British Columbia Introduces Smart Carbon Tax

by Michael Graham Richard, Gatineau, Canada on 02.20.08

Business & Politics

The finance minister of British Columbia, Canada, has just introduced a new "escalating carbon tax" that will affect most fossil fuels. They are not the first in the country - that would be Quebec with its ridiculously low and non revenue-neutral carbon tax - but their plan has a better chance to make a difference.

The carbon tax will start on July 1 at a rate based on C$10 per tonne of carbon emissions and rise C$5 a year to C$30 per tonne by 2012. It works out to an extra 2.4 cents on a liter of gasoline, rising to 7.24 cents per liter of gasoline by 2012. The carbon tax on diesel and home heating oil will start at 2.7 cents per liter and increase to 8.2 cents per liter over the same five-year period. But the beautiful part is that the money, "C$1.8-billion over three years, will be returned to taxpayers through personal income tax and business tax cuts." This makes putting a price on carbon politically acceptable, and it leaves people with more of their hard-earned cash to switch to low-carbon technologies.

British Columbia has a goal of reducing greenhouse gas emissions by 33 per cent by 2020, and this should help it reach that goal.

To coax British Columbians to start thinking green, the government will send every resident a one-time $100 Climate Action Dividend in June. Ms. Taylor said the province hopes British Columbians will use the $100 to help adopt greener lifestyles.

Lower income British Columbians will receive an annual Climate Action Credit of $100 per adult and $30 per child to offset the cost of the carbon tax, she said.

The tax incentives aimed at keeping the carbon tax “revenue neutral” will be dispersed as follows: the bottom two personal income tax rates will be cut by 2 per cent in 2008 and 5 per cent in 2009 on the first $70,000 in earnings; effective July 1, the corporate tax rate will drop to 11 per cent from 12 per cent; effective July 1, the small-business tax rate will be cut from 4.5 per cent to 3.5 per cent.

We certainly hope that this will show other provinces, states and countries that there is a way to create a framework that aligns a healthy environment and people's wallets. Putting a price on carbon is a very good way to do that, as long as it is revenue-neutral and that you don't increase people's tax burden (that will just create a huge backlash and politicians will reject the measures, leaving you with no results in the end.