In this episode, Gerald Butts and Catherine McKenna discuss their experiences passing a carbon tax in Canada, as advisor to prime minister Justin Trudeau and minister of the environment respectively. In particular, we focus on a key feature of the Canadian tax: all the revenue collected goes back to the province from which it was collected, mostly as per-capita dividends. Butts and McKenna believe that feature was central to selling the public on the policy.

Full transcript of Volts podcast featuring Gerald Butts and Catherine McKenna, February 16, 2022

(PDF version)

David Roberts:

In 2015, after nearly a decade of conservative rule, Justin Trudeau and his Liberal Party won a majority of seats in the Canadian parliament and control of the federal government. Part of Trudeau’s election platform was a carbon tax.

The proposed tax had a few key features. First, it would only be imposed on provinces that did not have their own pricing system that met a few minimum requirements. And second, all the money collected from a province would be returned to that province as carbon dividends.

After years of vigorous advocacy and negotiations, Trudeau’s liberals got the tax passed through parliament. It was implemented in early 2019, just before another federal election that became widely seen as a national referendum on the tax.

Liberals won again. The carbon tax was affirmed. It’s going to stick — and rise to a whopping $170 a ton by 2030.

This is a startling success story for climate policy that was largely overlooked in the US. We, uh, had some other stuff going on. But it’s worth taking a closer look at how Canada pulled it off.

Two people at the core of the tax pitch were Gerald Butts, who was principal secretary to the prime minister from 2015 to 2019 and Trudeau’s closest personal advisor, and Catherine McKenna, who was the minister of environment and climate change during the same period.

Butts and McKenna were in the trenches and they have the scars to show for it. Both of them noticed the piece I published on Volts in January on carbon tax refunds — and they objected to the conclusion that dividends did not make the carbon tax more popular in Canada.

So I had them on the pod! We talked about how the carbon tax was conceived, what enabled it to secure majority support (yes, they say, refunds were important), and where the politics of carbon pricing stand as we move into the 2020s. Not only were my spirits lifted — it’s nice to know there’s a sane country out there somewhere — I learned an enormous amount. I think you will too.

Without further ado, Catherine McKenna and Gerald Butts, welcome to Volts. Thanks for coming.

Catherine McKenna:

Very happy to be on.

Gerald Butts:  

It's great to be here.

David Roberts:   

When Justin Trudeau announced his candidacy [for prime minister of Canada] in 2015, the carbon tax was part of his initial pitch. How far back does the carbon tax idea go? Who got it in Trudeau’s ear? How long had it been bouncing around up there before it made its debut on the national stage? 

Gerald Butts:  

The first time it was a real issue in Canada was during the federal election campaign in 2008. Important for the context of the story, for reasons I'll go into later, is that the Liberal Party proposed something called the Green Shift, which was an elaborate take on a carbon tax, under the leadership of Stéphane Dion. But it was easily caricatured as a regional wealth redistribution program, because the revenue from the tax was paid into the consolidated revenue fund at the federal government, and it was redistributed by the federal government to programs of its own choosing, not all of which were environmentally related. 

To me, there were a lot of reasons beyond the Green Shift that the Liberal Party lost the election in 2008, but that was the fundamental flaw in the policy.

David Roberts:   

The idea is that you're just taking wealth from carbon-intensive provinces and redistributing it elsewhere.

Gerald Butts:  

Absolutely. That, of course, has a history in this country that goes back to when the current Prime Minister Trudeau’s father was prime minister and he created the National Energy Program. 

The conservative government in 2008, under Stephen Harper — which, to be diplomatic, was not inclined to climate action — easily caricatured this as the second coming of the National Energy Program in Western Canada in particular, and made it out to be that the Liberal Party was after Western money to pay for Eastern programs, which is always death in politics in Canada. 

When we designed our program, there were lots of people within the party who thought we should stay a million miles away from it, because they were convinced that they lost the election in 2008 because of carbon taxes. We were very careful to make sure that any of the revenue collected went back to the province from which it originated. That, I think, was what unlocked the political constituency for carbon pricing in Canada.

David Roberts:   

So that design — money goes back to the province from which it is gathered — was there from the very beginning, as you were working it out. 

Catherine McKenna:  

I came in as first minister of climate change and was given this mandate, and it was very clear that was going to be the hardest thing to land as part of our climate plan. For the first time ever, we went to Paris, we worked really hard to get an ambitious Paris agreement, but then we had to go home and do the work. 

I was stuck with the unenviable task of meeting with provinces and territories all the time and going through interminable discussion on carbon pricing. There was not a lot of appetite, and everyone would bring all the reasons not to do it. We needed to think hard about how we were going to land it. 

It's important to know there were some provinces that had pricing. At that time, Alberta had a progressive government that had brought in a price on pollution. Quebec was in a cap-and-trade system with California, as was Ontario, and BC had a direct price carbon tax. 

So we came to the table with that. Gerry and I spent a lot of time talking about the design. There were a lot of people who at first shied away, didn't want to do it, but when they decided maybe we could do it, they still thought it was okay to take the money and distribute it as the government saw fit. And I knew I couldn't land it, I knew there was no way. As liberals, as progressives, people believe the worst — that you're going to take this money and you're going to have your special things you want to do, which might be really dumb in the perspective of others. 

It was pretty clear, but it was a fight internally, too. Saying all the money was going to go back in a transparent way was just critically important to me. I knew I couldn't land it otherwise. It was still very hard, we had to do good comms, but it was critically important that we could talk to people and say, “you're going to get more money back.”

David Roberts:   

How did it play in the 2015 election, Trudeau’s big triumph? I'm curious how central the carbon tax was in his campaign and in the election generally.

Gerald Butts:  

There were bigger forces in 2015, to be brutally honest. The cornerpiece of our 2015 election campaign was something called the Canada child benefit, which was a progressive benefit given according to family income to people directly in cash. That's what we ran on in 2015: the middle class has been screwed by 25 years of supply-side economics and we're going to do something about it because we know you're hurting. Everything else built out from there. 

In 2015, climate helped us consolidate a progressive community behind the Liberal Party. This is an important piece of the context in Canada. There are a variety of options on the left, one of which is the center left, one of which is the Green Party, which has diminished its political viability over time as the Liberal Party has absorbed progressive environmental policy. 

Everybody wanted to get rid of Stephen Harper in 2015, and there was a debate over whether it was going to be us or the NDP. We put a more progressive policy platform together than they had, and climate was a huge part of that. I have no doubt that it helped consolidate the progressive community and has kept it there through some difficult times. 

David Roberts:   

The Canadian carbon tax is designed as a backstop, which means provinces with their own carbon pricing systems that meet certain minimum thresholds are left alone, and only provinces that don't have a sufficient price have this imposed on them. Was that structure also part of it from the very beginning?

Gerald Butts:  

Definitely. There are two things that Americans can be forgiven for not thinking deeply about when it comes to Canadian politics — probably more than two, but for the purposes of this discussion, there are two. 

One of them is, all of the revenue collected from the carbon price in Canada goes back to the provinces. None of it is spent on federal programming. There were lots of provincial governments who opposed it on ideological grounds but said they were in favor of it in public. But that's that's what we did, and some people, as Catherine said, were not in favor of it. That's the first thing. 

The second thing is, we were coming into power at a time when the four largest provinces already had carbon pricing schemes in place. They were acting in the absence of federal leadership during the Harper years. Had there been no carbon pricing anywhere in Canada, it would have been easy to put a uniform system in place. But we had to create this concept of equivalency, because we didn't want to punish the governments that had led on climate action at the subnational level in Canada. 

Those two things are really important contextual pieces of the Canadian politics of the time to understand.

David Roberts:   

Was there a lot of debate over what the backstop levels are? Because what you choose as your bottom line effectively chooses which provinces are going to get overridden. What was that process like? What are the minimums?

Gerald Butts:  

Catherine could speak to that better than I can. But from my perspective, conceptually, this is why a carbon price was important in the first place, because there would have been nothing to use as a benchmark and nothing to uniformly compare across the country as equivalency. When we say equivalency, what we really mean is an equivalent carbon price through some mix of policy measures at the provincial level.

David Roberts:   

Catherine, how was that hashed out? If you're putting together a baseline that provinces have to meet, you can imagine a baseline being quite elaborate and complicated, or you can imagine a very simple one. Was that done in dialogue with the provinces?

Catherine McKenna:  

At the end of the day, hard things are hard. I sat in so many meetings and we went nowhere. We didn't know where the four provinces that had a price were at. Cabinet ultimately decided we're going to start at $10, because that meant the system that existed would be acceptable for the four provinces.

Now, two of those provinces changed governments, so we lost the pricing that they had, but it showed resilience. This is the way we decided it made sense. 

It was a lot of design work. This is an across-the-board carbon price with all these different jurisdictions, and then we have an output-based pricing system for major emitters as the backstop, and also there's a benchmark on that. Environmentalists would probably love us to go into details. I won't go into details of the design, but in the end, one day, you have to just announce it. You have to do it. 

The provinces were trying to delay. This was in 2016. In 2015, Paris Agreement; 2016, we have some major challenges with you folks, and we're trying to land carbon pricing, but it was clear it wasn't going to happen. Gerry and I had a conversation and I said, “I can't land this on my own. I need the prime minister to be totally with me on this.” 

I was at a meeting of my provincial and territorial counterparts. It was quite a useless discussion, going around the table again, people restating their positions like they do,  negotiations are maybe going backwards. And I said, “you know what, it's been a great discussion, you might want to tune in to the House of Commons because the prime minister is just announcing now that there's going to be a price across the country and it’s starting at $10 and going to $50 in 2022.” (Obviously, I'd talked to some of the key provinces to reassure them that their system was going to be acceptable as long as they continued to go up. Stringency is really important.)

A number of people stormed off. All hell broke loose at the table. It was quite a lot of drama. But that's when it got real. We had many discussions, but suddenly, front page of newspapers: “there's going to be a carbon tax across Canada.” 

That’s the interesting part of this article, which suggests that even giving all the money back can't save a carbon tax. We've been through two elections, and it's held. In the last election, the Conservative Party, which has been extremely difficult, even brought in a weird system that was a fig leaf, maybe, of a carbon tax. In 2019, the majority of Canadians supported a party that had a price on pollution. 

So we were able to land it, but there was a lot of drama between 2016, when it was announced, and getting it done in 2019. There was talk about “technocratic dreams” and “policies can't transcend politics” — but what's missing in that is people. Actually, people are reasonable. We have a prime minister who said this, Jean Chrétien: “Canadians are reasonable, so be reasonable.”

David Roberts:   

The structure of the tax is that 90 percent of the revenue goes straight back to households in the province from which the tax was collected. What about the other 10 percent?

Catherine McKenna:  

That goes to business, indigenous communities, and other organizations, but in a transparent way.

David Roberts:   

For those of us who are not up on Canadian politics, what does it take to pass a law in Canada? Presumably Trudeau can't just stand up and say, “we're doing this now.” It has to be an act of the legislature. Is that just a single majority vote in parliament, or is there more to it than that?

Gerald Butts: 

The situation is much more straightforward if you have a majority government, which we did. We’re a parliamentary democracy, derivative of the British parliamentary system. If there's a majority party in the House of Commons that forms the government, generally they can rely upon passing their own legislation. Our Senate is not elected and therefore doesn't have the democratic authority to question the central purpose of any legislation — so essentially, if it passes through Parliament, it makes it. 

The big caveat is, anybody can litigate any piece of legislation that goes through Parliament in the courts.

David Roberts:   

Just to be clear: not a supermajority in the parliament — you just have more votes for than votes against, and the law passes. Any American listening will be incredulous.

Was there ever a realistic chance that enough members of parliament from your own coalition would rebel against this? Was there ever real doubt that if Trudeau put up a real bill it would pass?

Gerald Butts:  

No. There was doubt that we could manage the politics internally to get a real bill tabled, and that had to do with the federal-provincial dynamics at the time. But it also had to do with the internal management of caucus and cabinet — generally, the disagreements are behind the scenes. People were jumpy. 

David Roberts:   

I bet they weren't making arguments against their own party in the Wall Street Journal, though. 

Gerald Butts:  

No, they were not. 

David Roberts:   

The reason I emphasize this is that, in terms of setting a political context, something that is a fait accompli, definitely going to happen, brings out a different dynamic than something that you might be able to block. 

Gerald Butts:  

Once it's tabled, David. This is a really important distinction. Canada is not this lovely, magical land of unicorns where everything is easy and progressive. That's not the way it works up here. A lot of hard work was done behind the scenes. 

Remember the context: we had come from third place, in an almost extinction-level event for the Liberal Party of Canada, and gone on to form a government for the first time in the country's history. It had never happened before. There were lots of people in that caucus who were veterans of the 2008 election, and members of staff in senior roles who were like, “do we really have to do this?”

Frankly, it was Catherine's leadership, along with the finance minister at the time, Bill Morneau. Finance tends to be the place where people gather to make things not happen; it's like our own Congress within the federal government. Bill was clear from the get-go that he 100 percent stood behind what Catherine wanted to do, and we were going to make it happen come hell or high water.

Of course, it goes without saying the prime minister was behind it too. 

David Roberts:   

If you go to a provincial official and say, “all the tax we collect from your province will be returned directly to the people of your province, and most of them will come out ahead financially,” that sounds like a political home run to a sensible person. So what was all the jumpiness? What were the objections and counter-arguments?

Catherine McKenna:  

I should make a distinction. Caucus was jumpy; provinces were angry. They were just … conservatives. 

It was the weirdest thing, because I designed — with the support of Gerry, Bill Morneau, the Finance Committee, and a bunch of officials — the most small-c conservative policy you could do. I remember meeting George Shultz, and that came up; there are obviously Republicans who supported fee and dividend. 

I wanted to get the politics right, so I gave these folks an opportunity. I said, “go fill your boots, design your own policy.” To be clear, if the provinces that didn't already have a pricing system designed their own, they could keep the revenues. They didn't even have to give it back to the people. They could decide they were going to take the money and put it to their pet projects, that wasn't going to be our problem.

David Roberts:   

If you're going to reject that, you're going to reject any carbon price. You can't get more flexible than that.

Gerald Butts:  

You put your finger right on it. That was precisely our objective. Political context at the time: there were a bunch of conservatives running around Canada saying, “we believe that climate change is happening and it's a bad thing and we should do something about it … but not a tax.”

Our objective was to take all of the objections that have been leveled against previous attempts — be it regional redistribution, tax grab by the government, some nefarious global plot sponsored by the left and George Soros, whatever nutbar theory people wanted to level at it — and say, “no, this is a simple thing. We're going to collect the revenue, and we're going to give it back. If you're against that, you're against everything.”

David Roberts:   

To my question, then, what were their purported objections to this seemingly very reasonable policy?

Catherine McKenna:  

Well, they just lied. It's not a very nice thing to say, but they did. They were so opposed to liberals that they just said it was a cash grab. 

I looked at your article and I said, “this is not the narrative.” It was so important to deal with the lies, to spend a lot of time selling that all the money was going back.

Take Ontario — very important province politically, it's the largest province by population. To be able to say, “this is the amount of money that the average family's going to get back, which is more than you're going to pay” was super important. It was decisive. 

David Roberts:   

In terms of public opinion, you mean?

Gerald Butts:  

Part of my objection to the article is the definition of public opinion. If you ask someone their views on something in a poll, and it's a theoretical prospect, they're going to have one opinion of it. But when they go to decide which political tribe they belong to at the ballot box, that's where the rubber hits the road. 

I never like to have fights with environmentalists, especially in public, but this is a really important thing — the authors of the study were looking at publicly available data. I can tell you from what we were doing internally, within the government, that there was a 25-point difference among voters in support for a carbon tax and a carbon tax with a rebate. Twenty-five points. 

David Roberts:   

Let me back up one second. These conservatives are saying in public, “it's a cash grab, it's going to hurt families, blah blah blah,” all the predictable things conservatives say. But presumably, they're not dumb, they knew what you were telling them, that they're going to get all the money back. So what are they saying to you in private? 

Catherine McKenna:  

They're saying the same things. I couldn’t even believe it.

I would say that to them and then they immediately go to a microphone and they're like, “I just told the minister that this is a cash grab.” It was not super fun, because it was a fight a minute. It ended up becoming a real security issue for me, because people hear things from politicians, and you can inflame people if they think you're going to take money and people are just trying to pay the bills. So I'd have to rush to the mic, too, because they didn't care. 

I remember, in a conservative province where they have a provincial sales tax and generally people don't like taxes, I got someone to do the math for the premier. I said, “you could get rid of your provincial sales tax; you can bring this in. Here's your sales pitch!” And he was still against it.

This is why it's so important, us telling this side of the story. They thought it was a winner to rile people up and lie, saying “you're going to pay more money and you can't understand this anyway.” They would have ministers go fill up their tank and take a picture of them at the gas station, then say, “this is going to cost an average family this much by 2022,” but they wouldn't talk about how you're going to get more money back. It literally was a comms war. We would be on the airwaves, I had to be out getting pounded.

David Roberts:   

You became the face of the whole thing for a while. I imagine that was unpleasant.

Catherine McKenna:  

I'm Irish, I’m a competitive swimmer, I can take it. I didn't love it, that's for sure, but I believed in it. I believed that we needed to take serious climate action, and I felt like I could not lose it. I felt personal responsibility, which was a heavy weight, and I was very worried.

We had this output-based pricing system, which is very complex, because you have to look at particular sectors — cement, aluminum — and design in a way that you're not sending these companies offshore. It took a while; we literally brought it in in 2019, which is the year of the election. 

The reality is, to paraphrase David Axelrod, hard things are hard, and you're always going to take flak, so go do the really hard things that matter. We could have done a crappy, wimpier version, and they didn't care — these guys were going to be out there. (And by the way, it was all guys, a bunch of guys calling themselves the resistance to Justin Trudeau. And Catherine McKenna, I suppose.)

It was a fight worth fighting, but we had to enlist people, and not just environmentalists. (I will give a shout out to our good friend Kat. We all are big fans of Katharine Hayhoe.) Of course we had environmentalists putting out the message. But we got young people, and it was good because at that time you had Greta, and young people marching in the streets. We got doctors, there was a whole campaign of doctors to support us. I got Arnold Schwarzenegger to do a video — as a Republican, he brought this in in a bipartisan way. 

We were just doing whatever we could so that Canadians could hear the message. There was some emphasis on how Canadians didn't know exactly how much money they're getting back. That doesn't matter. Like Gerry said, the fact that you asked them, “do you know exactly how much money you got back?” — that wasn't the thing. In the end, we were able to make carbon pricing a necessary part of a serious climate plan where it wasn't the exact amount you got back that mattered. 

David Roberts:   

One thing I really despair about in the States is our abysmal media situation. Basically, our right wing has captured a large portion of the population and facts don't penetrate at all. I know you have some terrible Murdoch-sponsored media up there, too, but do you feel like when you put a coordinated effort into it you were able to get over the heads of that media machine and reach the public?

Catherine McKenna:  

We have media that fought this the whole time, but it actually goes to our broader strategy. We had to get to real people. As many op-eds as you put in the papers, how many people are reading them? We did them, but I didn't wake up every day thinking about op-eds. I spent a lot of time looking for clips for social media. In the election, the Liberal Party did a lot of social media to reach regular people. 

A really interesting thing happened that was surprising to me, but important. I had pushed to have a check back every month. I wanted someone to arrive at your door and hand you a big fat check. That would be the best, but we couldn't do it. 

But helpfully, we got a lot of free advertising from accountants, because at tax time they would literally advertise “come get your climate action incentive.” (We put a lot of effort into “climate action incentive,” what we wanted to call this thing you’re getting back. It had to be about climate, it definitely couldn't say tax rebate!) 

So you had all of these accountants and accounting firms saying, “We’ll do your taxes, get your climate action incentive, you're going to get this much back in the province.” I would go there and do events, we had local members of parliament doing events to promote it. At tax time people like money back. So that's the good news. 

I spent all my time trying to think about who I could get to sell it.

Gerald Butts:  

Again, we are not the land of unicorns up here. Two-thirds of our daily newspapers are owned by an American hedge fund, the same one that owns American media, i.e. the National Enquirer. They had no shame in how they opposed the carbon price — they printed lie after lie after lie about it.

But it didn't work, because one thing we do have going for us in this country, at least so far, is that we're not tribal when it comes to our partisan affiliation. Most Canadians have voted for different parties at different points in their lives. Some people even vote for different parties at different orders of government simultaneously. I think that's a good thing. Partisan adhesion is not as sticky in Canada as it is in many places.

David Roberts:   

Do you explain that just by reference to the fact that it's a parliamentary system and there are multiple parties, so there's not this constant binary forced on everything?

Gerald Butts:  

No. It's part of it, for sure. What explains it more is that we have more or less built and maintained an excellent public education system that 93 percent of Canadians send their kids to. You're looking for the secret sauce in Canadian policy and why everything from immigration to climate action is possible here? It's because of that basic fact that everybody goes to school together.

David Roberts:   

Carbon pricing was run on in 2015, passed in 2018, and then elections in 2019, so there was no getting around this being at the heart of the election. I was just reading an account of the 2019 election which basically said the big winner was the carbon tax. Two-thirds of voters voted for a party that supported the carbon tax.

If you’re a liberal and a fan of the carbon tax and involved in doing it, you have incentive to play up the extent to which the election was a referendum on the carbon tax, but was it really? Were there other bigger forces, or was it really mainly about the tax this time?

Gerald Butts:  

It was the showdown at the OK Corral about climate in Canada, for sure. There were other things, some of which it's still too soon for me to remember. You may remember a certain story that came out about the prime minister in the middle of the campaign — that took over the news cycle for a few days. 

The conservatives had been elected in major provinces (not that there are any minor provinces, coming from Nova Scotia) — they had the governments of Ontario, Alberta, more or less Quebec. And everybody, including of course the leadership of the Conservative Party federally, was saying “we are going to scrap the tax.” There were probably two or three things that decided the 2019 election, but there's no doubt in my mind that that was number one.

Greta Thunberg drew I can't remember how many hundreds of thousands of people to the streets in the middle of Montreal, literally in the middle of the campaign. The prime minister marched in the rally.

And more importantly for this discussion, there's no way we win that fight without the rebate.

David Roberts:   

So the fact that the money goes back to citizens did play a big role in the debate.

Gerald Butts:  

It was decisive.

Catherine McKenna:  

It was key. You could call it out. It was a reasonable policy. They could just say it was a tax grab, and the response had to be, “it's not, and by the way, this is what you get back.” In a way it's kind of good in elections when you have one issue — it doesn't feel good, at the time I was very nervous — but it was good, it focused the mind.

Carbon pricing also became, like, do you want to act on climate? Because the conservatives were so against it.

David Roberts:   

To what extent was public support about the details of this policy, and to what extent did it just become a proxy battle of, “we care about climate change and they don't?”

Gerald Butts:  

It's a great question, David, because this wasn't a detail of the policy — this was the policy, the price and rebate. The difference of one side saying “it's a tax grab” and the other side having to say, “well, look at all the things we're going to spend the money on,” and one side saying “it's a tax grab,” and the other side saying “they're lying to you” — when it's a live-action, kinetic political battle, one of those arguments is winnable, and the other one is not.

David Roberts:   

I feel the need to insert here, just to make myself feel better: not that there's anything wrong with the federal government taxing people and spending money on public purposes.

Gerald Butts:  

Absolutely. Our universal public healthcare system and the public education system that I just alluded to would be impossible without those things.

David Roberts:   

So you win in 2019 on the carbon tax. Is the feeling in Canadian politics now that the main issue is settled, we're just arguing over the details? Or are your right wingers like our right wingers here in the US, that never give up? Are they still after it, or is this a settled question in Canadian politics? 

Catherine McKenna:  

I think the Canadian public bought into a price on pollution — that's what we call it, not the carbon tax. But the conservatives apparently are going to kill themselves over this again. It's kind of funny, the number of stories that have been written about the conservatives tying themselves in knots over this, and conservatives themselves, the more reasonable ones who want to get elected, saying “you do this again, you're going to lose again, can you learn some lessons?” 

It's going to happen, but I don't think that means it's a lost policy. I think that the conservatives are a lost cause. 

Having said that, you always have to be vigilant. You can’t take it for granted. As the price goes up, you have to continuously emphasize you're getting more money back, but you also need to do the other things: make sure that your economy is growing and you're creating jobs and you're showing that you're taking real climate action. It's part of a bigger piece. 

Gerald Butts:  

Yeah, I don't think it's settled. I had hoped it would be settled in the last election. The conservatives had a weird policy that nobody believed they would ever really implement, that they would go to a first ministers’ meeting and say, ”hey, we tried, and now we're going to get rid of the old plan.” I don't think they ever had any intention of implementing it. It was, by my view as someone who has spent a lot of time in government in this country, unimplementable. But that's for them to answer. 

You mentioned the forces of the right wing in the United States — they're the same forces. Catherine and I are both phoning into this lovely discussion from Ottawa where we have MAGA flags and Confederate flags flying on Parliament Hill.

David Roberts:   

I want to hit on the Supreme Court case. Several provinces sued over the tax; the substance of the lawsuit was that this is an unconstitutional power grab by the federal government over things that ought to be provincial, and the Supreme Court ruled in March of last year that, no, it's constitutional. Pretty much settled that. How nervous were you about that? Was that case a big deal, or was it a frivolous lawsuit? 

Gerald Butts:  

It was a pretty huge deal.

Catherine McKenna:  

We definitely needed to win or else it was going to be really bad. 

We are a federation, so we had to demonstrate the reasonableness that the environment is joint jurisdiction between the federal government and the provinces. By saying, “you can do a direct price or you can do cap and trade and design it how you want but you have to meet the benchmark,” we knew that was going to be important, legally. We didn't just say, “okay everyone, too bad, whatever your system is, we're getting rid of it” or “you have to design it just like this.” We were reasonable. That was important. 

But also, the Supreme Court said climate change is a threat of the highest order to the country and indeed to the world. That was critically important, because it was going to be ridiculous at the most basic level if the federal government couldn't attack greenhouse gas emissions within the country. How are you going to have a climate plan? We couldn't comply with the Paris Agreement! If you have a target and you can’t actually reduce emissions because provinces get to do whatever they want and they can continue to slowly [increase emissions], that was going to be a huge problem. 

But the Supreme Court was very reasonable and they actually recognized that pollution doesn't know any borders. We had tailored it in a way that it was narrow, and that was important because they did look at, is the federal government going to come in? This was some of the arguments by conservative provinces, that we're going to regulate everything. We'd have these conservative premiers saying, “they're going to regulate how often you can drive your car.” We had to be careful. 

It was also a very important decision because it does now make it clear that the federal government can take action to regulate greenhouse gas emissions in potentially broader areas where it's in the national interest. I didn't really think we had a chance of losing. 

David Roberts:   

You were pretty confident in the case and in the court itself. What's the situation with partisanship on the Supreme Court in Canada? 

Catherine McKenna:  

It's not a thing. Stephen Harper probably tried to put people that might have been conservative. But the legal profession is different here. How we appoint judges is different. 

David Roberts:   

And the court is trusted by the public as a neutral arbiter. That must be nice.

Gerald Butts:  

As the prime minister said many, many moons ago when he kicked off his leadership campaign in 2012, this country did not happen by accident, and it will not continue without effort. It is a constant struggle, David.

Catherine McKenna:  

The Supreme Court — I wouldn't overstate it. Which sounds like a funny thing to say, it was obviously critically important that it be found constitutional. But at the end of the day, a new government can always change policy. 

That’s why you can't get distracted in some ways by some things. That was really important, because otherwise, you'd have to go back to the drawing table, or win a majority, or get new legislation. But end of the day, you have to convince regular people. 

Maybe 2019 was unusual, because it was such a significant issue, though fought on a variety of different fronts. But I actually think Canadians have come a long way, not just on carbon pricing, but on climate. The town of Lytton literally exploded, it just burned down. We're seeing massive floods, forest fires, droughts, our Arctic is thawing. That doesn't mean that a particular policy will be resilient, but if you talk about it as a reasonable person, and it is well designed — it has to be well-designed policy, you can’t sell something that sucks to the regular person — but we are in a different place from where Canadians were at in 2015.

Gerald Butts:  

And we're at a different place than where Canadians were in 2011. Canada did not look much different on climate change; in fact, in some ways, the Obama administration looked way better than the Harper administration did on climate change.

I guess that's the point, David, of this whole discussion, and why it raised our Canadian version of Irish when we read this study. People can change things in democracies. Sometimes the cards are stacked against you, and sometimes it feels like nothing good can ever happen, but if people put their whole heart and soul into it, they can make change happen. That is possible. It's still possible.

David Roberts:   

Well, we’ll have to agree to disagree about that. When people talk about the difference between the US and Canada on this issue, there's a lot of hand-waving about public opinion and who's sensible and who’s not, but to me, in the end, it all comes back to structures and procedures. You [Canadians] can have a majority that wants a policy, and that will result in the policy passing. We [Americans] have a majority that wants a policy, and we have a situation where 30 percent of the population can elect senators that can go literally block anything. So I think it's less the intangible stuff and more prosaic: we have really stupid rules, and kind of a stupid Constitution. 

I don't know how you get around that. We've done the work trying to change public opinion, it has changed, and we've come up with good policies — we did all the things we’re supposed to do, and now we're facing a situation where one dude from West Virginia, who partly owns coal plants, is literally deciding what and whether we do anything at all on climate change. It’s absolutely absurd.

Gerald Butts:  

That, to me, is one of the central differences between the Canadian and American political systems: the centrality of money. It's insane to me how much money — I remember David Axelrod asked me how much money we were going to spend in the 2015 campaign, and I said “it's probably going to be around $35-40 million.” It ended up being $42 million, in the longest election campaign in modern Canadian history. David said, “I spent more than that in the Democratic primary in Florida.”

David Roberts:   

One of the things that fee and dividend proponents are constantly saying is that it's very important that the rebates be visible, that people know they're getting them. They all are advocating this idea of sending the big Ed McMahon check to the door every month. 

But Canada went with a tax rebate that, unless you're pretty on the ball, would be very easy to not notice. That's the research that was written up in that paper — lots of people just aren't noticing it.

So why bury it in tax rebates? What prompted the decision to shift this summer to mailing checks? Do you anticipate mailing checks to make a big difference?

Catherine McKenna:  

I don’t know why we weren't allowed to. I actually said, “I'll deliver it. I'll go to every Canadian and bring it.” For whatever reason, the bureaucratic system could not do these mailed-out checks. We weren't able to win that. We’ve won it now, in the sense that we recognize that this is important.

Some of it was that people didn't know how much they got. Half of the people didn't know they got a check. To the extent people cared, they would be able to hear the conservatives say, “it's a tax grab,” and then they'd hear me and others saying “actually you’re going to get more money back.” It was very important, I can't emphasize enough. We could not have won if we had said, “actually, you know what, we put it into general revenue and we're going to do this green thing where we're going to give it to green stuff in different places, and I don't know what your provinces get.” That's not sellable. 

I don't want to be too depressed about the situation in the United States because we did live under Donald Trump — being the environment minister, it was hard for us. I actually went to Miami and Houston and hung out with the mayors there and did videos for Canadians to say, “but look, these guys are doing stuff on climate!” You’ll always have the states and cities and businesses that are acting. 

You’ve got to be crafty. We could have done the easy thing. It didn't really occur to me, because I wasn't going to back down on it, but people did want us to not do this, including internally. Some people will just wait out the clock. But we were crafty. 

I know it's much harder in the United States. Comms matters, designing things in a way that can uphold a constitutional challenge matters. I get your Supreme Court, you have challenges, working with states, litigating everything and knowing that it's going to be in place while it's litigated. You have to be crafty, too. I'm hopeful that the US is able to land things.

I'm going to be at Columbia with Jason Bordoff, working on carbon pricing and border carbon adjustments. Maybe the enticement of border carbon adjustments will help on the pricing. The IMF is working on a minimum price floor. So there's action. I'm a realistic optimist or an optimistic realist some days, but I don't want to give up on you guys doing things.

David Roberts:   

One of the things that's not publicly appreciated in these discussions about carbon taxes, because they're so big politically, is that, especially at the level that they're being talked about, they're macroeconomically not that big a deal. If you look at macroeconomic assessments, it's like 1 percent GDP one way or the other, with a lot of uncertainty.

I can understand completely why dividends serve as a great political argument, and also that people in practice maybe aren't that aware of them, because the amount you're paying in tax is not yet very big and the amount you're getting back is not yet very big. The actual amount of money, as opposed to the political symbolism of it all, is relatively modest. 

That said, the tax is about to go way up, to the point that we’ll pretty soon be at levels that Canadians will start noticing the costs, and maybe start noticing the checks back, too. The amounts on both ends are going to get bigger. Is there a next test of the tax?

Gerald Butts:  

I think there’s going to be an annual test. You're right that people are going to feel $170 a ton a lot more than they feel $50. There's no way you'd maintain a political consensus for it if that money weren't being rebated to people, because while you're right at even $170 a ton, at the maybe $3 trillion the Canadian economy will be at the time, it is not that much. But for individual families, it is a lot. 

David Roberts:   

Are you pretty confident that the checks will increase the salience of the dividends? Has there been any testing or polling on that, or is it just gut common sense?

Gerald Butts:  

I can't speak to that, because that policy was announced after I joined the private sector, but I suspect that was the reasoning. There's no reason to believe it won't be the case, but it's going to require a continuous commitment to communication. Of course, 2030 is sooner than it used to be. But it's still a couple of election cycles away, and anything can happen.

David Roberts:   

Well, thank you guys so much for doing this thing in the first place, which, despite your admonitions, still has unicorn vibes to me. Catherine, I wish you all the best in joining the fight down here in the US; we could use some new energy and optimism. Thanks to you both for coming on today. It was really fun. 

Catherine McKenna:

It was great.

Gerald Butts:  

It was  a real pleasure.