While U.S. Ponders Carbon Tax, In British Columbia It Appears To Be WorkingJuly 31, 2012
By: Justin Gerdes
In a July 10 interview with Grist’s David Roberts, Bob Inglis, a former Republican lawmaker bounced from the U.S. House of Representatives by a Tea Party challenger in 2010, said he supported shifting taxes from income to carbon as part of “a grand bargain to bring down rates and broaden the base.” On July 12, The Hill’s Ben Geman reported that representatives from left- and right-leaning groups had held several closed-door meetings since 2011 to discuss carbon tax proposals, with the most recent meeting convened the day before at the American Enterprise Institute. On July 13, Clean Technica published an interview with GOP elder statesman George Shultz in which he re-affirms his support for a revenue-neutral carbon tax.
Republican House Speaker John Boehner and GOP Senate Minority Leader Mitch McConnell were quick to quash any suggestion that the GOP might be amenable to a carbon tax. But, suppose the November election shifts the state of play, what might a carbon tax mean for the United States? For an answer, one would do well to look at the experience of our neighbor to the north, British Columbia. The province just celebrated the fourth anniversary of its carbon tax, the continent’s first. A report published last month finds that the data suggests the carbon tax is working exactly as it is supposed to.
The report was prepared by Sustainable Prosperity, a non-partisan research and policy network based at the University of Ottawa. The lead author, Stewart Elgie, is a professor at the university’s law school. The assessment was timed to coincide with the July 1 anniversary of the carbon tax; on that date, the tax increased by $5 per ton of CO2e (about 1 cent per liter, or 3.78 cents per gallon, of gas), as it does every year, to $30 per ton.
Here are Elgie’s key findings:
- "Since the tax took effect in 2008, British Columbians’ use of petroleum fuels (subject to the tax) has dropped by 15.1% – and by 16.4% compared to the rest of Canada. BC’s greenhouse gas emissions have shown a similarly substantial decline (although that analysis is based on one year’s less data).
- British Columbia’s GDP growth has outpaced the rest of Canada’s (by a small amount) since the carbon tax came into effect – suggesting that it has not adversely affected the province’s economy, as some had predicted. The finding fits with evidence from seven other countries that have had similar carbon tax shifts in place for over a decade, resulting in neutral or slightly positive effects on GDP.
- The British Columbia government has kept its promise to make the tax shift ‘revenue neutral,’ meaning no net increase in taxes. In fact, to date it has returned far more in tax cuts (by over $300 million) than it has received in carbon tax revenue – resulting in a net benefit for taxpayers. BC’s personal and corporate income tax rates are now the lowest in Canada, due to the carbon tax shift. "
Can the carbon tax be credited for the results? Elgie is careful not to conclude more than the data suggests. He acknowledges that while the data presented “may be useful in showing a correlation between fuel use (or GHG emissions) and the BC carbon tax, they cannot show conclusively that the carbon tax shift is what caused any difference in BC’s performance.” A more detailed economic modeling analysis will be required, he says, to ascertain precisely how much the carbon tax influenced the drop in fuel consumption and emissions.
A new reports finds that British Columbia's four-year-old carbon tax appears to be reducing fuel consumption and GHG emissions in the province. Credit: Tourism Victoria
Elsewhere, Elgie concedes that British Columbia’s GHG emissions were already dropping relative to the rest of Canada prior to the introduction of the carbon tax in 2008. Even so, the change in per capita GHG emissions in British Columbia since 2008 (-9.9%) relative to the rest of Canada (-4.6%) appears to indicate that the trend in British Columbia has accelerated. Here, again, is Elgie:
"The reductions are certainly consistent with the expected effects of a carbon tax, and they are in line with the (even greater) reductions seen in fuel use during 2008-11, so they provide a further indication that the carbon tax has helped to accelerate BC’s emission reductions – apparently by a substantial amount."
Four years into its carbon tax shift, British Columbia appears to be benefiting in the ways economists would predict. The carbon tax is addressing market failures – energy waste and the externalities associated with burning fossil fuels – at the same time that it delivers certainty. The steadily increasing carbon tax has signaled to businesses and consumers that energy costs are likely to rise, and energy prices appear to be high enough to have induced both to take actions that reduce consumption and emissions.
The provincial government in British Columbia recently announced a year-long review of the carbon tax. Citizens are invited to submit written comments to the Ministry of Finance through August 31. Elgie, writing for Sustainable Prosperity, argues that British Columbia should carry on. “Based on the available evidence,” he writes, “the carbon tax shift is proving beneficial to BC. It has contributed to noteworthy environmental gains, and lower overall taxes, without evident harm to BC’s economy (and potentially improving its future positioning).”
He goes on, “The results to date suggest that environmental tax shifting – increasing taxes on pollution and lowering them on income – is proving to be smart policy, for the environment, the economy, and taxpayers.”