Time for a North American Carbon Policy

A Canada-U.S. agreement on greenhouse gasses could provide a blueprint for addressing climate change across the globe.

A loophole Canada once demanded in the U.S.-Canada Free Trade Agreement now threatens to bite the Canadian energy industry.

The loophole allows either country to impose tariffs on the other for health and environmental reasons. Now, that loophole creates an opportunity for the United States to impose sanctions on oil from Canada’s oil sands.

Here’s how.

Back in 2007, the U.S. Environmental Protection Agency won permission from the U.S. Supreme Court to regulate carbon dioxide as a pollutant that is dangerous to human health. So far, the EPA has not used this power. It is waiting for Congress to act. But if the Democrats lose their majority in the House of Representatives in November, Barack Obama’s appointees to the EPA may decide to proceed on their own.

Some U.S. environmentalists have proposed an impost on “dirty” oil from the oil sands. This would jolt the Canadian oil industry. But such an impost might well be legal under the FTA, unfortunately. Even more unfortunately, such an impost might gain support from House Republicans: If the GOP takes the House, the environment committee will be run by Joe Barton of Texas. Barton staunchly supports offshore drilling in the Gulf of Mexico. A thumb on the scale against Canadian oil could help revive that battered industry.

So here’s a thought that might avert trouble — and secure Canada’s equal position in the U.S. energy market: a joint US-Canada carbon policy.

Here’s how it could work.

We draw a line around the North American continent. Any industrial greenhouse-gas producer anywhere on the continent would pay a tax per ton of emitted greenhouse gas. A ton of gas from oil, a ton from coal, a ton from natural gas — all the same price, all assessed at the source. A ton from Canada, a ton from the United States — the same price again. Having paved a level playing environmental field, goods would then move freely between the two countries.

Any imports into North America would have a greenhouse-gas tax assessed against them. (That way, it won’t pay to do your polluting in India or China.) Any exports from North America would have the greenhouse gas tax rebated to their producers. (That way, North Americans won’t be disadvantaged when they sell to countries without a greenhouse-gas tax.)

But within the North American marketplace, there would be no need for further regulation. Everything would be done with price signals. No need to ban the incandescent bulb, or restrict SUVs, or order utilities to substitute wind turbines for coal-fired generators. Just let people shop and compare at the new prices, and then make their own decisions.

The money raised from the tax would be pro-rated between the two governments in proportion to their country’s respective greenhouse-gas output. It could be used to cut other taxes or to repay the debt incurred in the 2008 financial crisis.

No discrimination at the U.S.-Canada border: We’d have created a single environmental standard for the two countries.

Obviously, there would be many further complexities and technicalities to address. (For example: What about agriculture?) But here’s the power of the idea: No two countries on earth will find it easier to reach such an agreement than Canada and the United States. And once such an agreement is reached to govern the world’s largest cross-border trade, other countries may find it much easier to copy the pre-existing North American agreement than to start from zero.

The third NAFTA partner, Mexico, could join when ready. A Canada-U.S. greenhouse-gas agreement could be an easily expanded foundation for an EU-North America deal or a Japan-EU-North America deal. Such a common Japan-EU-North America front — backed by tariffs on non-conforming products — would impose enormous pressure on China to adopt a more co-operative attitude. In a conference hall of 190+ contending countries, China looms huge and powerful. If the world’s most environmentally responsible actors co-ordinate first, however, China’s power to obstruct diminishes very abruptly.

The climate-change issue has provoked great skepticism. Too many climate advocates have engaged in hysterical exaggeration (that’s you, Al Gore). Others have engaged in dirty tricks and data manipulation (hello, “hide the decline”). But maybe the biggest problem of all is the well-founded suspicion that many climate-change activists are trying to use the environment to smuggle in other concerns: to promote the redistribution of wealth to poorer countries, to expand the role of government in the private economy.

The climate issue won’t go anywhere until climate advocates jettison those unrelated priorities. Junk the secret agenda, and the core problem may prove surprisingly easy to fix.

Originally published in the National Post.