public that Northwest Territories people are just going to have to eat the cost and live here anyway.”

Johnson told Cabin Radio that ending the full rebate on heating fuel was “a bad idea.”

“There’s no viable alternative in most communities,” he said. “It’s just taxing heat, which is an absolute necessity.”

GNWT appeals to Ottawa in writing

So why is the federal government ordering the territory to do this, and why hasn’t the territory found a way around it?

Before Christmas, Cabin Radio was told no federal representative was available to discuss the planned changes.

Wawzonek told MLAs in November that she could not argue with most of their concerns. The minister said she had written to the federal government urging some form of leniency.

“We are the pittance of the emitters and yet we are already facing such a high burden, with such a limited opportunity to change,” Wawzonek said. “What kind of incentive are we creating? We’re just creating an increase to costs.”

Wawzonek said her department was working on a form of region-based Colo payment that might provide more assistance to residents with higher heating bills, but needed to hear back from the federal government about whether that would be allowed.

She said earlier requests to keep the heating fuel exemption had been given “a hard no,” despite the Atlantic provinces making the same ask.

Wawzonek said the larger shift brought on by the Russia-Ukraine war and the pandemic, creating an economy in which inflation is making the cost of living hard to bear, might be the territory’s best hope of convincing the Liberal government that something has to change.

“There does seem to be a bit of a change in terms of the economic dynamics. I do think that the costs of living, generally, are something that people are hearing differently now,” she said.

“I’m hopeful that we will see a bit more movement. There hadn’t been a lot of love for the position before now.”

Asked for the latest on negotiations with Ottawa earlier this month, a spokesperson for the territorial government said there were “no specific updates to provide.”

Federal backstop could come into play

What happens if we reach April and nothing has changed? What if the federal government insists on the heating fuel rebate ending and the GNWT can’t devise a fair replacement?

One possibility is that the NWT’s 10 regular MLAs vote to reject the legislation that would enact the changes, setting up what is effectively a carbon constitutional crisis.

Frame Lake MLA Kevin O’Reilly has already said he will oppose the bill as things stand.

If the territory cannot produce a carbon tax of its own that satisfies the federal requirements, the NWT would default to a federally controlled carbon tax known as a “backstop.”

While the current and previous NWT governments each stated a “made-in-the-North” carbon tax was better than the federal government’s version, there are plenty of other jurisdictions operating under a federal carbon tax rather than one of their own.

“We are the only one left of the territories and small jurisdictions to have our own carbon tax,” said Johnson. “Everyone else is on the federal backstop.”

MLAs, he said, must decide “whether to pass this bill or just let it fail and go to the backstop, like Nunavut, Yukon and the Atlantic provinces.”

The problem, Johnson said, will be that few people – MLAs included – understand the full consequences of abandoning the NWT-made version of the carbon tax and moving to a federally administered version.

“That’s the answer we need from both the federal and GNWT ministers,” he said.

“I am tempted to say we should scrap the entire GNWT proposal, get the feds to put us on the backstop and share the revenue, similar to a Yukon model. It’s the feds’ scheme so, politically, it’s tempting to just force them to implement it.”

Wawzonek, asked in November what the federal backstop might look like in that circumstance, said she did not know.

Conservatives say Ottawa ‘isn’t listening’

In the meantime, several senior administrators of municipal governments told Cabin Radio in the past month they have no idea how the proposed changes will affect them.

While Johnson said he expects municipalities to face a significant extra heating bill, municipal leaders themselves said they had had no time to delve into the issue and understand what was coming.

In budget briefing documents prepared in November, the City of Yellowknife told councillors it expected the proposed changes to cost the city an extra $81,000 in 2023. “Administration is working to confirm these impacts,” a briefing note stated.

At the territorial government, staff said departments could expect to face significant additional costs from April onward.

“It’s hard for people to swallow this one when we start talking about the number of greenhouse gas emissions that the NWT is actually responsible for in the long run,” said Kam Lake MLA Caitlin Cleveland at November’s briefing.

“It ends up feeling like being very out of touch with the reality of life in the North on the part of the federal government.”

Ottawa’s only messaging to date has been nationwide in scope, calling the Canada-wide changes a “strengthened price on pollution.”

Bob Zimmer, the Conservative northern affairs critic, told Cabin Radio the Liberal government should “at the very least leave it up to the government in the Northwest Territories to decide what they want to do.”

“The federal government just simply isn’t listening to northerners,” said Zimmer, “and is unwilling to adjust.”

Caitrin Pilkington contributed reporting.