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Cablegate: Liberals Launch "Green Shift" Carbon Tax

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SUBJECT: LIBERALS LAUNCH "GREEN SHIFT" CARBON TAX

1. (U) Summary. Liberal leader Stephane Dion rolled-out his
long-awaited carbon tax in a splashy launch on Parliament Hill on
June 19 to a cheering, and highly partisan, crowd, kicking off a
summer campaign to sell the plan to Canadians. The "Green Shift"
Plan will be the centerpiece of the Liberal campaign in the next
election and represents a significant political gamble. Dion has
essentially staked his leadership on it. Although a bold gesture on
climate change will appeal to many Canadians, Dion's ability to sell
it effectively is questioned even by many within his own party and
the Conservatives have the advantage of the simpler message that the
tax is a job and wallet killer. Both Liberals and Conservatives
believe that the carbon tax issue will be their winning ticket in
the next election. One of them is wrong. End summary

2. (U) The timing of Dion's announcement, on the second to last day
of the spring parliamentary sitting, reportedly owed less to
environmental symbolism than to Liberal nervousness last week over
the communications plan and the leader's ability to articulate it.
Senior Liberals reportedly feared that fumbled messaging would doom
the complex Plan. The Plan was immediately ridiculed by Dion's
political opponents who are setting up to make a carbon tax the
defining issue of the next election campaign. In a sign of the
no-holds-barred opposition Dion can expect in coming months, the New
Democratic Party (NDP) deliberately forced an impromptu procedural
vote in the Commons that caused automatic bells summoning members to
vote to ring throughout half of Dion's forty-five minute televised
speech. Nonetheless, although occasionally struggling in English,
Dion gave probably his best speech since becoming Liberal leader.
He is clearly passionate about the issue and it is a good fit for
him, as well as having the advantage of shifting the focus from him
personally to policy where he is more comfortable.

A FUNDAMENTAL TAX SHIFT

3. (U) The 48-page plan entitled "The Green Shift: Building a
Canadian Economy for the 21st Century, " is unexpectedly heavy on
economics, as was Dion's speech, which amounted more to a budget
presentation than to a political stump speech. Dion deliberately
portrayed his plan less as a carbon tax than as a fundamental shift
or "fiscal reform" of the Canadian tax system, dovetailing the Green
Shift with a Liberal anti-poverty plan announced earlier this
spring. Rather than paying more, Dion stated, Canadians would pay
differently. Dion insisted that Canadians are ahead of their
politicians, are looking for leadership on climate change, and are
"ready to do the right thing" for the environment and for the
economy. He dismissed naysayers whom he said had told him that
putting a price on carbon was good policy but bad politics. Saying
that he is "utterly convinced" of the need to take action on climate
change, he declared that "the Liberal Party must do this because
others will not."

A FOUR YEAR PLAN

4. (U) The carbon tax would be applied at the wholesale level on all
fossil fuels based on their level of emissions. In the first year
after the plan's enactment, the tax would be set at $10 per ton of
"greenhouse gas emissions," rising to $40 per ton in the fourth
year. (Comment: While unspecified, we presume the plan would target
CO2 equivalent emissions over the fuel's production and combustion
life cycle. End comment) Consumers would also pay carbon taxes at
the point of sale for some products, apparently in acknowledgement
that purveyors will pass along to consumers whatever taxes they pay
Qthat purveyors will pass along to consumers whatever taxes they pay
at the wholesale level. By the fourth year of the plan, consumers
would pay taxes of 7 cents per liter for diesel, 11.3 cents per
liter for light fuel oil, 12.4 cents per liter for heavy fuel oil,
and 10.2 cents per liter for kerosene, for example, and taxes would
also apply to propane, natural gas, and coal.

5. (U) Curiously, the plan would not impose carbon taxes at the pump
for gasoline, because the federal government already collects an
excise tax of 10 cents per liter on gasoline sales (the equivalent,
according to the plan, of $42 per ton of GHG emissions). Overall,
the Green Shift's carbon taxes should bring the government $15.3
billion in the plan's fourth year, which would be offset by over $15
billion in personal and corporate tax cuts and other benefits for
lower income groups, seniors, and rural and northern Canada
residents.

6. (U) Green Shift does contain two other elements that would
promote greater efficiencies: an accelerated capital cost allowance
(accelerated depreciation, essentially) for green technologies, and
better incentives (in the form of tax credits) for private R&D.
While the details remain to be fleshed out, the plan suggests that
additional measures to boost home retrofits, greater use of
energy-efficient appliances and vehicles, and other low-carbon
practices will be forthcoming.

WAR OF WORDS

7. (U) Now that the Plan is in the public arena, the battle to win
over voters and a skeptical media can begin in earnest. PM Harper

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wasted no time, attacking the Plan as "crazy economics," and arguing
that Dion could not be believed when he rejected a carbon tax during
his Liberal leadership bid in 2006, and he should not be believed
now. Reprising the tag line of recent Conservative anti-Dion attack
ads, Harper alleged that the Liberal carbon tax was a "Tax on
Everything," an unprecedented revenue grab imposed on Canadians
already struggling with high energy costs. For their part, the NDP,
who are competing for the same center-left voters as the Liberals,
lambasted the Plan for its lack of targets and limits on GHG
emissions. They dismissed it as an attack on ordinary Canadians
rather than on corporate polluters, and little more than a tax
"shell-game" that would not "get the job done" on climate change.

8. (SBU) Comment: The roll-out of the Green Shift Plan is a relief
to Liberals who can now begin to answer Conservative attack ads that
preceded the launch. However, the Plan's complexity is a major
challenge, given Canadians' anxiety over the economy and rising fuel
prices. Moreover, it is not readily apparent how the Green Shift
would make a significant impact on consumer behavior and there
appear to be a number of internal inconsistencies. At the level of
the individual consumer, the biggest continuing decision is over
driving, and the pump price of gasoline would not change, according
to the plan, dampening its impact on gasoline consumption. And
while the plan postulates that tax reductions and benefits for low
income and rural dwellers would cushion the impact of carbon taxes,
the most likely impact of the plan on the average Canadian is higher
prices for energy, the consumption of which in Canada's often harsh
climactic conditions and huge geographic expanse, has so far proven
to be relatively price inelastic.

9. (SBU) Continued comment: The Liberals must also square their
Plan with the provinces, including British Columbia and Quebec,
which are about to impose their own carbon taxes. That the twin
strongholds of Liberal support -- Atlantic Canada and Ontario -- are
among the heaviest consumers of home heating oil and already face
some of the country's highest hydro bills will also not go
unnoticed. Additionally, the tax shifts -- while significant for
low income earners -- are relatively modest for the middle class
which will carry the freight for higher energy taxes. In the end,
however, some Canadians will like the Plan and others will not, and
much will depend on which party has the best spin, making its
ultimate impact on the political climate uncertain. End Comment

WILKINS

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