The interim Liberal leader says the vicious partisanship that has characterized the debate on the issue so far is disingenuous.
And he says it's paralyzing the real debate Canadians need to have on what is the best approach to reducing greenhouse gas emissions.
He says some form of carbon pricing is inevitable and even the Conservatives — who now rail against carbon pricing as a "tax on everything" — have admitted it in the past.
Rae's call for a more reasoned approach to the issue came during a major speech in Toronto, the text of which was made available in advance.
The wide-ranging speech focuses on the need for federal leadership to ensure Canada's resource wealth is exploited in a sustainable, responsible fashion that will produce widely-shared economic benefits.
Rae presented the ruling Conservatives and the NDP as polar extremes on resource development, positioning the Liberals in the moderate middle.
"There are some who see this resource wealth as a curse, even a disease," Rae said, referring to NDP Leader Tom Mulcair's assertion that the booming oil and gas sector has artifically inflated the value of the Canadian dollar.
That, in turn, has devastated the manufacturing sector, Mulcair argues — a phenomenon dubbed Dutch disease.
"This is simplistic nonsense," said Rae. "It is an important part of who we are, a great advantage for Canada."
Equally misguided, he said, is the Conservative approach to squander natural resources as quickly as possible for the biggest short-term gain.
"Some will try to get rich quick and be left with little in the bank at the end. 'Rip it and ship it' is a recipe for disaster, as history has shown."
Rae said the federal government should be bringing provincial, territorial, municipal and aboriginal governments together to develop a national energy strategy. Aboriginal peoples must be fully involved from the outset in developing energy resources, he said, and in sharing the revenues and protecting the environment.
Since development of Canada's resources inevitably involves foreign investment, Rae said the federal government must replace its vague "net benefit" test for approving foreign takeovers with a "clear, national benefit to Canada" test.
That would include enhancing Canada's capacity for research, technology and innovation, ensuring sustainable development; ensuring the application of all relevant national, provincial and municipal regulations; and an "appropriate" role for Canadians in the operation and management of the company.
Foreign state-owned enterprises should be subject to additional scrutiny, Rae said, to ensure complete transparency, that the investment will respect Canadian sovereignty and that the foreign country is open to reciprocal investments by Canadian companies.
The federal government is in the midst of revising the way it assesses foreign investments by state-owned enterprises. New rules are expected within the next month, as Ottawa decides whether to allow the Chinese takeover of Calgary-based Nexen and the Malaysian takeover of Progress Energy Resources.
Earlier this week, former Conservative cabinet minister Jim Prentice, now a banker, urged Prime Minister Stephen Harper to make sure such companies are forced to act like Western businesses and to ensure Ottawa has the tools it needs to make sure companies live up to their undertakings.
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