NWT’s revised carbon tax ‘still better than any alternative’

The NWT’s finance minister says a revised carbon tax her government is trying to adopt would still be better than the federal backstop or any other permitted approach.

Caroline Wawzonek told Cabin Radio the average household is “not going to see a significant change in terms of the cost impacts” when new federal rules kick in on April 1.

“We’ve actually found a way to adapt under the new system that will still see residents not paying higher costs,” Wawzonek said on Wednesday.

Ottawa has shifted the rules from April onward: provinces and territories can no longer fully rebate the carbon tax on home heating fuel, an approach the NWT had used to shield residents from some added costs.

Forced to give up issuing full rebates at the point of sale, the territorial government is instead trying to provide increased cost-of-living offset payments – or Colo payments – to residents each year to make up most of the difference.

Critics, including some regular MLAs, say the Colo payments are not a good enough tool. For example, some MLAs dislike that Colo payments will go to all residents even though only some pay for heating fuel. MLAs also cannot agree on whether the payments should change depending on where you live, for instance by awarding higher payments to people in Arctic coastal communities who have more expensive heating bills.

Several regular MLAs say they plan to vote against a bill that would introduce the new-look NWT carbon tax in time to meet federal deadlines. If that happens, the territory would default to the federal backstop carbon tax. The details of the backstop are not clear, but the GNWT expects it to involve an identical rebate – a “climate action incentive payment” – from the federal government to all NWT residents.

Wawzonek insists the approach her department has devised is better than switching to the backstop, and better-suited to the territory than approaches taken by the Yukon and Nunavut.

The Yukon has the federal backstop for carbon pricing and a deal whereby Ottawa gives revenue from the tax to the Yukon Government, which then allocates rebates to residents, businesses, communities, the mining industry and other groups according to a schedule set out in legislation.

Nunavut also has the federal backstop for carbon pricing and receives the revenue from the federal government, which it uses to essentially halve the impact of the carbon tax on residents, though the territory has committed to gradually phasing out that subsidy by 2028. (By contrast, some southern provinces that oppose the carbon tax never see any of the revenue at government level – the federal government administers the tax and sends rebates back to residents directly, a system that Wawzonek thinks the NWT might get if the backstop becomes necessary.)

Get back what you pay in?

Frame Lake MLA Kevin O’Reilly is a vocal critic of the territorial government’s approach to the carbon tax.

In a Facebook post this week, O’Reilly said the GNWT’s proposed carbon tax was “unfair” as it meant ministers “retain all the power and can decide what’s in the regulations and the budget.” O’Reilly said a system like the Yukon’s carbon tax was more in keeping with the kind of tax regime he wanted to see.

Meanwhile, Wawzonek is facing pressure from the NWT Chamber of Commerce to “provide leadership and protection from the senseless and ideologically driven policy decision from the federal government,” as the chamber put it in a submission to MLAs last week. Community governments are also concerned that they face higher costs without the prospect of cost-of-living offset payments.

But the minister says the NWT’s proposed changes will still leave most residents as well-off as they were previously, even with Ottawa introducing more stringent rules.

“Theoretically, almost everyone would be getting back, on our calculations, what they’ve paid in,” Wawzonek said, adding that she believes the NWT’s approach to be the best for industry.

The office of federal environment minister Steven Guilbeault declined an interview request from Cabin Radio.

In a written statement, Guilbeault’s office said the NWT had “proposed a full carbon pricing system for the 2023 to 2030 period that meets the federal benchmark requirements.”

Guilbeault’s office did not set out how the federal backstop would work if MLAs vote down Wawzonek’s approach, but said eight out of 10 households receiving payments from Ottawa under the backstop “get more back than the costs incurred from carbon pollution pricing.”

Below, read a full transcript of our interview with Caroline Wawzonek about the NWT’s proposed carbon tax changes.

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This interview was recorded on January 18, 2023. The transcript has been lightly edited for clarity.

How would you describe the challenges that you and the GNWT are facing in finding a carbon tax that you, regular MLAs, Ottawa and residents can accept?

Right now, what we’ve put forward is something that we know the federal government is willing to accept. So that box is, I suppose, ticked right now. As far as something that other MLAs and residents can accept, I don’t think anyone’s necessarily going to be happy at the end of the day with more taxes. That’s generally a challenge, with the exception of the fact that everyone recognizes that there needs to be some action taken towards climate change. And this right now is a federal response, and we’re trying to get on board.

The reason we had the carve-outs way back before my time was really premised on the idea of having more flexibility. There are unique factors in the North, there are communities in the far North that are running on diesel to keep themselves heated. It’s extremely expensive and very different from, say, Toronto. So what can we do a little bit differently? And we want to hang on to that flexibility.

We’ve tried to hang on to it using the average family household and Colo payment approach, which is what people are right now getting – the Colo payment, the cost-of-living adjustment. And MLAs have suggested maybe we should do that regionally. So I’m hopeful that they’ll come back and say if that is, in fact, what they would like us to do, and we can pivot towards that. And that will be what is needed to get us past this post.

If enough regular MLAs vote against this bill, we get into a thorny situation, don’t we, where it’s less clear what would happen?

What would happen is we revert to the full federal system. The federal government would impose their full federal system on us. There are, I think, a few provinces and territories that are under the full federal system, and the majority are in some sort of either hybrid or their own total system.

Having said that, what that federal system would look like exactly to us is difficult to say. I can probably more easily speak to what it’s not, which is to say it would not have the kind of approach to the large emitters that we do. It would have their process, which is that if you’re a large emitter, you’re in, and that’s it, and you pay their version. There’s not a lot of flexibility for industry there.

And very importantly for residents, they would get some sort of cheque from the federal government – almost certainly it would be the same amount to every resident in the Northwest Territories, and not weighted based on family averages or communities’ geographic location or anything of the like.

What has the federal government actually said to you? What guidance has it given?

Our fiscal policy folks have been in discussions and going back and forth saying, “Here’s our approach, here’s the legislation we’ve put forward.” We know that what we’ve proposed would meet with their guidelines. They’re quite clear that we have to take away the point-of-sale rebates that we have right now, you can’t negate the price signal. You have to get rid of your subsidies on home heating fuels and heating fuels generally.

And you have tried to talk them around on that, and they have said no.

Not just us, but not having an exemption for heating fuel has been a hard stop for them. We certainly made another go of it, but that one’s definitely been a hard stop.

When they say no, what is their rationale?

I don’t know that I can say entirely what they’re thinking internally. They say the carbon tax is a proven method for reducing GHG emissions.

I mean, you know, people sometimes complain that you get responses from government that aren’t entirely the fulsome answer that you are asking for. Sometimes we don’t get all of the exact answers we’re looking for. I’ve written out of my office several times over the last couple of years on carbon tax, asking for more flexibility on the heating rebates. And the responses we’re getting are in response to where we’re at in our planning and whether or not what we’re doing meets their requirements. That is where we’re sitting. When I say it’s a firm no, it’s a firm no sometimes because it’s not on the table.

There are provinces and territories on the federal backstop. Why is a model like the one in the Yukon or Nunavut not the model the NWT wants?

Some of that does go back to the original time of the carbon tax and choices made then around creating our own system, that the government of the day thought would be more appropriate, more responsive, and really better attuned.

You could change that, couldn’t you? Presumably the home heating fuel rebate was central to the idea of having our own carbon tax, because that wasn’t in the federal backstop. If you take that out, doesn’t a Yukon or Nunavut system become more attractive?

That was definitely a central theme for the very first one, and I think there was certainly a hope that we’d be able to modify our system in a way that would accord with what they’ve said, and still give us that flexibility to give money back to residents.

\I don’t know that our proposed system would not provide that kind of flexibility, right? I mean, the proposed system, if we’re allowed to do it… if it’s based on home averages, residents would, with very few exceptions – based on an average home size and usage model – get back both direct and indirect costs of carbon tax, based on our calculations. People who decided to make some different choices might even be getting more back. And meanwhile, industry here would have the ability to be very differently accommodated than what they would be under the federal system. I don’t want to completely forget that the impacts on industry for the NWT are also different than what they’d be for Nunavut and the Yukon.

Theoretically, almost everyone would be getting back, on our calculations, what they’ve paid in. Even if we do the regional approach, those communities that are most at risk, again, would be seeing a full offset. Our system doesn’t necessarily fail to do that. In fact, if anything, it still achieves that goal of finding a way to balance up the higher costs.

I just think it’s been frustrating in that the federal government really didn’t want to engage on the discussion of heating fuel at all, which is unfortunate from our point of view. We are saying we’ve actually found a way to adapt under the new system that will still see residents not paying higher costs. The frustration with the one has lost the message on the other.

Would an accurate characterization of your message here be: “The NWT’s carbon tax up till now was better than others because of the home heating fuel rebate. The NWT’s carbon tax, from April onward, is still better than the Nunavut, Yukon or federal system.”

Yes, better than the federal system. That one definitely is an easy one. As for Yukon and Nunavut, I mean, I wasn’t in the rooms when they made their policy choices. So I want to just be careful to not say we’re better than theirs. Theirs may fit their circumstances better than what ours would for them, particularly on the industry side.

So you believe this fits our circumstances better than any other solution available?

Certainly better than any solution that we’ve been presented with or been able to come up with.

The finance minister before you, who introduced this carbon tax, said he didn’t like the legislation, he was forced into it by Ottawa, and he hoped it will be repealed the moment the opportunity arose. Do you feel the same way?

No, I don’t. I don’t think I would go quite so far as to say that.

I mean, look, we are also the front lines of climate change. What perhaps I do find frustrating is a lack of recognition of the fact that we are at the front lines of climate change. Residents in the North are not the source of major emissions, we are not the source of Canada’s emissions, even our industry is not the source of Canada’s emissions. And yet we pay some of the highest costs for heating fuel, whether you’re a business, a community or a resident, and we spend an awful lot of time politically and publicly discussing this – when really I’d like to see what it is that Ottawa thinks we could be doing differently. How are we incentivized if there are no changes, no easy alternatives available? Particularly outside of the major centres. That is the real conversation that I wish we were having with Ottawa in the North.

Have you had that conversation?

We have made that point, I think, quite plainly clear. And I know my colleagues have as well. I think that’s a much longer conversation they’re going to have to have with us. To be fair to them, I think there’s a willingness to discuss energy alternatives, energy solutions. The dollars required to truly change the kind of outdated infrastructure that results in the challenges we’re in are significant.

You have mentioned the prospect of a three-tiered cost-of-living offset payment system to try to replace what was a much simpler, more precise system of just rebating everything at source. I haven’t seen any detail about that three-tiered system. Who is in which tier? What does that mean?

The reason that that hasn’t gone out is: when we present something to MLAs, they get their initial go at a piece of legislation, then they introduce it – they welcome its introduction in the House, which is what happened in the fall. Normally, by this stage, we enter into a clause-by-clause and they, I guess, decided to put a pause on that.

So the proposal around three tiers came from MLAs back in the fall, when we first were in what we thought was the public review stage. We’re holding off because now I’m not sure exactly what they would like us to do. If they would like us to go back to that, then we’ll move forward and make those adjustments based on that. I’m not trying to beat around the bush with it but it’s still a bit in their court, and I don’t want to step on their toes. There are high fuel zone communities, a handful of which would be in the high rebate zone, and there are some that are in the low zone, so…

Not to interrupt the conversation between ministers and MLAs but at some point, the public need to know what to expect. What is your message to people who feel like they have no idea what’s actually happening here? There apparently might be a three-tiered system. We don’t know anything about it. We’re a couple of months away from this kicking in.

That is disappointing and I’m sorry to hear that. When we first started the process of drafting the legislation and doing a proposal, it was back right before the fall. We got together with MLAs and they would have had public briefings at that point. Why that message didn’t get out better at that point, that the public briefings were going on, I can’t really say what happens necessarily on the other side.

We all know that public briefings are not a guaranteed win for educating thousands of people at a time. The GNWT runs big campaigns to publicize other things. They put effort and time and money into saying, “Hey, big change coming up.” There hasn’t been one of those, has there? Or have I missed it?

At the end of the day, if people want simple messaging: it was our expectation that the average household was not going to see a significant change in terms of the cost impacts of the new carbon tax changes on April 1.

Is that still your expectation?

That is still my expectation. But now I’m not sure whether we’ll be doing that because it’s done by outright community cost, or by average household.

When we looked at it, we looked at both the direct costs and indirect costs. For example, if businesses are going to be paying more, presumably they’ll be able to pass that on, and we want to make sure that we’re accounting for that in the system. So it still is our goal to see that residents in a territory that has high costs aren’t unnecessarily burdened, again, considering that a lot of us are not really the large emitters in terms of Canada and don’t have the ability – no matter how incentivized we might be – to immediately or easily change.

That was always the goal, to see that residents don’t bear that burden unnecessarily. That goal hasn’t changed. The methodology that we’re going to use to get there, whether it’s based on a calculation on average family size and usage, or whether it’s based on which community you live in? That I don’t have the final answer for, but I take your point on making sure that that is made clear.

When will we have a final answer?

The next step would be for MLAs to do what’s called a clause-by-clause, which is another very exciting public event where they actually go through a draft piece of legislation piece by piece. That’s what we initially had scheduled for Monday, obviously we needed to have a bit more time for review. Once that happens, then it gets introduced in the House. There is an opportunity to make motions, and that’s where – if they were to change from the system we have now to the zone system – once that is confirmed from them, then we can make that more publicly known.

Within all of that, is there any way you can give any sort of “hey, some time in February” guidance for the average person?

April 1 is the fed deadline, right? So we want to have this in place before then. When I say before then, yeah, I’d say February’s really when we want this to be in the House. The February session starts February 6 or 7. It really should be going in sooner rather than later, because it still needs to go through its process there. So over the month of February, but I would hope even sooner. I am sure my colleagues on the MLA side are similarly feeling the need to get this resolved one way or the other.

I do want to reiterate that this a federal tax, it’s not a GNWT tax. It’s coming one way or the other and our focus has always been to make sure that the impacts on residents are not adding to their costs, that we are able to offset those costs. That’s always been the goal, do that in a way that is most flexible. And to the extent that there are excess revenues – this is something that the MLAs did talk about, that there is all this extra revenue that you’re getting – there’s not, really, when you look at the actual amounts that are remaining after paying out the offsets, after paying out whatever subsidy programs and dealing with the larger emitter program, plus $200,000 to the CRA just to administer all this. There’s not that much left. It is part of what pays for the climate change action strategy under the ENR process. It’s part of what pays for electric vehicle emissions work happening over at Infrastructure. Those are all tens of millions of dollars.

Is it put in a special place that says this will be the fund that helps pay for that?

It’s put into a very special place. It’s called the consolidated revenue fund.

The big pot of cash.

As is almost every other dollar that comes into the government. Every department when we go through the main estimates, which we’re going to be doing soon has a section that speaks to the revenues that are brought in under their various programs or functions – or however they get their revenues under their department’s workings – and then speaks to the areas where they expend dollars. They don’t necessarily all line up. The point of going through the main estimates in the House, publicly, is to review for the public every dollar that’s coming in and every dollar that’s going out, so that it actually is made clear, but it’s made clear over the whole of government and not necessarily one little piece. That few million dollars we’re getting on carbon tax would not pay for all of the things we’re doing in the climate change space.