Liberals outline carbon tax plan

By Randall Palmer and David Ljunggren

OTTAWA (Reuters) - The Liberal Party took a bold political gamble on Thursday by proposing a raft of new carbon taxes at a time when energy prices are at record highs.

Under the plan, which Liberal leader Stephane Dion is likely to make a central plank in his next election campaign, taxes would go up on fuel oil, diesel, natural gas, coal and jet fuel -- and indirectly on some electricity.

The taxes, designed to cut consumption of fossil fuels and improve the environment, would then get passed back through cuts in personal and corporate income tax.

The Liberals, who trail the ruling Conservatives in opinion polls, say the new taxes raised by the "Green Shift" should raise C$15.3 billion ($15.1 billion) in the fourth year.

"Our plan will be good for the environment and good for the economy, good for the planet and good for the wallet," Dion said in a speech to cheering supporters. "The polluters will pay and Canadians will gain."

The minority Conservative government dismissed the plan as "crazy" and accused Dion of breaking his word, noting he had said last year "There will be no carbon tax" if he won power.

"I changed my mind and my thinking evolved," Dion later told a news conference.

Prime Minister Stephen Harper said it was "nonsense" to claim a carbon tax would not push up the price of gasoline.

"We do not believe the way to deal with higher energy costs is to impose taxes specifically on energy. These are bad policies ... this is crazy economics," he told reporters in Huntsville, Ontario.

Polls show if an election were held now, the most likely result would be another minority Conservative government. The next national vote is scheduled for October 2009.

Dion feels the Conservatives -- who say Canada cannot meet its targets for emission cuts set by the Kyoto Protocol on climate change -- are vulnerable on the environment.

"Canadians know that we need to be bold, not blind, to the challenges we are facing today, especially when those challenges include the increasing cost of energy," he said.

The plan would impose a tax of $10 per tonne of carbon dioxide emissions, rising to $40 per tonne over four years.

This means the tax on diesel would rise by 7 Canadian cents per liter, or about 27 U.S. cents per U.S. gallon, by the fourth year. Home heating oil would rise by 11.3 Canadian cents a liter, or about 42 U.S. cents per U.S. gallon.

The tax would not apply to gasoline and would not affect diesel or jet fuel in the first year.