We have a winner: British Columbia’s carbon tax woos sceptics

Source: 
The economist
Date published: 
Thu, 2011-07-21

During Canada’s 2008 federal election campaign Stephen Harper, the Conservative prime minister, warned that an opposition promise to introduce a carbon tax would “screw everybody”. Partly for that reason, Mr Harper is still the prime minister. But in the same year, the provincial government in British Columbia introduced a carbon tax of its own. Despite the levy, its economy is doing well. What is more, the tax is popular: it is backed by 54%, says a survey in the province by Environics, a pollster. Gordon Campbell, the Liberal premier who introduced the tax, won a provincial election the next year.

When arguing for the carbon tax, Mr Campbell faced the same political obstacles that have stymied such plans elsewhere. Only environmentalists were enthusiastic. Businesses feared it would add to costs and slow the economy. The leftish New Democratic Party (NDP) worried it would hurt the poor. But these fears have proved groundless. “The carbon tax has been good for the environment, good for taxpayers and it hasn’t hurt the economy,” says Stewart Elgie, a professor of law and economics at the University of Ottawa.

It helped that the law introducing the levy required its proceeds to be recycled back to individuals and companies as cuts in income taxes. The new tax was initially set at C$10 ($10) per tonne of carbon-dioxide emissions, rising by increments of C$5 per year to C$30 in 2012. It seems to be working as planned. Since 2008 fuel consumption per head in the province has dropped by 4.5%, more than elsewhere in Canada. British Columbians use less fuel than any other Canadians. And British Columbians pay lower income taxes too.

The new tax has not weakened the province’s economy, which has been boosted by high world prices for its commodity exports. Unemployment is slightly below the national average, and growth slightly higher. Because the tax started low and its rises were set out in advance, businesses had plenty of time to make plans to cut their carbon use.

A recent poll by the Pembina Institute, a green think-tank, found that 70% of British Columbians think their province should be a leader in cutting emissions. Christy Clark, Mr Campbell’s successor as premier, is committed to keeping the tax. Adrian Dix, the NDP leader in the province, says his party should have supported it. Both leaders want future carbon revenues to be used for energy-efficient infrastructure projects rather than more tax cuts. Only John Cummins, the Conservative leader in British Columbia, still opposes the tax.

At C$25 per tonne, British Columbia’s tax already exceeds the price of carbon in Europe’s emissions-trading scheme. But it is still too low to prompt radical changes in behaviour: it adds just five cents to the price of a litre of petrol. Getting the most energy-intensive industries to make big cuts might take a tax four times as high. Even so, British Columbia has shown the rest of Canada, a country with high carbon emissions per head, that a carbon tax can achieve multiple benefits at minimal cost. Unless Mr Harper reconsiders his opposition to the idea, in the future it might be him who faces being screwed.

            

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