British Columbia’s recent carbon tax made waves in the US. (Sightline’s written about it here, here, and here.) But it’s not terribly popular in BC, as economist Marc Lee of the Canadian Centre for Policy Alternatives explains:
While there are plenty of good reasons why the Liberals should get beaten up at the polls, one of the key reasons for the change is the carbon tax, due to an aggressive (if questionable) campaign by the NDP and poor communications by the government.
In some public opinion work I’ve seen, two messages about BC’s carbon tax come out loud and clear. The first is that revenue neutrality is a bust—people may be willing to live with a new tax on carbon but think that giving the money back is a dumb idea; they would rather have revenues spent on public transit or anything else that would reinforce climate action. Second, they want tough action on industry.
Quick aside for American readers who may not follow Canadian politics: the Liberals are the right-of-center party that is currently in power in BC; they’re the ones responsible for the provincial carbon tax. The NDP—the New Democratic Party — is the left-of-center opposition party, which has criticized the carbon tax. And yes, you heard that correctly: the right is proposing a carbon tax and the left is attacking it.
Confusingly, although the BC Liberals and the federal Canadian Liberals are different parties with different orientations and platforms, their fates may be wedded in the next election—because the national party has also proposed a carbon tax. At the federal level, however, the Canadian Liberals are the opposition party; the national government is controlled by the Conservative Party.
Got that? Okay, so here’s what Canada’s carbon taxes may mean for the rest of North America…
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According to Marc, in addition to the political difficulty of levying a carbon tax, there’s a public perception problem with revenue-neutral tax-shifting, at least in BC. This is concerning to folks like me who think that revenue-neutral tax-shifting is an excellent idea on substantive policy grounds. For instance, Sightline tends to favor cap and rebate and cap and dividend approaches to climate policy—policies that put a price a carbon but return a significant portion of the revenue to taxpayers.
But whatever the policy merits, the political will appears fragile. As Marc notes:
If both the federal and BC Liberals lose elections on the basis of the carbon tax, it would take carbon taxes off the table for all of North America, potentially forever.
I think Marc’s right that it will be extremely informative to watch how Canadian (and British Columbian) politics play out over the next few months. Still, I’m not quite as bearish. In fact, I think revenue-neutral carbon taxes are actually gathering steam in the US. To my mind, carbon taxes are second-best to auctioned cap and trade, but they’re still a very valuable tool.
In the meantime, policy wonks should keep an eye on the Progressive Economics Forum blog. We don’t always see eye to eye on some climate policy issues, but it’s home to reliably good thinking.
Excellent summary, Eric.The thing about “revenue neutrality” is that it means that the government is not making more money off of the tax (because of lowering taxes elsewhere). But that doesn’t mean that some individuals aren’t paying more taxes (and others less).There are many reasons to dislike the BC Liberals on environmental grounds, but the carbon tax isn’t one of them. It’s not perfect, but it’s a good first approach. Had the tax included more help for those in the far north that are utterly dependent on high priced fuel (even more so than those in car-oriented suburbs outside of Vancouver), I think there would be less to complain about on the tax.Unfortunately, I think the BC NDP have really screwed up by opposing the tax (this is the first issue that they’ve really had stick and they ran with it). When they come out against things that (I think) they should (like highway expansion), their messaging is wrong and it backfires.The NDP have lost a lot of their core support over this issue. Many of them will likely be voting Green in the next election (November 2009). It will be interesting indeed.
Robert F Smith
Regardless of what you think of the Provincial Liberals the Carbon Tax Shift they have put in place may not be perfect but it is a step in the correct direction. The NDP made a strategic mistake by responding with a rant. The tax on gasoline was just over two cents, and we all know that level of change happens regularly. I am pleased to see action being taken. Speaks volumes for understanding the seriousness of the situation. Besides this is a tax shift, my income tax went down, not as much as my expenses will but they are also expending funds on projects. Well done I say, and by all means make it better as time unfolds.
Eric wrote: “carbon taxes are second-best to auctioned cap and trade”Eric, forgive me if you’ve explained before, but why do you favour “auctioned cap and trade?”It seems to me that such a scheme would only effect big producers, whereas we don’t have a point-source problem with CO2 the way we do with electricity generation.My beef with the BC revenue-neutral plan is that it’s a stick without a carrot—everyone gets the same $100 back. How about rewarding us who are actually maintaining carbon sinks?So thanks, Gordy, for the $100, but please reward me for working from home, for waging a “berm, not burn” campaign where I collect burn piles and compost them, for making biodiesel from local waste oil, for building soil via terra pretta taken from burn piles, and for planting trees.Social marketing teaches that carrots are much more effective than sticks when it comes to changing people’s behaviour.
Eric de Place
It’s a good question, Jan. As a general matter, I think people make too much of a distinction between carbon taxes and cap & trade. Both deploy a carbon price signal to reduce demand. The principal difference is that a carbon tax sets a firm price that results in an uncertain amount of carbon, whereas a carbon cap sets a firm amount of carbon with an uncertain price. From my standpoint, getting certainty about carbon is essential.That said, you’re right that under most cap and trade proposals, the regulation happens “upstream” on big producers. The reasoning is that these big producers will either find ways to reduce their carbon (as utilities and industrial smokestacks can), or they’ll pass on the price to consumers (as oil and gas companies might) and that price signal will reduce carbon use just as a carbon tax would.As for your beef with revenue-nuetrality, I’m fascinated—fascinated—by the public response in BC. But keep in mind that whether we’re talking about taxes or auctioned permits, if all of the carbon fee money gets rebated on a per capita basis then it is axiomatically true that those who use more carbon than average are penalized monetarily (they spend more on carbon than they get back from the gov’t) and those who use less are rewarded monetarily (the spend less on carbon than they get in rebates).
Eric, what is going to happen with the excess revenues generated by carbon tax- way over that projected for 2008. If it stays revenue neutral the money will have to go to offset personal and business taxes- does it have to be consumed in 2008 or can the excess be held for 2009? With the current economic downturn we have no idea what is around the corner. Can the carbon tax plan accomodate the unpredictable economic situations?
Eric de Place
Good questions, Ami. Truth is, I’m not sure how BC will manage volatility in the revenue stream. As I understand it, the theory is that the revenue from the 2008 tax should be reflected in 2008 tax reductions, but as this is nearly impossible from a practical standpoint I imagine that some of the revenue benefit won’t be seen until 2009. Much information is available at the BC Ministry of Finance: http://www.bcbudget.gov.bc.ca/2008/backgrounders/backgrounder_carbon_tax.htm. Interestingly, I think the problem you mention militates toward direct refunds, rather than tax offsets, as well as refunding the money the year AFTER the the tax revenue is collected rather than contemporaneously. It’s much easier to count all the revenue and split it up into checks than it is to apportion it out across taxable entities and make dozens or hundreds of adjustments to tax schedules. What’s more, a direct cash refund is a far more transparent way of demonstrating revenue nuetrality. Just my two cents.