BC’s Carbon Tax

While carbon taxes can’t solve the problem on their own (we will also need regulations on energy efficiency and land-use, public investments in transit, etc.), most economists will tell you that they are an elegant and effective means of changing the everyday behaviour of consumers and businesses.

So why do I think BC is doing this right?

First, they are starting it at a low level ($10/tonne which translates into about 2.4 cents/litre of gasoline) but have scheduled increases so it will be $30/tonne by 2012. I’d love for them to go faster, but this is politically smarter (which matters at this point, given how hard every other government except Quebec is running away from the idea of a carbon tax).

This means no one’s going to face major sticker shock tomorrow but everyone knows what’s coming down the road. So consumers and business people can make their investment decisions with that in mind, and at last doing the right thing on global warming is also benefiting their bottom line. Of course, the Intergovernmental Panel on Climate Change has said that we need at least $50/tonne to really have an effect, but there’s no reason BC should stop hiking it in 2012.

Secondly, they’ve made it ‘revenue neutral’ so they can’t be accused of making a tax-grab. It may make sense to raise taxes for other reasons, but that’s a separate issue – for now the new revenues coming in from the carbon tax will be offset by decreases in income and corporate taxes. You could even spend your tax break on green measures and avoid some of the carbon tax….

Third, they are protecting low-income consumers who spend a much bigger chunk of their income on energy. Since the lowest 20% of earners spend about 13% of their income on home energy, whereas the average household spends only about 2% to heat and power their home, a carbon tax could hit them hard and they’ll be getting some financial assistance to cushion the blow (but they still have an economic incentive to reduce consumption as much as possible).

And now that the carbon tax taboo has been broken, it’s time for the other provinces and the federal government to get with the program.

by Keith Stewart