Scoring the Carbon Tax: British Columbia’s Experience
February 6, 2013
In 2008, our government took the bold step of introducing Canada’s first revenue-neutral carbon tax. While it was controversial at the time, a recent Environics Institute survey shows that B.C.’s leadership on climate action is being recognized and supported by British Columbians, as well as other Canadians.
The survey found that 64 per cent of British Columbians support the carbon tax as a way to fight climate change, which is the highest level of support recorded by the institute since the carbon tax was first announced in February 2008. In addition, the institute found that the proportion of people strongly opposed to the carbon tax has dropped to only 17 per cent.
It’s also heartening to know that, according to the survey, 59 per cent of Canadians in the rest of the country would support a B.C.-style carbon tax in their own province. And support for the carbon tax goes beyond Canada’s borders, with it being highlighted as a model for broader adoption in the Economist, the New York Times and the Los Angeles Times.
British Columbia’s revenue-neutral carbon tax is innovative in taxing emissions (something we don’t want) rather than taxing income (something we do want) and promotes more environmentally responsible choices.
…let’s impose a broad-based carbon tax, one that starts small and slowly increases as the economy recovers to a level that drives innovation, moves individuals and companies to voluntarily buy greener technologies, and coincidentally yields new tax revenue to stabilize the national debt, sustain entitlements and hold down marginal tax rates.
The government of British Columbia used the proceeds from its modest carbon tax to lower its corporate tax rate from 12 percent to 10 percent, contributing to the province’s economic boom. A carbon tax of just $30 per ton would yield $150 billion a year to the U.S. Treasury, enough to reduce corporate and personal income rates by 10 percent and still leave a nice chunk left to help pay for universal health insurance.
You don’t have to believe in manmade global warming to like that.
“BC’s GDP growth has outpaced the rest of Canada’s (by a small amount) since the carbon tax came into effect – suggesting that it has not adversely affected the province’s economy, as some had predicted. This finding fits with evidence from seven other countries that have had similar carbon tax shifts in place for over a decade, resulting in neutral or slightly positive effects on GDP.”
The institute conducted 39 confidential interviews with BC business leaders, community leaders and academics and found that a strong majority (64%) of the respondents believed that the carbon tax has had positive consequences for the province, while only a small minority (18%) thought it had negative consequences.
But how do carbon taxes actually work in practice? One place to look is the Canadian province of British Columbia, which has had a modest carbon levy in place since 2008. (The tax started at $10 per ton of carbon in its first year and rose by $5 per ton each year thereafter. That translates into a roughly 9-cent tax on a gallon of gasoline, rising 5 cents per gallon each year.)
A recent report (pdf) from the University of Ottawa’s Sustainable Prosperity group checks in with British Columbia’s carbon tax experiment and finds that it appears to be accomplishing at least some of its goals. The province has reduced its carbon emissions at a modestly faster rate than the rest of Canada, even after the country’s 2008-09 recession ended.
A notable point here is that British Columbia’s economy has also been growing slightly faster than the rest of Canada since the recession. In 2010 and 2011, the province grew at an average rate of 1.78 percent a year. The rest of Canada has been growing at a 1.64 percent. “While it would be a stretch to claim that the tax shift has had a positive impact on the economy,” the authors write, “the data appear to indicate it has not had a negative effect.”
British Columbia has also used the carbon tax proceeds to lower both its local corporate income tax and the tax rates on the bottom two brackets, in order to alleviate the fact that the carbon tax hits the poor a bit harder. “As a result of the carbon tax shift,” the authors write, “BC now has one of the lowest general corporate income tax rates in Canada (tied with Alberta and New Brunswick), and also the lowest personal income tax rate in Canada, for those earning up to $119,000.”