Market News

 August 07, 2013
British Columbia's Carbon Tax Works, Study Says

 Despite claims by many critics that reducing fossil fuel consumption cannot be done without damaging the economy, a study released earlier this month by an Ottawa-based think tank says otherwise.

Sustainable Prosperity, a Canadian national research and policy network based at the University of Ottawa, released what it believes to be the first-ever report on B.C.'s five-year-old carbon tax and concludes that since it was introduced in 2008, B.C.'s consumption of fossil fuels has been cut by nearly 19 percent per capita compared to the rest of Canada, while the province's Gross Domestic Product has kept pace nationally.

On July 1, 2008, B.C. brought forth North America's first carbon tax that imposes a price on the use of carbon-based fuels. All the revenues from the tax are set aside to fund corresponding cuts in other taxes.

"B.C.'s experience shows that it is possible to have both a healthier environment and a strong economy by taxing pollution and lowering income taxes," said study author Dr. Stewart Elgie, an associate professor at the University of Ottawa and director of its Institute of Environment.

He said the key to the success of B.C.'s shift to a carbon tax is that while taxes increased on fossil fuel use, income taxes were reduced.
"B.C. just had the guts to try it -- and it's working," he added.

The tax is a central component to B.C.'s climate change strategy, which aims to reduce greenhouse gas (GHG) emissions by 33 percent below 2007 levels by 2020. It applies to almost all fossil fuel use in the province including gasoline, diesel, propane, natural gas and coal. The tax covers just over three-quarters of the province's GHG emissions from residential, commercial and industrial sources.

In 2008 it was initially set at $10 per ton of carbon dioxide equivalent but was designed to rise by $5 per year until it reached $30 per ton on July 1, 2012, where it is now frozen for the next five years. That's roughly the equivalent of seven cents per liter of gasoline (or about 26.5 cents per U.S. gallon).

The study found that the per capita consumption of petroleum fuels subject to B.C.'s carbon tax fell by 17.4 percent between 2008 and 2012 compared to an increase of 1.5 percent for the rest of the nation. That made the difference of 18.8 percent in fuel consumption between B.C. and other provinces, which the study noted as being "remarkably large."

It also found that while sales of petroleum fuels subject to the B.C. carbon tax followed the rest of Canada between 2000 and 2008, when the tax was introduced, there was a marked decline in B.C. fuel sales compared with the rest of Canada between 2008 and 2012.

"So while B.C. was doing as well as the rest of Canada in reducing fuel use before 2008, it has done much better since the carbon tax came in -- suggesting that the tax was an important contributor to B.C.'s success in reducing fuel use in the past four years," the study said.

The study also compared GHG emissions per capita counting only those sources that are subject to the B.C. carbon tax between 2008 and 2011 (data on GHG emissions was only available through 2011).

It found that B.C.'s per capita GHG emissions declined by a total of 10 percent compared to the rest of Canada, which declined by 1.1 percent, a drop of 8.9 percent.
"The experience in B.C. to date is consistent with the results witnessed in seven European countries that brought in carbon tax shifts in the 1990's," the study noted. "In those countries the tax shifts caused estimated GHG emission reductions ranging from two to seven percent (over a decade or more) according to a major empirical study funded by the European Union."

"B.C.'s carbon shift is only four years old so it is too early to draw firm conclusions, but its GHG reductions are trending in the same direction as those seen in European countries with more than 15 years of data," it also said.

On the economic front, the study found that B.C.'s economy slightly outperformed the rest of the country over the period that the carbon tax has been in place. On a GDP per capita basis between 2008 and 2011, the B.C. economy had a net decline of 0.15 percent compared with a decline of 0.23 percent for the rest of Canada.

"The difference in the GDP change is very small," the study said. "Therefore, while it would be a stretch to claim that the tax shift has had a positive impact on the economy, the data at least appears to indicate it has not had a negative effect.

"B.C. has a carbon price that is higher than anywhere else in North America and most other countries in the world, yet there is no evidence at this point that it is harming B.C.'s economy," the study explained. "In other words, B.C. is building a low-carbon economy."

Not surprisingly, the recently re-elected B.C. Liberal government, which brought in the carbon tax in 2008, was quick to praise the new study.

Environment Minister Mary Polak told reporters in Victoria that other provinces may look to follow B.C.'s lead. Alberta and Quebec have subsequently introduced a carbon tax.
"There are jurisdictions around us that are interested in pricing carbon," she said. "Many of them are having discussions with their industrial partners right now to evaluate what type of a price they ought to be approaching."

New Democratic Party environment critic Spencer Chandra Herbert said B.C. should move to expand the carbon tax's scope. The study also noted that the carbon tax now enjoys a 64-percent public approval rating.

However, one part of the B.C. carbon tax's coverage is receiving a great deal of public criticism. Under a system created in 2009 by the then B.C. government, hospitals, schools and universities are forced to pay into the Pacific Carbon Trust as compensation for their carbon emissions.

The PCT is a government-owned Crown corporation that uses this public money to help finance carbon reduction improvements made by private companies. This allows the B.C. government to claim that its public sector is "carbon neutral."

But the PCT is accumulating a surplus that is growing and expected very soon to reach $30 million because it charges schools, universities and hospitals $25 per ton for their emissions while paying private sector companies $11.30 per ton in carbon-reduction credits.

In 2012, universities, hospitals, schools and other government bodies paid more than $18.8 million for their emissions.

"This continues to be a shell game for government, where they overcharge their own agencies to buy these carbon credits," said Canadian Taxpayers Federation B.C. spokesman Jordan Bateman. He also said this system simply takes money away from cash-strapped public institutions and gives it to private companies that likely could make their emission improvements without public financial help.

B.C. Ministry of Environment officials have released a statement saying a review of the PCT is now under way.