Canada’s competitiveness problems go deeper than a carbon tax

Theglobeandmail.com
May 26, 2017
By Trevor Mcleod

As Donald Trump renegotiates his country’s relationship with the rest of the world, Canada needs to do a serious rethink of its own. The United States is laser focused on improving its competitive position while Canada seems asleep at the switch. Yes, we are having an active debate about the potential negative impact of carbon pricing on Canada’s competitiveness. But, for some reason, we are not looking at other, more pressing, competitiveness issues.

Canada’s economic strategy is underpinned by two advantages: preferential access to the United States - the world’s biggest market - and a competitive investment climate that provides an advantage to Canadian companies and entices foreign firms to set up shop here. With Mr. Trump threatening to renegotiate NAFTA and trying to implement historic tax cuts, the first is threatened. On the second, we are hurting ourselves.

The Trudeau government is working hard to ensure that Canada maintains its access to the U.S. market. It is also courting alternate markets, including China. But, Ottawa has been less successful at protecting Canada’s competitive investment climate and needs to do more. While there is merit in building clusters, providing incentives for innovation and building critical infrastructure in Canada – as the Trudeau government is keen to do - far more attention must be paid to competitiveness fundamentals.

Conservative politicians are busy making the competitiveness argument federally and provincially, railing against the threat of a carbon tax to Canada’s prosperity. Carbon taxes do affect competitiveness, but they are only one factor, and concerns about carbon-price competitiveness can be addressed. Alberta, for example, has done an excellent job of addressing competitiveness concerns for trade-exposed sectors while encouraging innovation that will allow oil producers to compete effectively for global market share. The additional 20 cents a barrel that Alberta’s most efficient producers will pay as a carbon price is hardly an insurmountable barrier to competitiveness - especially if it translates into access to new markets and a higher price for producers.

Of course, the carbon tax makes for great political fodder. It is political gold to claim loudly and relentlessly that a carbon tax is a threat to Canada’s prosperity. This is especially true in a tough economic climate that threatens jobs and foments anger among voters.

As a consequence, we can expect to hear more noise about carbon taxes in the coming months and years. Why let nuanced argument get in the way of a winning political narrative?

At the same time, we get silence from our politicians and the natural-resources sector about a far more pressing competitiveness issue - regulatory reform. The issue is not sexy - certainly not as sexy as the carbon tax -but it is more important.

Two reports from panels of experts have landed on ministers’ desks in Ottawa in recent weeks: on the modernization of the National Energy Board, and a review of environmental assessment processes. If the federal government were to accept the recommendations of the environmental assessment report, nothing would be built in Canada. And no one, domestic or foreign, would want to invest here.

The panel recommends a dramatic expansion of the scope of environmental assessments; it suggests that environmental assessment be renamed “impact assessment,” and a commission be created to conduct reviews. The impact assessment commission would be empowered to determine if projects meet the five pillars of sustainability - environment, social, cultural, health and economic.

While this may sound good at first blush, the new commission would duplicate - or even conflict with - the function of the National Energy Board, impose a hopelessly complex and cumbersome process, and still allow a political veto at the end. All of this leads to significant uncertainty.

In practice, this means it would be increasingly difficult to build any energy infrastructure in this country. It would be harder to find investors willing to put up the capital required to build oil and gas pipelines, electricity lines connecting hydro power to Alberta and Saskatchewan, wind and solar projects. Development would grind to a halt.

The recently released NEB modernization report, on the other hand, gets some of the big things right. We would not, for example, have to wait until the end of what is often a long and costly process to find out if politicians want to veto a project. Yet, for the most part, it is not clear that anyone in Ottawa is paying serious attention to addressing the growing regulatory threat to Canada’s competitiveness.

The good news is the regulatory review is not over - there is still time to make sure Ottawa strikes the right balance. But we need all stakeholders to insist that our politicians wake up, get beyond the easy political narratives and make sure Canada stays competitive.