The reality is that relations between Ottawa and the provinces are growing more strained by the day

Watching the recent press conference where Prime Minister Justin Trudeau and B.C. Premier Horgan announced funding for two new transit projects around Vancouver, everything seems lovey-dovey among the federal and provincial governments in Canada again.

Yes, Trudeau made clear once again at the press conference his support for the Trans Mountain pipeline expansion and his willingness to carry out more consultation and study in response to the Federal Court of Appeal decision that cancelled its permit and halted construction. And Horgan, happy that a federal cheque for $1.37 billion in transit money is in the mail, made no promise to stop fighting the pipeline using further court actions.

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Neither leader wanted to show discord. But the reality is that relations between Ottawa and the provinces are growing more strained by the day. Not only with respect to resource development and carbon taxation, but even other issues, potentially including the current heated discussions with the U.S. over NAFTA.

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The conflict over resource development is, after all, much bigger than the completion of the Trans Mountain pipeline. After watching four export pipelines to the U.S. either completed or expanded from 2005–10, Alberta has been stuck in tar ever since. The former Obama administration in the U.S. nixed the Keystone XL pipeline proposal in November 2015 after repeated regulatory delays. Although U.S. President Donald Trump’s administration now supports it, its completion has been set back by years. The Energy East pipeline proposal faltered with shifting regulatory goal posts, especially new rules to account for upstream and downstream GHG emissions. And Trudeau has rendered Northern Gateway and any other pipelines proposed for the northern B.C. coast impossible after his 2016 decision to impose a federal ban on oil tankers there.

On top of this, the federal government is pushing through Bill C-69, ostensibly aimed at improving the regulatory process but which industry experts fear will be even worse at extending timelines and creating more uncertainty for oil, gas, mining and other major developments. The lack of pipelines is creating multi-billion dollar losses for the Canadian economy, including a loss of tax revenues for governments.

The federal government might expect some credit in the West for its so far steadfast support of the Trans Mountain expansion, even purchasing the whole project, which could end up being a dud in the end. However, other actions from Ottawa have created distrust in the Trudeau government’s support for the resource sector. The federal Liberals were more than happy to see TransCanada cancel its proposal for Energy East, after all. Since they did not want to lose support in Quebec, where opposition to Energy East was high, any pipeline going through that province was effectively verboten.

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So, instead of backslapping Liberal politicians for their Trans Mountain support, Albertans and many other westerners view the federal government as ambivalent, even hostile, to the oil and gas sector, once they consider all the policies recently put in place. Westerners also perceive a distinct lack of fairness from Ottawa. Quebec, receiving gobs of equalization funds, opposes Alberta oil in favour of importing Middle Eastern oil instead. And while Trudeau seems unwilling to pressure B.C. to back off its anti-pipeline fight (and is still writing cheques for B.C. infrastructure), his environment minister has said Saskatchewan will be punished for refusing to impose carbon taxes by losing its $62-million share of federal funds for emissions reduction. The potential for major conflict is real.

Then there is the major hostility now brewing over carbon taxation. The Liberal government initially thought it had agreement for its carbon-tax plan from all provinces except Saskatchewan. That plan is now falling apart. Ontario has joined Saskatchewan in actively fighting the plan and several other provinces have waivered in their support for it. With Alberta Premier Rachel Notley’s decision to withdraw from the plan after the courts ruled to stop Trans Mountain, and the possible elimination entirely of even the existing carbon tax in Alberta if conservative leader Jason Kenney wins the next provincial election, most GHG emissions will come from provinces that refuse to impose Trudeau’s carbon taxes.

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The federal government will have to own that tax, now, and, promising a “backstop” to impose a federal tax on any province that refuses to tax carbon, it will be seen as a tax being shoved down its opponents’ throats (regardless of its legality). Even if the federal Liberals win the next election, the majority of voters in some provinces will be casting their votes against carbon taxation, creating further discord.

The possibility for federal-provincial conflict is just as real with NAFTA. So far the provinces have all supported Team Canada in the face of the blustering Donald Trump. But the outcome holds potential for increased division among the provinces and with the federal government.

One possibility is a NAFTA 2.0 agreement with a revised settlement-dispute process (perhaps different than what Mexico has already agreed to), a sunset clause similar to that agreed to by Mexico, new origin rules for automobiles and a scaling-back of supply management for dairy and poultry. Other issues might be involved, but these have been the key ones demanded by the Americans from the get-go to “rebalance” NAFTA in their own interest. Like Mexico, Canada’s objective would be to minimize pain. (Forget any win-win-win conclusion: many of the proposals will increase, not reduce protections).

A more tragic outcome would be no agreement at all. Canada would lose special access to the U.S. market and face higher tariffs (likely including Trump’s promised 25-per-cent levy on Canadian autos). The impact on the Canadian economy will be severe, especially for Ontario.

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Quebec, with the bulk of dairy farmers, would be antagonized by any agreement to reduce supply management in a meaningful way while Ontario, with its large auto industry, would be most hurt by a NAFTA failure. The big question is whether the federal government would be willing to undermine Ontario’s manufacturing economy in favour of 11,000 low-productivity dairy farms.

Perhaps the federal government is hoping that Trump’s bullying approach to trade policy will be stopped by Congress if negotiations fail. If that does not happen, the Team Canada approach will break down as provinces start fighting to protect their own interests.

Trudeau has had a bad summer already, with conflicts over pipelines and trade. But this is just the start of hostilities. The stakes are getting higher and provinces will become more desperate if the economy falters. Should NAFTA ultimately fail, the acrimony between governments, provincial and federal, will reach a whole new level.

Jack Mintz is the president’s fellow at the University of Calgary’s School of Public Policy.