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Canada scales back carbon tax plans - the real world has paid Trudeau a visit

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Changes reflect increasing concern among businesses about global competition, ability to draw investment into CanadaOTTAWA—Canada’s Liberal government is scaling back elements of its planned carbon-tax regime to address worries from the business community about global competition.

The amendments to the carbon-tax regime were relayed to business representatives last week, according to two people familiar with the briefing and confirmed by government officials Wednesday. Under the changes, industrial companies would now have fewer of their emissions—20% versus the original 30%—subject to the levy. The carbon tax takes effect next year, and starts at 10 Canadian dollars (US$7.68) a metric ton and rises gradually to C$50 a ton in 2022.

In their presentation, Canadian officials told business representatives the change was spurred by concerns over competitiveness, according to people briefed. Industry associations have warned the new carbon-pricing regime would hinder investment plans and put Canadian firms at a disadvantage—especially given President Trump’s push to repeal energy and environmental regulations to bolster U.S. energy production, and deep reductions in U.S. corporate tax rates. Those worries have escalated, industry officials warn, with U.S. tariffs on industrial goods. Companies may be looking to locate as much production in America to avoid the tariff threat, business leaders and economists warns.

According to a presentation reviewed by The Wall Street Journal, government officials are prepared to tinker further with the carbon-pricing regime should domestic industrial sectors bring evidence demonstrating “[heightened] competitiveness risks” due to developments in the global marketplace.

“We don’t want to drive industry out of our country,” Canadian Environment Minister Catherine McKenna told reporters Wednesday about the changes, while on a tour of western Quebec. “We want to have the most energy efficient, smart industries here that create good jobs, at the same time do what we need to do to tackle emissions. And that’s exactly what we’re doing.”

Ms. McKenna has been steadfast on the need for a national carbon tax, arguing it is the most cost-effective way to reduce greenhouse gas emissions. Prime Minister Justin Trudeau has vowed to position Canada as a global leader in the fight against climate change. However, he has earned scorn from environmental groups for his government’s decision to purchase Kinder Morgan Inc.’s crude-carrying Trans Mountain pipeline project to ensure an expansion to the Pacific Coast gets built.

Climate Action Network Canada, a coalition of environmental groups, called the tax change “concerning,” because the measure is being watered down without “any data that indicates how competitiveness concerns are being evaluated.”

Some business groups commended the government for listening. “We are certainly pleased,” said Isabelle Des Chenes, spokeswoman for the Chemistry Industry Association of Canada, which represents chemical producers. However, she said, worries remain for Canadian producers, because they will be hard pressed to pass along the increased cost to foreign customers.

Tim McMillan, chief executive of the Canadian Association of Petroleum Producers, said more work needs to be done if the federal government is serious about reversing the trend in business investment. “Until we make economics a fundamental part of our climate policy, we are going to struggle to get investment in Canada.”

Business investment in Canada plunged nearly 25% following the oil-price shock beginning in the summer of 2014, according to government documents. Despite a recovery, business investment remains 17% below peak levels hit before the oil-price slump, due to a significant pullback in energy projects, and “the slow recovering in business investment is expected to continue,” according to the documents, written by senior officials at Canada’s Finance Department and reviewed by the Journal.