Canada has different levels of carbon pricing at the national and sub-national (provincial) levels, and Prime Minister Trudeau has recently requested that these be harmonized with a deadline in 2018. However, many are not aware that there has been a carbon tax operating in Canada since 2008 in British Columbia so I thought I’d talk about how it has been operating.
According to Kathryn Harrison (2012), the BC carbon tax was far from preordained: it required that the Liberal party in power was willing to do a politically unpopular act. The BC Premier Gordon Campbell had been troubled by seeing the effects of smog on a Chinese trip and felt closer to future generations with the recent birth of a grandchild. He also requested and received a petition calling for a carbon tax (and also a letter from climate economists), saying that he needed to follow what the voters were asking for. This groundswell was combined with action and letters from various environmental groups. This helped provide political cover for the Premier to enact his plan. Public support was maintained by promising a small amount of money before the tax went into effect. At introduction, the tax was $10CAD/ton of CO2 in 2012 with $5 being added on an annual basis, up to a maximum of $30/ton of CO2 in 2012. This is the highest carbon tax in North America (although far from the highest in the world as can be seen in (World Bank 2015, reproduced below)).
The next question is how British Columbia’s tax worked. Murray and Rivers (2015), summarizing several studies on fuel and carbon consumption, showed that this has been highly effective in reducing carbon pollution, reducing greenhouse gas emissions by 5-15% since being implemented. While it is hard to know how BC’s economy would have shifted in the absence of the tax, it is illustrative to consider the province’s performance in comparison with other Canadian provinces. This suggests that BC’s economy was not heavily impacted, since BC’s growth (0.5%/yr) was higher than the Canadian average (0.4%/yr) from 2008 to 2013, the period where the tax was introduced and raised (Murray and Rivers 2015, 679). BC’s tax has also been recognized internationally, with an award at COP22 for “Momentum for Change”.
Key to public support, both business and citizen, has been its revenue neutrality. BC residents were polled regularly and ultimately 50.5% somewhat or strongly supported the tax over the polling period (51.4% of residents in other provinces). Politically, the Liberal party was reelected in the subsequent election year, despite an opposition left-leaning party (New Democratic Party) rather ironically running on the theme “Axe the Tax”.
The case of BC’s carbon tax suggests that it is possible to introduce a cost on carbon that does not do harm to one’s own economy, has political support, and actually seems to reduce emissions. However, not everything is rosy about the future of this tax. The current Premier, despite being from the same party, has frozen the tax instead of increasing it in 2013 as requested by environmental groups, and has been resistant to further action. Despite the freeze, there is no suggestion that the tax will be removed. This is perhaps the biggest testament to the tax—even a politician politically and ideologically opposed to it does not want to remove it.
Addendum, added September 19, 2017: After publishing this post, freedom of information requests reveal evidence that the reason the BC Liberal government was resistant to further action was input from energy interests, which were not previously known because they were requested by the provincial government—and therefore, did not officially count as lobbying. Also, a recently elected left-leaning New Democratic Party government has promised to raise the BC carbon tax “by $5 a tonne of CO2 per year starting in April 2018”.
Harrison, Kathryn. (2012). A tale of two taxes: The fate of environmental tax reform in Canada. Review of Policy Research, 29(3), 383–407. http://doi.org/10.1111/j.1541-1338.2012.00565.x
Murray, B., & Rivers, N. (2015). British Columbia’s revenue-neutral carbon tax: A review of the latest “grand experiment” in environmental policy. Energy Policy, 86(C), 674–683. http://doi.org/10.1016/j.enpol.2015.08.011