Under its new plan, Environment and Climate Change Canada will tax most industries for roughly 20 per cent of their industry's average carbon emissions, and tax industries at high risk of foreign competition at roughly 10 per cent of their industry's emissions.
The government says other sectors may see adjustments to their greenhouse gas output measures, depending on further review of the impact of carbon pricing on their domestic and global competitiveness, with revised draft standards expected by fall.
They said the constitutional challenge is in addition to Premier Doug Ford's decision to join a similar legal battle launched by the government of Saskatchewan. The federal system will only be applicable in provinces without a federally approved carbon price system of their own.
"This climb-down by the federal government is a signal that we have been right all along", Ontario Environment Minister Rod Phillips said during Question Period on Wednesday.
The initial proposal was to cap emissions for heavy emitters at 70 per cent of the average emissions intensity in any particular industry.
Firms complained this would make them less competitive, given the United States has no such carbon tax.
The official opposition Conservative Party, level with the Liberals in opinion polls ahead of a 2019 election, vowed to scrap the carbon tax if it won power.
He reiterated that Ottawa's carbon tax policy is flawed and won't work in Canada if it hasn't worked around the world.
"It represents the federal government taking a big brother or an "Ottawa knows best" role which was never envisioned by the framers of our Constitution and which strikes at the very bedrock foundations of our Constitution", states the legal document.
"You want a carbon-pricing system to do two things, first spur emission reductions and second, to have firms remain in Canada while they do that".
The system would have companies whose emissions place them below the cap earn credits they could trade with companies that come in above it. Companies above the cap can innovate to reduce their emissions, buy credits to offset their emissions, pay the carbon price on emissions over the cap, or some combination of the three.
Taxing above 10 to 20 per cent would hurt a company's ability to innovate and find a viable solution, Elgie said. "The economy in Saskatchewan is different than the manufacturing economy in Ontario, and is different than economies of Atlantic Canada", Moe said.
Industry response on Wednesday to Ottawa's move was muted. "We are encouraged that the government is consulting with us". The industry feels "a certain amount of frustration", said Tim McMillan, president of the Canadian Association of Petroleum Producers.
"It seems to be politics driving the policy rather than economics or the environmental outcome", Mr. McMillan said.
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