Cap and Trade for Nova Scotia Still Fuzzy for Small Business

cap-and-trade

The Nova Scotia government’s decision to go it alone with cap-and-trade to put a price on carbon raises more questions than answers.

This spring, government released a discussion paper, looking for feedback. They gave less than a month for responses and you needed a degree in environmental science to make any sense of what was being asked.

At an information session, executive director Jason Hollett of the climate change unit tried valiantly to outline a coherent picture, but he was working within an unreasonably tight timeline and without all the tools. In spite of a commendable effort, many left the session scratching their heads. Under questioning, somewhat ominously, he referred to the scheme as “a big regulatory beast.”

Without much heavy industry, Nova Scotia has few large greenhouse gas (GHG) emitters. Our coal-burning generating stations are pumping out the lion’s share (44 per cent). The transportation industry creates 27 per cent, followed by commercial and residential heat (combined 13 per cent) and the oil and gas industry (five per cent). The remainder comes from waste, agriculture and other industry.

For years, Nova Scotians have been paying through the nose to achieve GHG reductions through transition to renewable electricity generation and efficiency. We can pat ourselves on the back. After coughing up the highest power rates in the country over the last 10 years, our renewable portfolio has grown from seven to 27 per cent, exceeding our reduction targets.

Apparently unsatisfied with this progress, the Trudeau government, riding its mandate to legislate away climatic catastrophe, told Nova Scotia to put a price on carbon by 2018 or we’ll do it for you. The McNeil government initially balked, then came up with what it felt was the best option, a go-it-alone cap-and trade-system.

Using cap and trade, the premier successfully avoided the “carbon tax” narrative, opting instead for what appears to be a more saleable version.

The proposed Nova Scotia cap-and-trade model is fairly simple, but its administration is expected to be complex and therefore, presumably, costly.

Government will cap the amount of GHGs emitted into the atmosphere, hand out free credits for that tonnage to this handful of larger polluters and they can trade among themselves. When someone needs more, they can buy in this tiny market of emitters. How that will affect price is unclear.

A central tenet of carbon pricing is revenue neutrality. But with this plan, at least for now, there is no clarity in respect to dollars changing hands or how it will affect the price of electricity or fuel. Other questions: Will the incentive to be greener simply be higher energy and transportation costs? What would be the offset?

Moving ahead without the required evidence in respect to cost and competitiveness will frustrate business owners. In spite of a stated intention by government to measure and cost all regulation prior to application, none of these calculations are yet available.

While public servants are trying to align regulations between provinces to break down trade barriers, Nova Scotia’s approach (in spite of the premier’s openness to having the other Atlantic provinces jump on board) could result in two, three or four carbon pricing schemes in the region.

cap and trade chart

CFIB members support environmental initiatives. Seventy-nine per cent believe it is possible to grow the economy and protect the environment at the same time. But 80 per cent say government must consider the cost to small business before implementing a mechanism to price carbon. That means measuring and communicating real economic costs and environmental benefits and establishing a reasonable window for consultation and implementation.

In light of the work by this government to improve the regulatory environment, introduction of a “regulatory beast” feels counter-intuitive and environmental and economic impacts are still fuzzy. For something of this size and importance to be a cost of doing business in Nova Scotia, we need clarity.

This originally appeared in the Chronicle Herald, April 26, 2017

Of Trade and Liquor and Lawyers.

http://www.cbc.ca/news/canada/new-brunswick/gerard-comeau-border-alcohol-ruling-1.3554908
Gerard Comeau after a judge dismissed a charge of bringing too much alcohol into New Brunswick because it violated free trade provisions in the Constitution. (CBC NB)

A few years ago, Gerard Comeau, a retired steelworker from Tracadie, New Brunswick, went on a 185 kilometre booze run to Pointe-à-la-Croix, Quebec. Like countless other folks in New Brunswick, Gerard opted to make the two-hour drive to cross over the Restigouche River into the neighbouring province to pick up cheap booze which often sells at half the price of the same product in the New Brunswick Liquor Corporation (NB Liquor) outlet.

When Gerard brought his 14 cases of beer and three bottles of liquor back home that day, little did he know he was triggering a series of events which would place him in the company of our Fathers of Confederation. Sir John A. MacDonald and George Brown’s healthy taste for tipple notwithstanding, Gerard had something more in common with the framers of the Constitution: the desire to promote free trade. Gerard’s free trade efforts, however, led to him being charged with illegal importation of alcohol.

Three years later Mr. Comeau showed up for court. With the help of some constitutional experts and lawyers, Gerard argued that Section 134 of the New Brunswick Liquor Control Act is unconstitutional.

New Brunswick’s regulations, like Nova Scotia’s complex assortment of liquor laws, are empowered by a 1928 federal statute, the Importation of Intoxicating Liquors Act. It demands alcohol only move in or out of provinces with permission from its liquor control board. It was designed primarily to stop bootlegging as Prohibition was lifted at different times in different jurisdictions. It’s also a pretty handy law should a province want to enable a monopoly and jack up its prices without having to consider all that messy stuff like supply, demand and other market forces.

When they got together in Charlottetown, this isn’t quite how the founding fathers envisioned our free trading Dominion.

In his decision, Provincial Court Judge Ronald LeBlanc dusted off our history and ruled that New Brunswick’s restrictions on bringing alcohol into the province violate the Constitution’s free-trade provisions. LeBlanc cited Section 121 of the Constitution Act; “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”

Judge LeBlanc correctly recognized and emphasized free trade between the provinces was the intention of the signatories and a founding principle of Canada.

To find the turning point between the signing of the Constitution and when our free-trader Gerard was charged, we need to go back to the 1920s. During the height of the Prohibition era, the Supreme Court of Canada (SCOC) was asked to rule on an interprovincial trade dispute and, in the process, essentially gelded the free trade provisions in Section 121.

As the story goes, the Canada Temperance Act (CTA) governing the sale of liquor finally came into force in Alberta in 1921. In February of that year Gold Seal, a liquor retailer in Alberta, asked Dominion Express to deliver some liquor to customers outside of Alberta. Dominion Express refused because it felt that to do so would violate the federal CTA. So began Gold Seal Ltd. v. Alberta (Attorney General) which eventually made its way to the high court.

In the Gold Seal decision, the SCOC’s interpretation of Section 121 limited its application to prohibiting only interprovincial “customs duties.” For what some have advanced were purely political reasons the SCOC kicked Section 121, and with it the free trade intention of the Fathers of Confederation, to the curb.

Since then, successive politicians, courts, government officials, special interests and political constituencies in every province have used the Supreme Court’s ruling to successfully impose a myriad of trade schemes and regulations on everything from eggs, wheat and coffee creamers to truck parts and, of course, liquor.

However, the LeBlanc decision in the Comeau case has drawn back the curtain on a very important and equally inconvenient truth. Provincial liquor control regulations, which provide the foundation for our provincial liquor monopolies, including the NSLC, may not pass muster according to intention of the constitution.

Last Friday, the New Brunswick government announced it is seeking leave to appeal the Comeau ruling directly to the New Brunswick Court of Appeal. The federal Conservatives are also calling on the federal government to act as an intervener if the Court of Appeal agrees to hear it and are also asking the Trudeau government to refer the case to the Supreme Court to clarify Section 121.

So what does this all mean for entrepreneurs and small business in Nova Scotia? It could mean a great deal.

As a backdrop to all of this, the Premiers are embroiled in retooling the Agreement on Internal Trade (AIT). A deadline for an agreement passed March 31, 2016, but hope remains something will eventually get hammered out. There is some urgency as international trade agreements, such the Comprehensive Economic and Trade Agreement (CETA) with Europe and the Trans-Pacific Partnership (TPP) are coming into play. Why the urgency? Without change, under these new agreements, we may end up with foreign companies having greater access to opportunities in Canada than firms located in a neighbouring province or territory.

We’ve seen some regional progress on this front with the New West Partnership between B.C., Alberta, Saskatchewan and Manitoba and last year the Atlantic Premiers signed the Council of Atlantic Premiers’ (CAP) Red Tape Reduction Partnership and opened the Joint Office of Regulatory Affairs. All moves aimed at streamlining the flow of business between provinces.

In fact, just last month at a CAP meeting in Annapolis Royal, in an under-reported but nonetheless significant development, Premiers McNeil, Gallant, MacLauchlan and Ball agreed to advance three specific recommendations to reduce trade barriers brought forward by business groups led by the Canadian Federation of Independent Business, the Atlantic Chambers of Commerce and Canadian Manufacturers and Exporters.

So while the Premiers seem to collectively understand internal free trade is an urgent priority, the Comeau case could force the issue. If the case is referred to the SCOC and should that ruling be upheld, it will have profound implications for not only liquor regulations, but it might well call into question the constitutional validity of the tens of thousands of other interprovincial trade restrictions, prohibitions and conditions on business now in place; restrictions which are estimated to cost our national economy upwards of $14 billion every year.

It’s also encouraging the Atlantic Premiers are asking business for concrete recommendations to address regional trade problems. CFIB believes this is another step in the right direction. We encourage business owners to bring forward red tape and trade issues which require attention and we will be monitoring to ensure governments respond with solutions. If you do business in more than one province and you’re running into red tape between jurisdictions, CFIB wants to know about it.

With liquor regulations under the microscope, perhaps now is the best opportunity to assist our burgeoning local wine, craft beer and boutique distilleries. These small businesses are providing important economic growth opportunities, especially in rural areas. Eliminating archaic, Prohibition-era liquor regulations is something the Atlantic Premiers should get out in front of now.

This could have enormously positive impacts downstream in the accommodation, food and beverage and tourism industries. More and more entrepreneurs in Nova Scotia are risking their own capital and creating ventures in these sectors which are showing tremendous possibilities. Government needs to create the right environment for business and then get out of the way.

Eliminating cross-border restrictions on trade of alcohol products being manufactured throughout our region is a good place to start looking for solutions. It is one example of a broader need to remove barriers to business. Allowing more competition and freeing up the flow of commerce by eliminating restrictions on internal trade is an idea whose time has arrived.

Originally published in the Chronicle Herald, June 7, 2016

 

Let Our Fathers of Confederation Guide the Premiers on Trade

conventionphoto2

This year, Charlottetown is celebrating the moment when our country was conceived. In 1864, the first of the Charlottetown conferences was convened to hammer out some of the philosophical and legal structure of our nation. It was the birth of a constitution that has served to create arguably the most successful experiment in democracy ever conducted, The Dominion of Canada.

Theirs was a project was to create a nation loved by its citizens because of its constitutional commitment to the protection of minority rights and personal freedoms, the “Canadian” rights and freedoms. “Freedom”, as Sir Wilfred Laurier stated during a campaign stop some 30 years later, “freedom in every sense of the term, freedom of speech, freedom of action, freedom in religious life and civil life and last but not least, freedom in commercial life.” Hover for a moment on the end of that statement.

Entrenched in section 121 of the Canadian Constitution is perhaps one of the most important bits of economic glue holding this fragile, tentative union together, the provision of free trade between the provinces. It could be argued without the creation of a Canadian free trade zone, comprised at the time of 4 million mismatched souls, the notion of Canada as a nation itself might never have even got off the ground. Certainly the cancellation of the Canadian-American Reciprocity Treaty in 1865 necessitated the creation of a more robust domestic market.

The founding fathers vehemently opposed Inter-Provincial Trade Barriers (IPTBs as we affectionately refer to them now). They believed if Canadians were to prosper it was essential that all Canadians could freely access markets within the country. Section 121 of the Constitution is explicit. In the final version from March 1867, section 121 reads: All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.

In spite of its seemingly obvious constitutional intent the forces of parochialism and protectionism have prevailed over the wisdom of our founders. Through a variety of decisions throughout the 20th century, subsequent interpretations of section 121 served to open the door to closing more doors. While customs duties and similar charges remain prohibited between provinces, successive governments have successfully closed or restricted their provincial borders through mazes of indirect taxation and absurd regulations stifling the free flow of goods and services.

Midway through the second decade of the 21st century and as we prepare to celebrate the 150th anniversary of Confederation, if our founders could be raised from the dead and made aware of what we are doing with their precious document, they would surely be puzzled.

You may ask, “How can this be? Surely our elected officials would not knowingly have undermined the most sacred foundation of our national architecture.” Actually, yes…they did, generally for short-sighted reasons based on either protectionist or isolationist principles.

Many of the barriers in question are at the same time serious and foolish. Have you ever wondered why regulation would be imposed to determine the size of the containers for milk and cream? Do we need protection from the amount of milk we put in our coffee? Another example, from province to province the regulations governing truck tires are not consistent. In fact, there are situations where depending on the load, trucks must stop and change tires when they cross the provincial border to be in compliance. This is one of a myriad of mysterious regulatory anomalies that business must decipher and comply with.

Perhaps the most ridiculous example, the infamous Quebec ban on pale yellow margarine, has been removed but it still serves to illustrate the deceptive thinking behind these barriers. Consumers didn’t need to be protected by the colour of the product inside so they didn’t mistake butter with something with “margarine” on the label, but it was designed to impose an extra cost on non-Quebec margarine producers, to benefit Quebec dairy producers, all at the expense of Quebec consumers. By the way, the rule that is still in place says butter sold in Quebec must be wrapped in foil. Why has never been explained.

Recently the federal government moved to eliminate restrictions on shipping wine from one province to another. In response several provinces promptly establish new regulations again restrict that trade. The inevitable result will be court challenges to the validity of these regulations which will again test the interpretation of section 121 to create great expense, delay and confusion. By the way, don’t be buying a case of wine in Nova Scotia and driving it to New Brunswick. The maximum amount of liquor that can be imported into New Brunswick from another province is one bottle of wine or hard liquor or 24 bottles of beer. There’s an immediate 292.50 fine and your crisp L’Acadie Blanc souvenir from the vineyard can be seized and destroyed.

As our clever student intern working on CFIB’s Atlantic IPTB report said at our summer meeting…”What’s the difference between Smokey and the Bandit and Atlantic Canada’s Alcohol policies? One is a foolish story about regular folks of coming to terms with 1970’s era prohibition style trade restrictions and the other is a Burt Reynolds movie. Ba-dum.

There are volumes of petty, preposterous, punitive rules and regulations so immense it is difficult to measure the economic impact on the economy. However anyone familiar with any industry can easily come up with their own examples. Measuring the overall impact is considerably more difficult. In 2010 Brian Lee Crowley, Robert Knox and John Robson wrote Citizen of One, Citizen of the Whole for the MacDonald-Laurier Institute publication True North. Three reasons are given why it is so difficult to measure the cost of ITPBs;

“First, IPTBs are so numerous and varied that no one has managed even to list them all. Second, they have such complicated effects that it is impossible to measure even their short-run costs with any certainty. Third, the harm they do accumulates dramatically over time in ways that are even harder to measure, especially their depressing impact on people’s enthusiasm for trying new things, which, after all, is the elusive “innovation” that is the Holy Grail of so much government economic policy.”

Regulations restricting inter-provincial trade clearly are in defiance of the spirit in which the constitution of this country was written. What is puzzling is the resistance of political leadership to addressing such a fundamental flaw in the application of policy and why it’s repeated. Surely, even the anecdotal evidence must be enough to raise sufficient concern for attention.

The federal government is finally beginning to show some sign it takes this issue seriously. James Moore, the federal Industry Minister, said his number one priority is a new internal trade deal that would replace the existing Agreement on Internal Trade (AIT), signed by the provinces 20 years ago. It left behind a patchwork of cumbersome barriers. Moore says, “The Agreement on Internal Trade … is out of date and it doesn’t make sense anymore.” In fact, it’s become practically useless. Ironically, since the AIT was signed 20 years ago, Canada has finalized trade agreements with over 40 countries, including the European Union and South Korea. Some companies now are noting it’s harder to do business inside Canada than internationally.

Later this summer the Council of the Federation (The Premiers) are meeting in, of all places, Charlottetown, and IPTBs will be on the agenda. PEI Premier Robert Ghiz has said he doesn’t have much to say about it right now, but he’s open for discussion. NS Premier Stephen McNeil is making the right noises and one might expect New Brunswick’s David Alward would support such measures.

Let’s hope the echoes of the ghosts of the Fathers of Confederation influence the Premiers while they are in Charlottetown. Eliminating these ludicrous trade barriers between the provinces is something they must advance now.