British Columbia’s revenue neutral carbon tax should be replaced by something similar but even simpler: carbon fee-and-dividend.
Last July the B.C. government issued a draft of its Climate Leadership Plan and asked for public input.
Deadline for written feedback was Sept. 14. Here is your editor’s submission.
B.C. implemented its carbon tax in 2008
After five years, fossil fuel consumption dropped by about 17 per cent (and by almost 19 per cent relative to the rest of Canada). At the same time, B.C.’s rate of growth matched or even slightly exceeded that of the rest of Canada.
In other words, we have a winner here. The question is: how can we make it better?
After starting at $10 per tonne of carbon dioxide and then rising at a rate of $5 per year, B.C.’s carbon tax is presently stuck at $30 per tonne.
One reason that it has not risen higher is undoubtedly that other jurisdictions have not followed B.C.’s example.
It makes little sense for one province or even nation to price carbon dioxide so high that it risks damaging its own economy if other provinces and nations are not doing the same.
We need to keep in mind that the only measurement that really matters is the level of carbon dioxide in the world’s atmosphere.
Human-caused climate change is a global problem and it’s going to need a global solution.
The reason why B.C.’s carbon tax has not been adopted by other jurisdictions is what is done with the money after it is collected.
The minister of finance is mandated to reduce personal income and corporate taxes by an amount equivalent to that collected through the carbon tax – in other words, it is not a tax increase but a tax shift.
That was clearly done when the carbon tax was new. However, it is not clear that the no tax increase rule will be the case forever, especially when circumstances change.
Similarly, it is not clear on what basis personal income taxes are reduced as compared to corporate taxes.
Besides reducing other taxes, some of the money from the carbon tax also goes as payments to low income and rural residents.
This is based on the rationale that low income and rural residents are the ones most affected by the carbon tax. However, it is not clear how those levels of compensation are calculated and if they are adequate.
All this murkiness has meant that, despite its successes, B.C.’s carbon tax has never really been overly popular with the province’s residents, not even with many environmentalists.
There is a better and simpler way, however – carbon fee and dividend.
Under carbon fee-and-dividend, money would be collected for burning fossil fuels, as with a carbon tax. Unlike B.C.’s carbon tax, however, the money collected would distributed in equal dividends to each adult living in the province.
That would mean that every person over the age of 18 would receive several hundred dollars per year.
The process would be transparent and easy to understand, and receiving cold, hard cash should make it popular.
Switching from a tax-reduction model to a fee-and-dividend model shouldn’t be that difficult, although it would take a few years to phase in.
The BC Liberal government has reduced this province’s personal income and corporate taxes beyond that needed to balance the carbon tax, so there is wiggle room there.
The carbon dividends likely would be taxable, so 30 – 40 per cent would come right back to government as income tax (although not all to the province).
If we replace B.C.’s tax-shifting carbon tax with carbon fee-and-dividend, it would serve as a model for a Canada-wide system. That in turn could act as a model for global carbon fee-and-dividend – which is where we are going to have to go if we are serious about controlling human-caused global warming.