British Columbia’s Carbon Tax Cuts Petroleum Use by 16.1 Percent

The fourth anniversary of British Columbias carbon tax the only one of its kind in North America was marked with an increase on July 1 that raises the tax on gasoline a penny per litre to 6.67 cents ($0.25 per gallon). The tax has been controversial from the start, and it is no less so now four years into the program. The B.C. government, headed by the Liberal Party, has launched a comprehensive review of the tax, but with an election coming up next year the voters could have the final say.

The tax started at a price of $10/tonne on carbon emissions from the burning of fossil fuels, and with the July 1 increase is now up to $30/tonne. Income tax breaks and credits are provided to consumers and business intended to make the carbon tax revenue neutral, but last years $1.15 billion in tax cuts and credits exceeded the $960 million in tax revenue. Morevoer, it is not clear whether the tax is having the intended effect of actually reducing greenhouse gas emissions.

A June 27 report, British Columbias Carbon Tax Shift: The First Four Years, by Sustainable Prosperity concluded that the tax has produced substantial enviornmental benefits by reducing B.C. residents use of petroleum fuels by 15.1 percent, and by 16.4 percent compared to the rest of Canada. The report concludes that B.C.s economic growth has been slightly ahead of the rest of Canada, indicating that while the the tax has not had a positive effect on the B.C. economy, neither has it had an adverse effect. In addition, the provincial government has returned more than $300 million in tax cuts than it received in carbon tax revenue. The report concludes the carbon tax shift has contributed to noteworthy environmental gains, and lower overall taxes, without evident harm to B.C.s economy (and potentially improving its future positioning, but suggests detailed economic analysis is necessary.

While the B.C. government, currently headed by the Liberal Party, has undertaken a comprehensive review of the carbon tax, there also is an election next year and the carbon tax could be a key issue. The Liberal Party wants to keep the tax, while Conservative leader John Cummins, whose party vows to repeal the tax, recently called it a job-destroyer and hugely unfair to anyone outside of metro Vancouver who depends on a car. Said Cummins, It is not a good tax, which is why were the only jurisdiction in North America with a carbon tax. The opposition New Democratic Party, which campaigned against the tax in 2009, now wants to keep it, but with some revisions such as elimination of corporate tax breaks.

At this point its hard to tell who is right, and in large part the outcome of the provincial election and the tax will hinge on public perception. On that score, however, there may be some differences between policy makers and the public. The Pembina Institute produced a June 25 report, British Columbias Carbon Tax, which relied on interviews with 39 participants from business, government, and academia. The results differ in some signficant ways with the results of an April 2011 public opinion poll. In the interviews, 65 percent of the participants had a somewhat or very favorable view of the overall consequences of the tax, while only 33 percent of the public opinion poll respondents were positive to somewhat positive. Similarly, when asked whether the tax should increase beyond the new July 1, 2012, rate, 41 percent of the interview participants agreed, while only 29 percent of the public poll did.

While more rigorous modeling and study are needed, in the rough-and-tumble political world where messaging counts for almost everything, a detailed study of the tax may have less effect ultimately than how B.C. voters feel come next spring.

Mike Nesteroff is chair of Lane Powell’s Sustainability and Climate Change Team