BC introduces a carbon tax!
Since the provincial Liberals came to power in 2001 I have seen a lot of BC Budgets and not been too happy with any of them. Until now. Today’s 2008 model is a very interesting budget, and while I have a number of quibbles, I support the overall direction. And as in the recent past on climate change I find myself siding with the government against business – which is, well, pretty weird.
I was prepared to be underwhelmed by this “green budget†after gimmick budgets in recent years: a “housing budget†last year that failed to build any new housing, and a “children’s budget†the year before that did not expand early learning and child care. A couple of weeks ago the Premier was out lowering expectations by stating that a new climate action plan would not be released until after the budget. But once in the lock-up, I was pleasantly surprised.
To be sure, this is not the full-meal deal, and there were concessions made to business in order to sell the package. BC’s green budget is a balancing act between environmentalists and business, and I think they struck that political balance well.
One notable point is that the carbon tax will have a broad base, covering 70% of BC’s GHG emissions (much of the remainder will be covered by a cap-and-trade system for large industrial emitters in conjunction with the Western Climate Initiative). The remaining 30% represent emissions from industrial processes in cement and aluminum production, and fugitive emissions from pipelines and landfills. Overall, the amount of the tax is modest, at $10 per tonne (or 2.4 cents per litre at the pump) starting in July 2008, then rising to $30 per tonne by 2012. This gives a signal to businesses and consumers not only that the government is serious about climate change, but that prices for carbon-intensive goods and services are going to rise over time.
That said, a tax this size (even at the $30/tonne 2012 rate) will not be sufficient to get people out of their cars. Transportation is the last sector to respond to carbon taxes, according to the National Roundtable on Environment and Economy report. But they will affect decisions over time, as businesses upgrade their capital equipment and homes purchase new vehicles, furnaces and appliances. This capital stock upgrading is a big part of climate planning, and is a slow and steady process that happens over decades, with a carbon tax changing the nature of decisions made about which technology to purchase.
And if the $5 per tonne annual increases were to continue beyond 2012 (the final year specified in the budget) it would hit $70 per tonne in 2020 (the year we are committed to have reduced GHGs by one-third below 2007 levels) and $220 per tonne in 2050 (BC’s commitment is to an 80% reduction by this date). These numbers, if they were to hold, put us on a path similar to the modeling I have seen out of Jaccard and company – and that would get us to those targets.
The main point is that the carbon tax is there, period. Once implemented it can be increased in future budgets or by future governments. And this may well need to happen – the budget estimates a 3 million tonnes of GHGs reduction from a carbon tax rising to $30/tonne then staying there until 2020. But this is only a small fraction of the 22 Mt of GHGs required for 33% reduction by 2020 from 2007 levels. And other complementary policies will be required, too.
Economic impacts estimated at 0.1% of GDP, which seems reasonable to me. Given that there are huge costs to doing nothing – the narrowly averted spring flooding last year due to large snowpacks was estimated at $6 billion, or 3% of BC’s GDP – this seems a small price to pay. For businesses concerned about their competitive position, I would argue that there are first-mover advantages to business from taking a leadership role, and direct benefits to bottom lines from savings in energy efficiency.
The government chose to stick to a narrow definition of revenue neutrality, with all carbon tax revenues recycled through low-income tax credits and tax cuts. Modest personal income tax cuts are slated for the first two brackets (i.e. incomes under $70K). I’m not too impressed with tax cuts to appease business, who in the lead-up to the budget were lobbying hard behind the scenes against the carbon tax.
More tax cuts for business seems odd given that the costs will be paid by consumers. Some 38% of the carbon tax revenue is to be recycled to business through corporate income tax cuts. It would have been better to tie these cuts to GHG reduction in a more targeted manner. And above and beyond the carbon tax recycling there are additional goodies such as the elimination of the capital tax for financial institutions (presumably this will increase their ability to engage in innovative practices, like new mortgage products). Property taxes for large industry were also reduced.
My biggest concern has been the impact of a carbon tax on low-income families. The budget thankfully addresses this with a low-income carbon tax credit that will piggyback on the GST credit. The credit is worth $100 for adults and $30 for children with a phase-out period.
However, I would suggest some cause for caution. The tax credit is indexed to inflation but not to increases in the carbon tax. In other words, by July 2010 the carbon tax will have doubled to $20 per tonne, but the tax credit will have only increased by about 4% assuming 2% annual inflation. In the budget this means that the low-income credits amount to almost one-third of the carbon tax collected. A good start, but carbon tax revenues increase by 160% by 2010/11, while the low-income credit increases by only 40%.
[Correction, June 24: Upon re-reading the technical part of the budget, my take above on the low income credit is incorrect. The credit will increase by 5% as of 2009, and there are no scheduled increases thereafter. We will have to wait for future budgets to ensure that the credit grows in line with the tax. It is the income thresholds for the credit, not the credit itself, that will be adjusted upward by the rate of inflation.]
This is something that merits more modeling, as there is little information in the budget about how the combination of carbon tax and credit would look, especially three to five years down the road. Another issues is what happens to rural areas, where folks drive longer distances and are more car dependent. No additional provisions there.
In addition, all British Columbians will receive a one-time $100 climate action “dividend†this June. This will cost $440 million and is funded out of the 2007/08 surplus. While some may spend this on energy efficiency and the like, I suspect we will see a number of dividend parties come summer.
Besides the carbon tax are $1 billion in expenditures over four years towards meeting BC’s climate action plan (including measures from the 2007 Throne Speech, which was green but not in time for the budget the following week). In 2008/09 this will amount to $186 million. Energy efficiency retrofits and audits at $60 million over three years. And funding will help remote native communities switch away from using diesel as their main source of power. The list goes on for a long time, and almost all of it is good stuff.
A concern not addressed in this budget is the outstanding liability for BC government entities, including schools and universities, to be carbon neutral by 2010. For any emissions that cannot be reduced, they must pay $25 per tonne into a special fund to be used for other GHG reduction projects around the province. The potential liability for schools and others is huge and administrators are currently scrambling to get plans in place.
Finally, masked behind pages of green, there is the rest of the budget, which is pretty much the status quo. Increases in the health and education budgets are sufficient for services to keep moving along as they have been. No major increases that would reduce class sizes or build out community health care were tabled.
One piece to keep an eye on is a special account in health care for fee-for-service funding pilot in hospitals. While there is nothing wrong in principle with getting a better handle on how hospitals spend money, this move looks likely to increase administrative costs. Moreover, one wonders what this means for patients with complications that will cost more than the “average†as paid by the government. It is wide open question whether this model will work at all.
Social services, never a strong point with this government, gets the short straw in this budget. Housing advocates are deeply concerned about the abject poverty and homelessness on BC’s streets. With the 2010 Winter Games less than two years away, urgent action is needed. Yet, Budget 2008 allocates a weensy $33 million for new homelessness initiatives. This money will keep shelters open 24-7, on a permanent basis (from a pilot initiative last year). In contrast, the 2008/09 budget for the Olympics is about three times this amount.
This is a huge disappointment given that the underlying surpluses the government has are still quite large. The Minister wears the “prudence†built into the budget as a badge of honour. With $1 billion in stated prudence built into the budget, there is much more in there if we add in low economic growth assumptions. Indeed, next year revenues are stated to fall by 2%, even though GDP growth is expected to remain relatively strong, at 4.2% (nominal growth). Expect the 2008 year to close with another multi-billion surplus.
If the worst were to occur and BC was hard hit by a US recession, the impact on the budget would merely be to reduce to size of the surplus. Only if something catastrophic happened would BC experience a deficit.
So overall, this is a good budget and another step forward on the climate change front. But in other areas that are usually the focus of the budget there is little to write home about.
UPDATE: A tighter and shorter version of this post was published as an oped in today’s Vancouver Sun.
I fail to see how this carbon tax will do anything to reduce ghg emissions. It looks to me like the only thing the BC libs are doing is shuffling the tax deck.
It is idiotic to implement a tax grab further burdening the middle class whether it’s B.C. or anywhere else. B.C.’s middle class has been pushed out to distant suburbs by the stratospheric real estate prices in the city. More tax won’t help their already heavy loads. In http://pacificgatepost.blogspot.com/2008/02/carbon-tax-in-bc.html, I suggest taxes levied on real estate not owned by Canadian citizens. That might help temper the exodus we have witnessed over the past 15 years of B.C. middle class.
Rationalizations used by Ms. Taylor and Mr. Campbell such as fighting “climate change” are too inane to be comprehended, let alone argued with.
Why was there not even a dime of this multi-billion dollar windfall earmarked for new GHG reduction R&D? This was an ideal opportunity to find the needed funds to do the needed research to FIND A SOLUTION TO THE PROBLEM. Only research will solve the GHG problem, taxing people to heat their home or drive to work isn’t going to do it. A tremendous opportunity lost I would say.
At least BC had the nerve to act and I praise them for that. But as stated here on this site, a carbon tax is regressive. Those driving around in there Hummer’s with loads of high to middle income paycheques don’t mind paying a few cents more for their petro. However that ratio of extra money for a carbon tax is going to hurt those further down on the pay scale. Yes the reabate will help somewhat but it seems like some kidn of last minute throw in as it was not well thought out. Fuel price is about as elastic as my 3 toonies that I put into the city bus for fare. They should have offered up some alternative incentives and programs for the general public. I am thinking in terms of alternative transportation rebates, whether it be public transportation price reductions, alternative fueled vehicle rebates, small car rebates, bicycles or Kayaks for the Fraser River.
It is exactly the scenario that occurs when you unleash the commodification process onto something you are trying to regulate. Those at the bottom are discriminated against and feel the burden the most.
So on the one hand I am glad they did something, but on the other if it is used as a model throughout the Country I won’t be impressed. If this is the thin edge, then we need to have a serious debate about covering off the regressive effects much better than the window dressing attached to this program.
Paul
Thanks Marc. Your perspective is good, as I was pretty pessimistic about this announcment. I saw it as anything but a long-term signal of high carbon taxes to people making choices about capital investment. On the contrary, the maximum “carbon tax” level planned is about 7c per litre, which is very small compared with how much the price of fuel has risen in just the last few years due to the market alone. It is likely that supply-driven price increases by 2012 will outstrip those of this tax. As you mentioned, this would only be useful to our climate if the message was that the tax will continue to rise at at least 5$/tonne/year for decades.
To Robert McClelland: Taxing fuel and giving 100% of the revenues back to households who are buying the fuel *does*, in standard economic models, have the effect of changing demand for fuel, as long as the revenues are given back as lump sums. That is, incentives are to buy less fuel, even if the average household ends up with the same amount of money in the end.
Chris
UBC Economics
I am not an economist or anything similar. I am simply posting this idea hoping one of the educated readers can stear me in the right direction if I am way off base. I think the carbon tax is great. In fact I would like to see all tax collected on a purchase basis, meaning if you use something you pay for it. Could you imagine slapping a tax on everything we consume equally. The people who decide to own 6000sq’ homes can pay for heating and lighting that home. People in a small condo will enjoy their savings. Want an SUV over a bicycle? Fine, then pay for it. If you can afford the two million dollar home and $70000 SUV you can afford the tax. If not you need a budgeting course because you are living beyond your means. The eco-friendly consumer who lives in a high density condo, riding a bike to work everyday should not be punished for the greed or prestigue of others. This would also do away with the tax evasion specialists, illegal immagrants. I had a recent conversation with a gentleman who stated there are 16 family members living in a home. Two people in the home have Social Isurance Numbers yet all have jobs. I was informed they get around this buy simply working for the two registered members who both own the businesses. You will find this especially heavy in the construction industry and I see it all the time. It is impossible for a legal enterprise to compete with this. If people like this were forced to pay for what the consume individually we would have access to the 3 MILLION (estimated from GOC) illegal immagrants who are getting a free ride on our backs.
I’m very impressed to see this progressive carbon tax and hope that more provinces and states will follow BC’s fine example.
Does anyone here know the current status of this legislation in BC? It was unclear to me if the carbon tax is already law or if it has yet to be finalized. I would like to track down further details about the Bill so that it can be used as a guide for other provinces. Any help is appreciated. Thanks.
Comments on comments:
It’s easy to say that the government needs to be doing more on GHGs. Obviously lowering transit fares, creating vehicle feebates, even building cycling infrastructure can all be useful tools. I’d love to see a tax of $50,000 on Hummers, if not banning the things outright.
However, none of this takes away from the fact that a carbon tax is a good and, indeed, crucial step forward.
The price of fossil fuels excludes their social and environmental costs, which are massive. And don’t think we get away without paying those costs. We do pay them, through global warming, smog and its health and productivity consequences, etc.
A carbon tax can start to build those costs into the market prices, and thus reduce the enormous subsidies that fossil fuels now enjoy.
As for distributive impacts, no, carbon taxes are not necessarily regressive. They can be progressive, neutral or regressive; that’s a question of design of the instrument. In this case, the design was not a simple carbon tax, but a carbon tax shift. I.e. the taxes collected on the carbon are being shifted off of other taxes, notably low income tax credits and tax cuts.
A final point, no, research is not going to solve global warming. The only thing that’s going to solve global warming is a change in what we actually do, and that is mainly influenced by prices. I’d point out that if the prices on fossil fuels were right, more research would be done – because it’s profitable.
I never thought I’d see the day when (1) a conservative Canadian provincial government announces a carbon tax shift (arguably the first in North America); and (2) Marc Lee supports the budget of a conservative Canadian provincial government.
Weird indeed.
But, looking forward, the real jaw-dropping begins. Without trying to sound too dramatic, things have fundamentally changed in climate policy. And arguably environmental policy.
A carbon tax shift has been known as a smart policy choice for decades. It can deliver a real incentive to reduce emissions, continually (i.e. not stopping after some threshold is reached). And it can deliver an economic stimulus. In short, it can begin the work of de-coupling environmental harm from economic activity. And, if well designed, it can do so in a way that benefits lower-income people.
As Marc points out, it looks like the BC government has managed to design their carbon tax shift successfully. I have quibbles too, but the overall change is welcome.
And the most important point is the proof it provides that “it can be done”. Oil industry flaks, anti-tax screamers, jurassic types, and others who control Ottawa right now had a real trump card in their hands: a true carbon tax shift had never been announced in any jurisdiction in North America.
It had been considered political suicide. It could “never happen here.” It was confined to those tax-crazed, socialist dictatorships in Old Europe (you know, the ones that have better competitiveness than Canada, higher incomes, better health outcomes, longer life expectancies, etc).
That trump card is now gone. There is a North American precedent.
And the sky did not fall in. There will be no taxpayer revolt. The public, economists, and many business people and groups are in favour of the carbon tax shift.
To all the opponents of a carbon tax shift, I offer my condolences. You have lost the battle, and are about to lose the war.
Very quickly.
I applaud BC for implementing this carbon tax, even though it is not exactly the way that I would have liked it. I think it would have been most effective to invest the money into programs that reduce GHG like clean energy and public transit, but it is obvious why they chose to make it revenue neutral – to combat claims that it is regressive.
For those who claim that it unfairly targets low income people, the same is always said about increases to transit fares because supposedly most transit users are low income. I would hope that most low income people are not driving gas-guzzlers or cranking up the air-conditioning in large homes! These are the people and behaviors which the carbon tax is supposed to address.
The fact of the matter is that in Europe where gas prices are high and transit fares are low, most countries have a smaller gap between the rich and the poor than we see in North America, and their per capita emission are much lower.
“I never thought I’d see the day when (1) a conservative Canadian provincial government announces a carbon tax shift.”
You know the old Vulcan proverb: “Only Nixon could go to China.”
A left wing government would be ridiculed for introducing a new tax, but a right wing government can get away with the very same tax increase. Fortunately this move by BC will make it a lot easier for any government to introduce a new and better carbon tax.
I think myself and others believe this measure is not enough. My friend “Zim” sent me an excellent rant on the topic this morning. You can check it out here if you want:
http://friuch.com/wordpress/?p=53
Also, Mark Jaccard, a big proponent of a carbon tax in BC over the past two decades received an Outstanding Alumni Award for Academic Excellence from SFU at the same time this carbon tax was announced. Quite a night for Mark!
It would be fair for the federal government to reward the province that comes closest to meeting its pseudo-Kyoto commitment (since the Conservative leadership has obviously made a private but very real agreement with big oil not to temper oil demand or pay the carbon trading piper) with the headquarters of Canada’s impending carbon exchange. The number two Kyoto complier could be given the carbon derivatives exchange. I’d expect these to be much more than token carrots in the years ahead, with a variety of climate-related commodities and instruments unleashed as sensor data and climate knowledge both improve.
BC, Que, and MB are in the lead, but AB could easily afford both the capital investments and (facilitated by Kyoto) carbon trading costs to be Canada’s Green finance hub.
If I were to cost political platforms, I’d wind up with the Bloc doing most things very efficiently, but their intent to separate devaluing the Canadian dollar and Quebecois “Fleuro” so much that it becomes the economically worst platform.
The Conservatives would take a big hit on the GST cuts (politically wise, I suppose). But especially underinvesting in GHG reduction tanks everything else good they stand for; the environment shouldn’t command 1/10 the importance of health care, yet here Canadians are electing scientifically illiterate politicians….
I’d like to study infrastructure depreciation rates; to learn what novel construction technologies have lessened these rates since the last sewers and roads were laid down. I’d like to learn how urban sprawl costs could be mitigated in growing population centers, and how the feds could tie-in funding in cost effective ways. I’d like to know what parts of J.Flaherty’s existing and S.Dion’s planned infrastructure policy platforms are efficient and nonefficient. I’d like to study the health care system in detail; determine a heuristic for deciding what medical processes would-be/are too expensive to cover publicly. Also there is likely some union interference that can be amended to permit some newer medical precedures facilitated by new technologies; there are likely many eye-surgery analogies that should be permitted where competition with public nurses and physicians is not an issue. There are probably cheap ways to make a nurses work environment less stressful (increasing retention rates).
Instead, I’ll overcommit my study time to envirostuff, read a 150 page CCS paper next week instead of reading healthcare White Papers…
Exxon’s profits in 2007 alone would cover 1/3 of Hillary and Barack’s 10 year Green budget. And I couldn’t imagine the Democratic party ever funding studies suggesting oil refining isn’t real, the way the Republican oil/war machine attacks climate change.
The Canadian public and media are complicit in this, at present. The big issue dominating the airwaves is Afghanistan, not the future of food, water, geopolitical stability (and thus capitalistic trade and peace), and the world’s port cities (to be 75% of the world’s homes and 50% of its industrial capital by my math). Has anyone bothered to note 1/2 are allies won’t fight for women’s rights there (since preventing failed states obviously isn’t an agenda item for NATO member countries). And the other half think stealing oil is more important than stabilizing a NATO mission. I’d love to get women in the Afghanistan economy and prevent a global mid-21st century environmental armageddon (even if the Bible says such an evil event must happen and we can’t stop it). But if we can only chose one it is clear to me 36% of the Canadian electorate have f***ed this choice up.
Calgary and Edmonton should have become leaders in carbon trading, and in setting up institutes to determine no leakage occurs in such trades. The NDP originated in AB?! No way. B.Mulroney was scientifically literate. What happened?
By the way carbon is ‘C’ on the periodic chart and it is an Element ..LIke Diamonds or graphite..ETC
Co2 is a Gas not Carbon Many make this mistake some deliberately.
we have to remember that the average IQ level is 100 on the Stanford Binet IQ scale. this means 50% are below the average. The Goverment and the supporters of this farce need to learn about Gases.
Car Exhaust consists of:
Harmless:
– Carbon dioxide (CO2)
– Nitrogen (N2)
– Water vapor (H2O)
Some Pollutants:
– Carbon monoxide (CO) *
– Hydrocarbons or Volatile Organic Compounds (VOCs) *
– Nitric oxide (NO) *
– Nitrogen dioxide (NO2) *
– Particulate matter (PM-10) *
– Sulfur dioxide (SO2) *
It is unlikely CO2 would kill unless the levels reached 4500 ppm and you were subjected to that for a long time. Mining regulations allow up to about 5000 ppm for up to 15 minutes but that is with safety margins. In most crowded rooms the level reaches 2000 ppm or more if there are a lot of people even with reasonable ventilation.
What a load of crap this latest BC Budget is. The politicians have the perfect scam going. They have convinced everyone that we are on the brink of disaster by promoting a scare based on pseudoscience and twisted statistics. The premier has become chicken little. Now, I think anyone has the right to believe what they want but when the politicians start taking money out of my families pocket for nonsense like this carbon tax that’s when I get upset. I joined the Liberal party in 1998 because I didn’t like the future with the NDP. Now I find out that the province has ended up in the same place I saw it going under the NDP. Now I will do what ever I can to help defeat the Liberals in the next election. Just more socialist type oppression of working people with liberals.
I would like to ask on what grounds anyone could believe that the government will use this increased revenue to actually help the environment? Since when has any level of Canadian government used tax payers money to effectively combat global climate change and other similar issues? Money can not fix the problem. Only changes in behaviour can (especially at the corporate manufacturing level). Even if the provincial governments use of this tax revenue was effective to some minimal degree, it is unfair in that it taxes the general hard working public only and not the wealthy corporations. How? The corporations in BC have already begun adding the “carbon tax” onto their goods and services, either directly to consumers through another “carbon tax” at street level or by hiding the carbon tax through simple increases in the public charges and fees for goods and services. Either way, the average BC resident gets hit with the tax twice – once from the Provincial Government at the gas pumps and again whenever they buy almost anything else. Business gets off scott free. Surely the answer to the problems facing our planet is not to further tax Canadians, while leaving a central contributor to the issue locally (corporate Canada) laughing all the way to the bank? Perhaps, it might have been more effective if the government had thrown support behind initiatives which further promote the wide spread use and legitimization of electric cars or any of several social changes which lead to living more responsibly. Once again, the average Canadian joe and jane take it upp the wazzoo! You have to wonder when we will stop bending over.
Carbon tax won’t get us out of our car. We already drive as little as possible. We are a 1 car 1 working parent (would be two if daycare didn’t cost an arm and a leg, but we can’t.) family. We only use the car for him to drive to and from work, and buy our groceries. Maybe twice a month we visit the in laws.
The only thing the carbon tax will do for this lower income family is screw us into the ground even further. We’re definitely putting more than $260 worth of that carbon tax into our car a year.
Hello, sugar ethanol?! Where are you? Ethanol is NOT a new technology. In the 80’s, brazil was using solely ethanol, and reported it’s smog issues had cleared greatly within 3 months of beginning this. There is enough non-edible sugar in mexico to keep Canadians AND Americans driving for years to come. And even with import fees, the cost of the ethanol made from this sugar would be greatly less than that of gas. Want to see gas at .80 cents / L again? Go for the sugar ethanol!
I wanted to add… Transit isn’t always reasonable. It would take my husband a full hour EXTRA to get to and from work, where as in the car -it’s 15 minutes. That’s if he is not dispatched to the North Shore or Tricities. That is a minimum of 2 more hours per day we don’t see him, when he is already gone for 6am-5pm. So 5am to 6pm, minimum? My kids would see their father for 1 hour a day, and he’d likely be too burnt out to enjoy the time with them. Way to hurt the Canadian family. If we weren’t paying out the behind to live in Vancouver, we’d extend the time even further – that way, we would NEVER see him.
There are many, many families out there like ours.
And uh, – middle class? The Canadian government is slowly, but surely eliminating the middle class. The gap is growing ever greater.
Has anybody considered the cost of administering this tax grab? We do not need another government department, we need a whole new government! This new tax is a burden on both the wealthy and the poor! We need solutions to the energy shortage not taxes. The only way this tax would be pallitable in my mind is if the money raised was to be spent on cheap and clean energy alternatives.