Volts podcast: Gerald Butts and Catherine McKenna on Canada's carbon tax

In this episode, Gerald Butts and Catherine McKenna discuss their experiences passing a carbon tax in Canada, as advisor to prime minister Justin Trudeau and minister of the environment respectively. In particular, we focus on a key feature of the Canadian tax: all the revenue collected goes back to the province from which it was collected, mostly as per-capita dividends. Butts and McKenna believe that feature was central to selling the public on the policy.

Full transcript of Volts podcast featuring Gerald Butts and Catherine McKenna, February 16, 2022

(PDF version)

David Roberts:

In 2015, after nearly a decade of conservative rule, Justin Trudeau and his Liberal Party won a majority of seats in the Canadian parliament and control of the federal government. Part of Trudeau’s election platform was a carbon tax.

The proposed tax had a few key features. First, it would only be imposed on provinces that did not have their own pricing system that met a few minimum requirements. And second, all the money collected from a province would be returned to that province as carbon dividends.

After years of vigorous advocacy and negotiations, Trudeau’s liberals got the tax passed through parliament. It was implemented in early 2019, just before another federal election that became widely seen as a national referendum on the tax.

Liberals won again. The carbon tax was affirmed. It’s going to stick — and rise to a whopping $170 a ton by 2030.

This is a startling success story for climate policy that was largely overlooked in the US. We, uh, had some other stuff going on. But it’s worth taking a closer look at how Canada pulled it off.

Two people at the core of the tax pitch were Gerald Butts, who was principal secretary to the prime minister from 2015 to 2019 and Trudeau’s closest personal advisor, and Catherine McKenna, who was the minister of environment and climate change during the same period.

Butts and McKenna were in the trenches and they have the scars to show for it. Both of them noticed the piece I published on Volts in January on carbon tax refunds — and they objected to the conclusion that dividends did not make the carbon tax more popular in Canada.

So I had them on the pod! We talked about how the carbon tax was conceived, what enabled it to secure majority support (yes, they say, refunds were important), and where the politics of carbon pricing stand as we move into the 2020s. Not only were my spirits lifted — it’s nice to know there’s a sane country out there somewhere — I learned an enormous amount. I think you will too.

Without further ado, Catherine McKenna and Gerald Butts, welcome to Volts. Thanks for coming.

Catherine McKenna:

Very happy to be on.

Gerald Butts:

It's great to be here.

David Roberts:

When Justin Trudeau announced his candidacy [for prime minister of Canada] in 2015, the carbon tax was part of his initial pitch. How far back does the carbon tax idea go? Who got it in Trudeau’s ear? How long had it been bouncing around up there before it made its debut on the national stage?

Gerald Butts:

The first time it was a real issue in Canada was during the federal election campaign in 2008. Important for the context of the story, for reasons I'll go into later, is that the Liberal Party proposed something called the Green Shift, which was an elaborate take on a carbon tax, under the leadership of Stéphane Dion. But it was easily caricatured as a regional wealth redistribution program, because the revenue from the tax was paid into the consolidated revenue fund at the federal government, and it was redistributed by the federal government to programs of its own choosing, not all of which were environmentally related.

To me, there were a lot of reasons beyond the Green Shift that the Liberal Party lost the election in 2008, but that was the fundamental flaw in the policy.

David Roberts:

The idea is that you're just taking wealth from carbon-intensive provinces and redistributing it elsewhere.

Gerald Butts:

Absolutely. That, of course, has a history in this country that goes back to when the current Prime Minister Trudeau’s father was prime minister and he created the National Energy Program.

The conservative government in 2008, under Stephen Harper — which, to be diplomatic, was not inclined to climate action — easily caricatured this as the second coming of the National Energy Program in Western Canada in particular, and made it out to be that the Liberal Party was after Western money to pay for Eastern programs, which is always death in politics in Canada.

When we designed our program, there were lots of people within the party who thought we should stay a million miles away from it, because they were convinced that they lost the election in 2008 because of carbon taxes. We were very careful to make sure that any of the revenue collected went back to the province from which it originated. That, I think, was what unlocked the political constituency for carbon pricing in Canada.

David Roberts:

So that design — money goes back to the province from which it is gathered — was there from the very beginning, as you were working it out.

Catherine McKenna:

I came in as first minister of climate change and was given this mandate, and it was very clear that was going to be the hardest thing to land as part of our climate plan. For the first time ever, we went to Paris, we worked really hard to get an ambitious Paris agreement, but then we had to go home and do the work.

I was stuck with the unenviable task of meeting with provinces and territories all the time and going through interminable discussion on carbon pricing. There was not a lot of appetite, and everyone would bring all the reasons not to do it. We needed to think hard about how we were going to land it.

It's important to know there were some provinces that had pricing. At that time, Alberta had a progressive government that had brought in a price on pollution. Quebec was in a cap-and-trade system with California, as was Ontario, and BC had a direct price carbon tax.

So we came to the table with that. Gerry and I spent a lot of time talking about the design. There were a lot of people who at first shied away, didn't want to do it, but when they decided maybe we could do it, they still thought it was okay to take the money and distribute it as the government saw fit. And I knew I couldn't land it, I knew there was no way. As liberals, as progressives, people believe the worst — that you're going to take this money and you're going to have your special things you want to do, which might be really dumb in the perspective of others.

It was pretty clear, but it was a fight internally, too. Saying all the money was going to go back in a transparent way was just critically important to me. I knew I couldn't land it otherwise. It was still very hard, we had to do good comms, but it was critically important that we could talk to people and say, “you're going to get more money back.”

David Roberts:

How did it play in the 2015 election, Trudeau’s big triumph? I'm curious how central the carbon tax was in his campaign and in the election generally.

Gerald Butts:

There were bigger forces in 2015, to be brutally honest. The cornerpiece of our 2015 election campaign was something called the Canada