British Columbia rocks my world. With the release of the annual budget today, provincial officials just announced that they will levy a carbon tax to help drive down emissions. Even better, the carbon tax will be a tax shift—surely the best instance of tax shifting in the Northwest:

Finance Minister Carole Taylor vowed Tuesday that all money collected through the new tax will be returned through a package of tax cuts and credits.

Done correctly, the tax shift will send a clear price signal that discourages emissions, even while it promotes progressive tax policy. And what do you know?

Corporate and personal income tax rates will drop to help make the tax revenue neutral, and lower-income British Columbians will receive an annual climate action credit of $100 per adult and $30 per child.

In fairness, without futher details, we can’t know for sure whether the tax shift will adequately address questions of climate fairness. Still, it’s an awfully promising start.

Details of the plan:

Taylor said the new carbon tax will begin July 1, starting at a rate that will have drivers paying about an extra 2.4 cents per litre of gasoline at the pumps. The tax—which will apply to virtually all fossil fuels, including gasoline, diesel, natural gas, coal, propane and home heating fuel—will then increase each year after that until 2012, reaching a final price of about 7.2 cents per litre at the pumps. After that, Taylor said, it will rest with the government of the day to decide if the tax rate should change any further.

For non-metric Americans, this means…

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  • …the tax rate will start at 9.1 cents per gallon and rise to 27.3 cents in 2012. Kind of expensive, right? But that’s the point: to discourage carbon pollution. And in any event, the money gets funneled right back to individuals and businesses.

    Today’s announcement makes BC the clear leader in North American climate policy. No one else is even close. California, Oregon, and Washington are all waffling on much milder prescriptions. (Quebec also has a carbon tax, but it is very modest.)

    For a variety of reasons, I think cap and trade is preferable to a carbon tax (though there are good points to be made on both sides of the issue). But BC is also participating in the Western Climate Initiative, which will soon propose a cap and trade program, and the two tactics aren’t mutually exclusive.

    In fact, today’s carbon tax announcement is incredibly smart. It sets out a complementary emissions strategy that can be implemented now, not in several years. Depending on how the WCI plays out, the province can either phase out the tax or keep it alive. And by acting now, BC has better control over its emissions, so it stands to transition smoothly to a lower carbon economy.

    Let’s remember too, that taxing oil—and getting ourselves off it—could turn out to be the cheapest thing we can do. Staying addicted is turning out to be incredibly expensive. In fact, today oil futures closed above $100 for the first time ever.

    Post-script: My sources in Canada tell me that the announcement masks some perverse support for the oil and gas industries, and for new road building. Still, even those perennially-skeptical sources admit that this proposal is pretty darn great.

    Post-script 2: Smart guy Marc Lee, an economist for the Canadian Centre for Policy Alternatives, has an excellent blog post up about the new tax shift. I’m told he also has a Vancouver Sun op-ed coming out tomorrow.