By Kylie Schatz, BCCIC Climate Change Branch Special Projects Officer
British Columbia’s (BC) carbon tax, which has been in effect since 2008, has been described as everything from completely ineffective to a shining model for other jurisdictions. While emissions in BC initially went down in response to the tax, this downward trajectory was short-lived and followed by emissions slowly creeping back up. According to BC’s Provincial Greenhouse Gas Emissions Inventory,[1] which recently released data for 2018, emissions returned to 2008 levels in 2016, after a dip, and have risen by 10% over the past three years. However, this doesn’t mean that the tax hasn’t had a noticeable impact. Numerous studies that have looked at the effect of the tax up to 2015 found that, in comparison to what emissions would have been without the tax, BC’s carbon tax reduced fuel consumption and greenhouse gas emissions by 5 to 15%.[2] By balancing the tax’s initial success with recent critiques, it is evident that while BC’s carbon tax has contributed to decreasing BC’s emissions, it alone, and as is, cannot bring the province’s emissions down enough to meet its emission targets.
Where We Are
At its inception, BC’s carbon tax was lauded for its evenhanded and broad coverage, excluding neither households nor influential industries, and covering about three quarters of all emission sources in the province.[3] It was also revenue-neutral, recycling the revenue gained through it into tax credits for both households and industry. The tax reduced consumption of gasoline and natural gas and was attributed with increasing the use of fuel-efficient vehicles, doing so without hurting the economy.[4] As the tax rate (implemented in $/ton of CO2emissions [tCO2e]) slowly increased through 2012, the initial reductions, estimated to be between 5 and 15%, were seen as quite promising.[5]
The rise in emissions over the last three years in BC, a concerning 10%, is much in line with the increases seen across Canada, particularly in the areas of fuel consumption for transportation and winter heating. Additionally, smaller increases in the agriculture sector may be reflective of the exemptions the province has given this sector since the tax’s onset. However, the failure of the carbon tax in these areas should not be surprising. Carbon pricing is known to be fairly ineffective in reducing emissions from transportation, which accounts for 14% of global emissions, since drivers are considered to be unresponsive to modest increases in taxes on fuel. The overall effectiveness of a carbon tax comes down to the price of the tax and its breadth of coverage over the economy.[6] While BC has largely managed to ensure broad coverage of the economy with its tax, the tax rate, which started at a low level and slowly rose to ease its implementation, has been frozen multiple times in response to political blowback. This has left the tax rate, now at $40 per tCO2e, significantly below the level needed to incentivize larger changes in the economy.[7]
In September, the provincial government again pushed back a scheduled five-dollar increase in the tax rate, citing the economic challenges presented by the pandemic.[8] While the platform of the BC NDP (the current majority government in the province) shows a clear commitment to continuing climate action, the party has not highlighted any potential increases to the carbon tax rate.[9] It is a political reality that while Canadians largely support climate action, almost half don’t want it to affect their pocketbook.[10] Although BC’s carbon tax has appreciated significant support at its inception, the provincial government may continue to fall short when it comes to finding the political will to increase the tax.
The Role of a Carbon Tax in Climate Action
Despite its mixed results so far in BC, carbon pricing remains one of the most promising tools for reducing emissions, especially in comparison to more cumbersome regulatory measures, given the ease of implementation and ensuing incentive structures.[11] By incentivizing industry to find low-carbon, and thus more cost-efficient methods and technology, it gives innovative companies a competitive advantage and supports the economy’s transition to low-carbon options.[12] Despite increases in emissions, Canada’s economy has overall grown more rapidly than its emissions, thus managing to decrease its emissions intensity by 20% since 2005.
To create a truly effective carbon tax, the province may need to drastically increase the scale of the tax and over time adjust the level depending on whether the province is meeting its targets. Economists on the High-Level Commission on Carbon Prices believe that carbon prices would need to be between 50 to 100 CAD by 2020 and 65 to 130 CAD by 2030 to achieve the emissions reductions called for in the Paris Agreement.[13] This has been achieved in other countries through phased increases that operate based on whether emissions have reached certain thresholds. For example, if emissions are below 80% of 2015 levels then the tax increases by only $5, but if emissions are above this level the increase is $10, since the price was not sufficient to garner the desired reductions in emissions. Such a responsive system searches for the right price for carbon by constantly taking into account the gap between current and target emissions.
The Need for Supplemental Policy
To reach its emission goals, the province will need to not only increase the scale of the current carbon tax, but also support the carbon tax with other policy initiatives. Critics of the tax as it stands note that it is too low to significantly reduce emissions, meaning that it fails to put the cost on the highest-income households (who are the biggest emitters), and that there is no plan for sectors that respond weakly to the tax, such as transportation.[14] These issues could all be solved. The price could be raised, tax credits could be better targeted toward lower-income households, and, instead of aspiring towards revenue-neutrality, the province could use part of the revenue to invest in research and development projects. Such strategies could greatly increase the effectiveness of the carbon tax in BC. The carbon tax is meant to act as a signal for consumers and industry, but additional government action such as investment in clean technology and the implementation of effective regulations for sectors such as construction, agriculture, and transportation, is necessary to hasten BC’s clean energy transition.
BC should not rely upon the market-logic of the carbon tax to solve every problem. The tax is counterproductive if it allows policymakers to feel like they have addressed the issue when it is not creating the level of meaningful change that the province, and the world, needs.[15] To support the tax and create more rapid change, there needs to be significant investment in low-carbon technologies. This includes large-scale carbon capture and storage research, which firms haven’t invested in yet because the tax has failed to provide enough incentive.[16] BC should also pursue policies to target sectors that are not responding to the tax, such as investing in public transportation as a response to the increase in traffic-related emissions.
The mere existence of the carbon tax is not enough to create the comprehensive change that is needed to create a low-carbon economy. BC must ensure that it is adjusting the scale of the tax to maximize efficiency and support its emission targets through other policy initiatives. While the tax has clearly made an impact and should not be discarded, a 5 to15% reduction is only a starting point for the total emissions reductions needed. It is clear that the carbon tax cannot be seen as an all-encompassing and decisive solution on its own.
Bibliography
Ball, Jeffrey. “Why Carbon Pricing Isn’t Working: Good Idea in Theory, Failing in
Practice.” Foreign Affairs, July/August 2018.
Barron, Alexander R., Marc A. C. Hafstead, and Adele C. Morris. “Policy Insights from
Comparing Carbon Pricing Modeling Scenarios.” The Brookings Institute, May 7, 2019.
“B.C. Delays Carbon Tax Increase to Help with COVID-19 Recovery.” CBC News, September 2, 2020.
BC NDP. “Working for You: John Horgan’s Commitments to BC.” October 2020.
British Columbia Ministry of Environment and Climate Change Strategy. Climate Action Secretariat. Provincial Greenhouse Gas Emissions Inventory. https://www2.gov.bc.ca/gov/content/environment/climate-change/data/provincial-inventory.
Connolly, Amanda. “Canadians Want to Stop Climate Change — but Half Don’t Want to Pay an
Extra Cent: Ipsos Poll.” Global News, September 26, 2019.
Harrison, Kathryn. “Lessons from British Columbia’s Carbon Tax,” Policy Options, July 11, 2019.
Lee, Marc. “Fair and Effective Carbon Pricing: Lessons from BC.” Canadian Centre for Policy Alternatives, February 2011.
Metcalf, Gilbert E. “On the Economics of a Carbon Tax for the United States.” Brookings Papers on Economic Activity, February 24, 2019.
Murray, Brian, and Nicholas Rivers. “British Columbia’s Revenue-Neutral Carbon Tax: AReview of the Latest ‘Grand Experiment’ in Environmental Policy.” Energy Policy86 (2015): 674-83.
“Revenue-Neutral Carbon Tax: Canada.” United Nations Climate Change.
Sadik, Pierre. “Essentials of a Carbon Tax for Canada.” Ecojustice. January 2015.
Footnotes
[1]British Columbia Ministry of Environment and Climate Change Strategy. Climate Action
Secretariat. Provincial Greenhouse Gas Emissions Inventory.
[2]Brian Murray and Nicholas Rivers, “British Columbia’s Revenue-Neutral Carbon Tax: A Review of the Latest ‘Grand Experiment’ in Environmental Policy,” Energy Policy 86 (2015): 674-83.
[4]Kathryn Harrison, “Lessons from British Columbia’s Carbon Tax,” Policy Options, July 11, 2019.
[5]Gilbert E. Metcalf, “On the Economics of a Carbon Tax for the United States,” Brookings Papers on Economic Activity, February 24, 2019.
[6]Jeffrey Ball, “Why Carbon Pricing Isn’t Working: Good Idea in Theory, Failing in Practice,” Foreign Affairs, July/August 2018.
[8]”B.C. Delays Carbon Tax Increase to Help with COVID-19 Recovery.” CBC News, September 2, 2020.
[9]BC NDP. “Working for You: John Horgan’s Commitments to BC.” October 2020.
[10]Connolly, Amanda. “Canadians Want to Stop Climate Change — but Half Don’t Want to Pay an Extra Cent: Ipsos Poll.” Global News, September 26, 2019.
[11]Pierre Sadik, “Essentials of a Carbon Tax for Canada,” Ecojustice, January 2015.
[12]”Revenue-Neutral Carbon Tax: Canada.” United Nations Climate Change. https://unfccc.int/climate-action/momentum-for-change/financing-for-climate-friendly/revenue-neutral-carbon-tax.
[13]Ball, “Why Carbon Pricing Isn’t Working.”
[14]Marc Lee, “Fair and Effective Carbon Pricing: Lessons from BC,” Canadian Centre for Policy Alternatives, February 2011;Sadik, “Essentials of a Carbon Tax for Canada.”