McGuinty at odds with Dion over carbon tax

The tax, which is expected to be a central plank in the federal Liberal election platform, is one way to put a price on carbon and reduce greenhouse gas emissions, but his "first choice" for Ontario is a cap-and-trade system, McGuinty said.

"It's one of the things that (Premier) Jean Charest and I are going to continue to talk about, to see if we might build the foundation for a national cap-and-trade system," he said.

The system, which would limit industrial emissions and trade credits to reduce harmful greenhouse gases, is expected to come up during a joint cabinet meeting between the two provinces.

Ontario favours a market-based system over a carbon tax because it makes more sense for the province's economy, said Environment Minister John Gerretsen.

"Every province has a different economic situation and we feel that from our perspective, a cap-and-trade system is the best way to go," he said.

McGuinty vetoed the idea of a carbon tax in February after British Columbia announced the tax in its provincial budget, saying he would pursue other alternatives that better suited Ontario's economy.

His opposition to a carbon tax puts him in an awkward position with the federal Liberals, including his brother, environment critic David McGuinty, and Dion, who are trying to sell the carbon tax proposal to voters.

Dion, who is expected to unveil his plan before the end of June, has already been forced to defend the proposal ahead of its release. Critics – including those in his own party – have already voiced concerns that the proposed tax is confusing, expensive and politically risky because many voters will see it as a money grab.

David McGuinty downplayed concerns that the carbon tax plan could drive a wedge between the Ontario and federal Liberals.

He said he had a "general discussion" with his brother about the merits of one system over another, but said the premier didn't express an opinion about carbon taxes.

"It was more of an exchange of ideas around the two possibilities, the two primary market mechanisms that can be harnessed to achieve the same end, which is a price on carbon," David McGuinty said.

In fact, a federal carbon tax could complement a provincial cap-and-trade system, he said.

"I think what the premier's said is, `Look, given the here and now of the specificity of the Ontario economy, and how we would like to go forward in pricing carbon, we would rather go with a cap-and-trade system first,"' he said.

"But I doubt very much the premier's ruling out the notion of a carbon tax shift."

Yet David McGuinty recently slammed NDP Leader Jack Layton for opposing a carbon tax on the basis that it could end up punishing the poor, accusing him of "playing politics" with the environment.

B.C. is expected to bring in a carbon tax this summer. Quebec introduced a form of carbon tax last year that directs revenues to initiatives supporting green technology, while Manitoba has imposed a tax on coal.

Alberta – by far the largest greenhouse gas emitter in Canada – opposes a carbon tax. Nova Scotia hasn't ruled it out.

Cap-and-trade systems have also been lauded as a major tool to significantly reduce industrial pollutants and slow climate change.

A number of groups in North America are looking at developing regional systems, including the Western Climate Initiative, which counts Manitoba, Quebec, B.C. and seven U.S. states as partners. Ontario is still an observer.

Under a cap-and-trade system, governments determine which sources will be covered – such as manufacturing and oil and gas production – and set caps on emissions.

Companies are required to have permits covering their annual emissions, but those who produce fewer emissions can sell their surplus.