BC’s carbon tax - no reward without risk

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Source: GLOBE Foundation

In under a month, BC’s carbon tax will come into force. Many argue it will do little to reduce greenhouse gas emissions; others believe it is the most comprehensive carbon tax regime ever introduced that may set a precedent for other carbon taxes elsewhere. Either way the tax is a gamble for the BC government; but without taking such risks, there can be no reward.

Quebec is the only other jurisdiction in Canada to introduce a carbon tax - through a much more restrictive levy on gasoline and diesel fuel. Many believe BC’s tax, which comes into effect on July 1, 2008, is far superior in its scope and has made British Columbia a world leader in the fight against global warming.

Quebec’s carbon tax, introduced in October of 2007, requires energy producers, distributors and refiners to pay $200-million a year in carbon taxes. Oil companies are required to pay 0.8 cents for each litre of gasoline distributed in Quebec and 0.938 cents for each litre of diesel fuel. The tax will generate $69-million a year from gasoline sales, $36-million from diesel fuel, and $43-million from heating oil. Revenues from the tax will be used to fund renewable energy projects.

The BC carbon tax, which covers about 70% of the province’s emissions, will start at a rate of $10 (Canadian) per metric ton of carbon dioxide, and will rise by $5/tonne annually to reach $30 per tonne of CO2 in 2012. The carbon tax revenues will be returned to taxpayers through personal income and business income tax cuts, according to BC finance minister Carole Taylor, who spearheaded the push for the tax.

Taylor estimates that the BC carbon tax will equate to an additional 2.4 cents (Canadian) on a litre of gasoline, or 9.1 cents Canadian (9.2 cents U.S.) per gallon. When the price of carbon reaches $30/tonne, by 2012 the tax will equate to 7.24 cents per litre of gasoline and 8.29 cents per litre of diesel, making it roughly eight times as large as Quebec’s tax.

The price on greenhouse gases needs to reach at least $75 per tonne by 2020 to reduce greenhouse gas pollution to 1990 levels, according to the National Round Table on the Environment and Economy. B.C. is committed to reducing its greenhouse gases to 10 per cent below 1990 levels. Further increases on the price of carbon have yet to be established.

Under BC’s new carbon tax, 100% of the money is used to cut personal income and corporate taxes, and to provide refundable tax credits to protect people on low incomes. All BC citizens will also receive rebates towards renewable energy purchases.

According to the BC government, the tax is the first in North America to focus directly on reducing greenhouse gas emissions by motivating changes in business and consumer behavior. With the price of fuel rising to historic levels whether the tax itself will motivate change is debatable, however as a signal, it will not be lost on consumers.

Response to the tax has been positive. A new poll by McAllister Opinion Research has revealed that more than 70 per cent of Canadians support British Columbia’s carbon tax as a 'positive step' towards reducing greenhouse gas emissions.

In BC the response to the tax has been different. A poll by Harris/Decima published in The Vancouver Sun in March 2008 found that 75 percent of British Columbians are prepared to significantly alter their behaviour to fight global warming, but 61 percent did not believe a carbon tax was the best way to achieve greenhouse gas emission reductions. Less than half felt the tax would help fight climate change.

A Canadian Federation of Independent Business (CFIB) survey of members found only 14 per cent of small business owners supported the move.

This is because the carbon tax may not be entirely revenue neutral for individual firms or families. Many are expected to see their fuel bills increase by far more than any tax saving they might receive. B.C. municipalities are already saying they will have to raise property taxes to help pay for higher fuel costs caused by the new tax.

A poll recently commissioned by the Pembina Institute found that more than half of Canadians would like to see revenues from any federal carbon tax used to support renewable energy and energy efficiency, similar to the Quebec model, and only 11 percent wanted to see the money used for income tax cuts.

Still, despite the opposition, experts believe that the BC carbon tax is an appropriate mechanism for reducing greenhouse gas emissions. According to The Carbon Tax Center (CTC), a not-for-profit organization that promotes the use of carbon taxes, that the BC tax is a 'giant second step' for Canada following the Quebec tax.

Outside of Canada there have only been four other carbon taxes introduced to date - in Finland, Sweden, Great Britain, and the city of Boulder, Colorado, U.S. - and the BC tax ranks high by comparison according to the CTC. In both Finland and Sweden the Tax has had positive results on the expanse of renewable energy.

For example, Sweden’s tax, which was enacted in 1991, has now reached $150 per tonne of carbon, but no tax is applied to fuels used for electricity generation, and industries are required to pay only 50% of the tax. However, non-industrial consumers pay a separate tax on electricity. Fuels from renewable sources such as ethanol, methane, biofuels, peat, and waste are exempted.

As a result the tax led to a major expansion of the use of biomass for heating. By the year 2000 the tax policy reduced CO2 emissions by 25% more than a conventional, regulatory-based policy package.

There is no doubt that the government of BC has taken a significant risk by moving forward with the carbon tax but at some point, someone has to be brave enough to take the next step. The province has become a world leader in climate change policy, and any success with the tax could transform it into model for all of Canada.

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