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The Progressive Economics Forum

What’s next for BC’s carbon tax?

An oped of mine was published by the Vancouver Sun today:

What’s next for BC’s carbon tax?

Marc Lee

Climate change forced its way onto the political agenda in 2012, as Hurricane Sandy ripped through the northeast United Stages just days before the election. And while action remains frustratingly slow, extreme weather disasters in the billions of dollars are making a statement that politicians can no longer ignore. The costs of our addiction to fossil fuels are starting to pile up, and we cannot afford to keep dithering.

Recent surveys show that the public is ahead of the politicians in wanting climate action. Resistance to change, however, comes from greed and fear: vested interests from fossil fuel industries have disproportionate influence in the corridors of power; and politicians and citizens alike are concerned that action will hurt the economy.

Saying no to new fossil fuel infrastructure like the Enbridge pipeline is an essential first step towards a shift to a clean energy economy. But to pass the political test, climate action must also speak to a positive vision of a zero carbon BC. It must be fair, build alternatives like public transit and district energy, and create good jobs in areas that lower our greenhouse gas emissions.

Decarbonizing our economy will take time, and let’s face it, money. BC has an advantage here from its large base of clean electric power, its early actions on climate, and in particular, the carbon tax. While it is hard to differentiate between the impact of climate actions and the recession, the carbon tax deserves some of the credit for BC’s drop in GHG emissions, down 4.5% as of 2010 relative to 2007 levels.

A revamped and reformed carbon tax regime should be the engine for the “green industrial revolution” the province needs. Making the combustion of fossil fuels more expensive shifts incentives away from carbon-intensive activities, while providing revenues to build the green infrastructure we need. Most economists recommend a steadily rising carbon tax over time, and must eventually be quite high.

BC’s carbon tax was introduced in July 2008 at a level of $10 per tonne (2.3 cents per litre at the pump for those who don’t speak fluent carbon), and has gone up $5 per year to reach $30 a tonne as of July 2012.

Since then, the government has been silent on next steps for the carbon tax. Budget 2013 marks a key decision about whether the carbon tax will continue to be increased. And as the May election approaches, we also need to hear where the NDP is on this subject.

For a fair and effective carbon tax in BC, some reforms needed before we continue to increase the tax.

First of all, the tax should be expanded to cover all industrial emissions, including process emissions (much of which are in the oil and gas sector) that currently go untaxed. They should also apply the tax to BC’s exports of coal and natural gas (at least until importing jurisdictions have their own equivalent tax).

Second, to make the tax more fair the existing low-income carbon tax credit must be fixed, by increasing payments substantially and making them available to more households further up the income ladder. Additional credits to households in rural communities should be provided, since transportation alternatives are not readily available.

A redesigned carbon credit could be designed, for example, so that the bottom half of households would receive a credit that, on average, is larger than carbon tax paid (meaning, they would be net beneficiaries), while 80 percent of households would receive at least some amount. Under such an approach, the heavy lifting is accomplished by households with higher incomes – those who already have the largest carbon footprints.

Third, we need to use carbon tax revenues to support complementary climate actions like building retrofits and public transit, as Metro Vancouver mayors have urged. Using the revenues to build the infrastructure we need for the 21st century would also support tens of thousands of new green jobs – far more than BC would see from building new fossil fuel infrastructure in the form of pipelines and LNG facilities.

Continuing with $5 annual increases would lead to a carbon tax of $50 per tonne by 2016. Expanded to cover all industrial emissions, it would raise over $2 billion per year. Applying the tax to exports could raise several billion more because BC’s exported emissions from coal and natural gas are much larger than emissions within BC.

This is a win-win opportunity for BC. We can wean our economy and export profile off of polluting fossil fuels, create new jobs and be global climate leaders, fuelled by a progressive carbon tax system that reduces inequality as it raises the price of emitting greenhouse gases.

Marc Lee is senior economist with the CCPA-BC. Download his submission to the Carbon Tax Review here: http://www.policyalternatives.ca/publications/reports/ccpa-bc-submission-carbon-tax-review, or download the research report on which the submission is based: http://www.policyalternatives.ca/publications/reports/fair-and-effective-carbon-pricing.

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