Carbon taxes abounding

2008-07-03

in Canada, Economics, Politics, The environment

Light with condensation

This month, the British Columbian carbon tax came into force. The tax is starting off at $10 per tonne, rising to $30 in 2012. The tax will be revenue neutral: with extra costs associated with greenhouse gas emissions being balanced overall by reductions in personal and corporate taxes. The approach seems well designed and economically sound, as well as likely to help B.C. move towards a sustainable low-carbon economy. It is quite a pity, therefore, that the provincial New Democratic Party has taken such a wrong-headed and opportunistic stance on the thing. Surely they must realize that their overall agenda of helping the poor and marginalized can only be accomplished alongside effective climate change mitigation action. It is the poor who have the least capability to adapt: to the effects of climate change, to harsher carbon pricing policies later, and to the ever-increasing prices of fossil fuels. As such, setting incentives early is an important mechanism for smoothing the transition.

At the same time as B.C. is moving forward, other jurisdictions are consolidating past actions. Norway is toughening the carbon tax they have had in place since 1991. Unfortunately, a fuel-price-induced backlash seems to be rising there too. If gasoline taxation continues to be the biggest public opinion stumbling block to carbon pricing, perhaps those who argue for its exclusion are correct. It is better to start the bulk of society on a low-carbon transition, leaving some sectors behind, than to have the whole project kept in limbo due to objections arising from short-term thinking.

While not a tax on carbon, it is interesting to note that American police departments are even imposing fuel surcharges on traffic tickets. The policy is prompted by high oil prices, rather than environmental concern, but it is an illustration of the ways in which fuel costs, economic activity, and government fiscal policy interact.

{ 17 comments… read them below or add one }

Padraic July 3, 2008 at 9:32 am

I agree with your disgust at the NDP for dropping the environmentalist ball – reminds me of the last Ontario election where the ONDP was arguing for protecting the auto industry, cheap eletricity and the unfair status quo on schools. What happened to being progressive?

On the issue of revenue neutrality – a friend of mine, in researching his honours thesis, came across polling data which revealed that the public can never understand this idea. Consistently, support is stronger for green taxes going to green causes, rather then tax cuts elsewhere. No matter how many times the pollsters explain revenue neutrality, people didn’t get it. While I – like many policy wonks and media commentators, it seems – approve of revenue neutrality, I hope that Dion hasn’t made the wrong choice in terms of how to best sell a green tax to the Canadian people.

Milan July 3, 2008 at 9:52 am

I bet people would figure out a tax and dividend system pretty quickly.

. July 3, 2008 at 10:51 am

More on BC’s Carbon Tax Shift

On February 19, we applauded British Columbia’s new carbon tax shift. I’ve now had time to digest the plan. It’s even better than we said, and the province could tweak it to make it better still.

This policy is the purest instance of a tax shift that I’ve ever seen. It’s an exceptionally faithful implementation of tax shifting—a policy innovation Sightline has been promoting since 1994 and especially since our 1998 book. (A small brag: Gordon Campbell read the book that year and told me he was going to shift taxes in his second term as premier. I didn’t hold my breath, but now he has delivered.) The carbon tax shift (as opposed to the larger government budget it’s wrapped in) is almost entirely untarnished by handouts to special interests. It is built on four principles:

. July 3, 2008 at 10:52 am

“Predictable tax increases spur us toward a smarter energy economy, while still giving us time to adapt gracefully.”

. July 3, 2008 at 11:04 am

Canadian Carbon Taxes: A lesson in politics overwhelming policy

By Richard Littlemore on US

The current Canadian carbon tax debate is a chilling illustration of how easily political spin can overwhelm serious debate on a complex public policy issue.

Canadians in two jurisdictions are currently grappling with a carbon tax. In British Columbia, citizens are 10 days away from actually starting to pay a tax imposed by the provincial government – and nationally, Opposition Liberal Party leader Stephane Dion, inset, has just released a wide-ranging climate change policy proposal that includes a carbon tax.

The problem, in both instances, is that the facts of the tax – and the underlying policy consideration it was conceived to address – have been lost in a chorus of simplistic political rhetoric.

t July 3, 2008 at 2:11 pm

It seems to me that Dion’s plan, of applying the carbon tax at first only to fuels which are not taxed at all, and then later to fuels that are already taxed, is the most appropriate way to “put a price on carbon”.

The fact is, we already have very high “carbon taxes” on gasoline in this country. This is illustrated by the fact gasoline here costs 6 dollars a gallon (1.50 a liter) and a few miles across the border, it costs 4.40 a gallon. The difference is taxation, which increases the price and encourages people to move away from petrol based personal travel. The difference another two cents will make is miniscule compared to the difference already made by high gasoline taxes – it is not as if these taxes will fail to push people away from carbon based travel simply because they do not have ‘carbon’ written on them.

The most meaninful tax shift the B.C. government could implement to help global warming is not put 2 more cents tax on fuel (but they can if they want, it makes about zero difference to anyone except the opinion polling people), but rather to shift some of that 40 cents of extra tax towards translink, which ironically is squeezed by the high gas prices because they get a fixed number of pennies from every liter, and their costs (read: fuel) and ridership is going up.

(Perhaps public transportation should be exempt from fuel taxes?)

Padraic July 3, 2008 at 3:19 pm

“Very high” is a relative term – we have higher taxes than the US, but much lower than European countries, who successfully met their Kyoto targets.

And let’s not forget the Green Shift will tax one fossil fuel which is still incredibly cheap (due to undertaxation and not being affected by oil prices): coal.

Milan July 3, 2008 at 4:05 pm

Tristan,

The idea behind a carbon tax isn’t to induce GHG-reductions in any specific place. Rather, it is meant to induce them wherever they were economically marginal before. You are right to say that driving has low elasticity of demand. As such, better policies for vehicle emissions include infrastructure policy, emission standards, speed limits, etc.

Gasoline prices are getting a lot of press, but they should ideally be a small part of what a carbon tax does.

Milan July 3, 2008 at 4:07 pm

One vital role a carbon tax could play in a world of ever-more-expensive oil is making sustainable biofuels and electric vehicles more appealing relative to coal-to-liquids fuels.

The latter may be cheaper than oil today, but they would be environmentally ruinous.

Milan July 4, 2008 at 10:47 am

The fact is, we already have very high “carbon taxes” on gasoline in this country.

High gas prices and high taxes are very different things, not least because of who collects the revenue.

This chart from the OECD shows very clearly how Canadian gasoline taxes are exceptionally low.

More info

. July 7, 2008 at 10:16 am

A very different path to introducing carbon taxes has been pursued by another Liberal Party – the government of British Columbia. Its carbon taxes kicked in on Canada Day, uncluttered with the redistributive paraphernalia proposed elsewhere. B.C.’s policy has compensatory measures that mainly offset the carbon taxes borne by various households, although it, too, does not provide full relief for the highest earners.

Fighting poverty and creating a more egalitarian society are worthy goals, but debate over the best policies and financing should not be obscured within carbon tax proposals. Once the public understands the redistribution in these proposals – and that many people would be significant net losers – support for essential climate change policies could be at risk.

. September 3, 2008 at 10:09 am

Dion to announce carbon tax plan adjustments
Last Updated: Wednesday, September 3, 2008 | 6:20 AM ET

Liberal Leader Stéphane Dion is set to announce new proposals on Wednesday aimed at helping farmers adapt to his party’s so-called Green Shift carbon plan.

Dion has said the environmental plan, which would balance a carbon tax with income-tax cuts, already includes a rural tax credit and incentives for businesses to upgrade to greener equipment. But he also hinted more measures specifically for farmers are coming on Wednesday.

. September 18, 2008 at 5:57 pm

Could Canadian politics matter?
Canada has its own elections, which may shape future of a carbon tax
Posted by John McGrath (Guest Contributor) at 3:03 PM on 18 Sep 2008

Canada is two weeks in to its third election in four years, and environmental issues have been … well, not quite front-and-center, but definitely somewhere in the foreground. And that could be a very bad thing for the chances for a carbon tax in the U.S.

The election has been pretty dull, even by Canadian standards. Aside from an argument over whether the televised debates should have four or five party leaders on stage (take that, America!) there have been very few sparks. The governing Conservatives have a campaign message centered around making Stephen Harper look less like an android and more like he wears sweater vests and demonizing the Liberal leader Stephane Dion as a “risky” choice.

. March 24, 2009 at 3:04 pm

The uncertain future of B.C.’s carbon tax
Posted by Derek Pieper on March 24, 2009 at 12:22

The Canadian province of British Columbia has a carbon tax that is not yet a year old and already it is on thin ice. First announced during the delivery of the 2008 budget and implemented July 1, 2008, British Columbia`s carbon tax policy came as a surprise to many observers in the Canadian environmental field and was considered a significant shift in policy on climate change for the Government of British Columbia. The orgin of the policy is thought to be as a result of the direct influence of Gordon Campball, Premier of British Columbia, who has been strongly influenced by the ‘green’ California Governor Arnold Schwarzenegger.

In the short-term a scheduled provincial election on May 12, 2009 could result in a complete overturning or re-shaping of the policy should the Liberal Party of British Columbia – the incumbent party who proposed and implemented the policy – lose the election. The current opposition party, the New Democratic Party of British Columbia, has opposed the policy and the latest public opinion data suggests that a 55% majority of British Columbians oppose the carbon tax measure. Without the support of a broad, multi-party coalition, the future of the British Columbia carbon tax remains unclear in the immediate future.

. June 11, 2009 at 1:54 pm

France moves to bring in carbon tax by 2011

Posted 9:44 AM on 11 Jun 2009

PARIS, June 10, 2009 (AFP) – The French government on Wednesday kickstarted plans for a so-called carbon tax on energy-hungry products, to be rolled out by 2011 as part of France’s efforts to slash global warming emissions.

Environment Minister Jean-Louis Borloo unveiled a white paper on the new Climate-Energy Contribution, to be posted online for public comment before an experts’ panel gathers on July 2-3 to hammer out the details.

Initially announced after a nationwide environment conference in late 2007, the new tax aims to steer French consumers and manufacturers towards environmentally-friendly goods and services.

Experts are to decide how much the levy should be, which products should be covered, and what taxes can be cut to offset it in line with a government pledge not to increase the overall tax burden.

President Nicolas Sarkozy’s government has said it hopes to shift part of French taxes from labour towards polluting goods, but consumer groups have warned against penalising families already feeling the pinch of recession.

. August 3, 2009 at 7:49 pm

French tax on CO2 moving closer

Fuel for transport and heating will become more expensive in France as a consequence of a carbon tax. A government-named panel of experts has prepared a report that puts figures on the tax.

Rie Jerichow 23/07/2009 10:25

A French carbon tax has moved a step closer. According to the financial newspaper Les Echos, and confirmed to AFP, a government-named expert panel, headed by former Socialist Prime Minister Michel Rocard, suggests a tax of 32 euros (46 dollars) on every tonne of carbon dioxide emitted in 2010, rising to 100 euros per tonne in 2030.

If ”technically ready”, it would add 0.077 euros (0.11 dollars) to the cost of one liter of unleaded fuel and 0.085 euros to a liter of diesel, AFP reports. Household gas and fuel heating costs would rise by between 60 and 170 euros per year, according to the French agency for development and energy control.

. September 10, 2009 at 11:34 pm

The center-right French government wants to levy a tax of 14 euros per ton of carbon dioxide starting in 2010; carbon taxes are popular with many economists and business leaders because they are seen as easier to implement than carbon-trading plans, which France also belongs to.

In reality, France’s carbon tax is basically just a gasoline tax—and a tiny one at that. The electricity sector, overwhelmingly powered by emissions-free nuclear power, isn’t part of the plan [TC: Duh!], Prime Minister Francois Fillon told Le Figaro. The tax will basically fall on liquid fuels—raising pump prices 3 euro cents a liter (that’s roughly 15 U.S. cents a gallon).

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