B.C.’s carbon tax is looking like a winner

| Sourced From |

It’s hard to tell which has sunk lower: BP’s share price or the prospects for government action on climate change. Despite daily reminders of the growing costs of oil addiction — from blackened Louisiana shorelines to the rapidly melting Arctic — climate change seems to have dropped off global leaders’ agendas. The recent G20 declaration paid lip service to the issue, the U.S. Congress seems increasingly unlikely to pass a climate bill this year, and Canada’s official policy position is to say “after you” to the U.S.

All of which makes British Columbia’s approach even more remarkable. On July 1, 2008, B.C. embarked on an ambitious climate policy path; it brought in North America’s first ever carbon tax shift. Though praised by environmentalists and economists, the measure was soon met by a host of concerns — that it could increase overall taxes, decrease growth, and hurt low-income families. Some pundits labelled it political suicide, particularly after the resounding defeat of Stéphane Dion’s “Green Shift” in the subsequent federal election.

Two years later, it is possible to make a preliminary assessment of the tax, to see what lessons it may offer for the rest of the country, and the world. The result: B.C.’s policy experiment seems to be working.

B.C.’s carbon tax has two parts. First, it puts a price on emissions of carbon — the main greenhouse gas, which comes from burning oil, gas or coal. That cost is now $20/tonne (it rises by $5 annually). Second, the revenues are all plowed back into tax cuts for individuals and business.

What effects has this policy had so far? Although it is impossible to precisely identify the impacts of the tax shift in an economy with thousands of changing variables, initial results allay concerns that it would harm the economy.

In fact, B.C.’s economic growth in 2009 — the first full year the tax was in effect — was higher than Canada’s as a whole. Unemployment, although high because of wider economic events, is below the national average and does not appear to have jumped when the tax shift came in.

Perhaps even more significantly, for the average taxpayer, the carbon tax shift has been an economic boon. During 2008 and 2009, the tax raised $846 million. However, the province tied the carbon tax to reductions in personal and corporate income taxes, as well as tax credits to offset impacts on low-income individuals. The total value of these offsetting cuts was nearly $1.1 billion over those two years, meaning a net tax reduction for B.C. taxpayers of about $230 million.

While the economic effects of the tax have been negligible, the environmental impacts are expected to be positive. The province’s economic modeling projects that the policy will lower greenhouse gas emissions by about 5 per cent. It is too early to say exactly how much reduction has happened so far — in part because Canada has not yet released carbon emissions data for 2009, and because the current level of the tax is still quite low (about four cents per litre of gas). But common sense tells us that people use less oil, gas and coal as their costs rise. And there are lots of examples of this happening. At UBC, for example, the tax provides a $43-million incentive to reduce fossil fuel consumption; enough money to justify a major investment in ground source heat pumps, high efficiency windows, and other energy efficiency retrofits.

The carbon tax has obvious moral appeal. By tying the pollution tax to reduced income taxes, B.C. has shifted from taxing “goods,” like working and entrepreneurship, to taxing “bads,” like pollution.

Despite these benefits, many predicted the B.C. Liberals would pay a price for this new tax — including the NDP, who tried to make it a major election issue. However, the Liberals were re-elected with a larger majority in 2009. While one can’t say the carbon tax helped them, it certainly didn’t hurt.

And the initiative is drawing global praise. Harvard business professor Michael Porter — a world-renowned competitiveness guru — recently stated: “The right policy regime is a carbon tax, and the province of British Columbia has pretty much got it right.” The director of the U.K.’s Green Fiscal Commission, Dr. Paul Ekins, went even further, calling B.C.’s policy “a model for the world.”

The early results of B.C.’s carbon tax experiment are in, and they look positive. At a time when political leadership on climate change is sorely lacking, B.C. has stuck its neck out and done what most experts say is the right thing. Let’s hope other governments — in Ottawa, Washington and around the world — are watching.

Stewart Elgie is a professor of environmental law and economics at University of Ottawa. Nic Rivers is an economist and Trudeau Scholar at Simon Fraser University. Nancy Olewiler is a professor and director of the School of Public Policy at Simon Fraser University. All are members of Sustainable Prosperity.

© Copyright (c) The Ottawa Citizen

Posted on August 1, 2010 · in USA

Tagged as: Carbon Tax • climate change • ghg