The top candidates for the Conservative leadership are sharpening their environmental and economic policies, with businessman Kevin O'Leary promising to claw back any amount that provinces raise through carbon taxes.

At a debate in Ottawa on Friday, Mr. O'Leary derided Conservative MP Michael Chong's proposal for a revenue-neutral federal carbon tax as a pipe dream, before announcing his own plans to cut transfers to provinces that already have such a measure in place. He singled out the carbon tax in British Columbia for "milking $500-million out of businesses right now."

"When a politician says 'revenue-neutral carbon tax,' that's B.S.," Mr. O'Leary said. "Any provincial government that wants to impose a carbon tax under the O'Leary government will simply have it removed from their transfer payment."

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Conservative MP Deepak Obhrai cautioned that Mr. O'Leary's proposal would go against the Constitution by infringing on provincial jurisdictions. Conservative MP Andrew Scheer went on to attack Mr. O'Leary for his past proposal to imprison the owners of polluting firms.

"Your choice is a Justin Trudeau carbon tax or a Kevin O'Leary carbon jail. I'm against both of them," said Mr. Scheer, who is the former Speaker of the House.

Mr. Chong faced boos from the crowd of hundreds as he defended carbon taxes as the most cost effective way to deal with environmental issues. He added he would mandate the Auditor-General to ensure that his plan would not generate federal revenue.

"Any other approach involves bigger government, more regulation, more green subsidies and more green programs," Mr. Chong said.

Mr. Scheer also criticized Mr. O'Leary for the amount of time that he has been spending in the United States since the investor and TV personality launched his leadership campaign.

"Kevin, with all due respect, you haven't committed to winning a seat [in the House]; you've made statements like it's your way or the highway; you haven't committed to putting your full time into this. Being the leader of the Conservative Party is not a part-time job," Mr. Scheer said.

Mr. O'Leary responded that he is a Canadian resident and pays his taxes in Ontario, adding the amount is "very painful."

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The 14 candidates in the Conservative Party leadership race were all present for a two-hour debate. They were divided into four sub-groups for the event that was moderated by former TV journalist Tom Clark.

In the first subgroup, Conservative MP Kellie Leitch, who is also a medical doctor, was challenged by her caucus colleague Erin O'Toole to come up with concrete proposals to improve Canada's health-care system.

"Well, Erin, I've been publishing in this area [since] 2002. You may have come forward with a plan from someone else just recently, but I'm published on this," Ms. Leitch responded.

Former Conservative MP Chris Alexander quickly shot back that "mere mortals" are also able to develop plans to improve health care.

In the last sub-group, Conservative MPs Lisa Raitt and Maxime Bernier battled over Mr. Bernier`s proposal to end supply-management for farmers, and to drastically cut taxes. Mr. Bernier's pitch to develop "free trade in Canada" between provinces and "end corporate welfare" drew cheers from the crowd, but Ms. Raitt said his fiscal plan doesn't add up.

"Sometimes, you don't know the math associated with your economic plans," Ms. Raitt told Mr. Bernier. "It's incredibly important that a leader understands the effect that policies have on the average Canadian family."

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Other topics touched on during the debate included social issues, Canada-U.S. relations and renegotiating the North American free-trade agreement.

The debate was held as part of the Manning Conference 2017 in Ottawa, where there were panels on the best way to deal with Islamic extremists, attract millennial voters to the Conservative Party and capture the "anti-elite" vote in the next election.

Preston Manning, the former leader of the Reform Party, called on Conservative politicians to tap into the populist uprising in Canada, but also to channel that energy toward a positive agenda for the 2019 general election.

Mr. Manning acknowledged the ugly underside of political alienation and disenchantment, but said he is confident the Conservative Party of Canada can transform the movement into a powerful political force akin to the wave that brought Donald Trump to power in the United States.

"The answer to manifestations of 'Trumpomania' is not 'Trumpophobia,' but political leadership that addresses the root causes of voter alienation and redirects negative political energy to positive ends," he said in the opening speech of the conference.

Mr. Manning said Conservative politicians need to recognize the underlying public concerns behind populist movements, while "reject[ing] the dark and repugnant features which may accompany such uprisings and their more extreme representatives." The goal, he said, is to rejuvenate the Conservative proposal and offer more than "politics as usual" to the public in the next election.

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The issue of Mr. O'Leary's presence in Canada was one of the dominant issues at the conference. One of Ms. Raitt's supporters dressed up as Uncle Sam with a giant mask of Mr. O'Leary, mocking the businessman's propensity to spend time during the campaign in the United States.