This is the third of a four-part series on B.C.’s climate action plan. Be advised, it is a very long read, more like a short book of six chapters. Part One of this series addresses B.C.’s GHG reduction targets. Part Two addresses how that plan is at risk of being co-opted by Big Oil. Part Three takes a closer look at the B.C. Climate Leadership Team’s recommendations for the carbon tax. And Part Four focuses on how the oil and gas industry stands to profit from that advisory team’s proposed climate action plan.
British Columbia’s Climate Leadership Team (CLT) has offered a strategy aimed at achieving several new emissions reduction targets.
It proposes to do that by “right pricing” carbon with an ever-increasing and expanded carbon tax; by mitigating some of that tax’s competitive and consumer impacts; by supplementing that rising tax with additional (mostly unspecified) measures to further reduce emissions; and by regularly reviewing those three elements.
As such, its roadmap to carbon reductions is largely an updated carbon tax plan.
Six of its 32 recommendations (#4-8, 29, 31) relate to raising, extending, reallocating and reviewing the carbon tax over the next 32 years, and to integrating B.C.’s carbon tax with other province’s approaches to carbon pricing.
Equally important is getting the politics right and ensuring that however we act to price carbon, including through the carbon tax, those measures work as intended and are fair to everyone.
That is the subject of this analysis.
A Brief History of the Carbon Tax
At least as far back as the late eighties, governments have known that a carbon price signal is the single most important action they can take to influence investment, production and consumption decisions that will fundamentally drive the needed shift to a low-carbon economy.
The United Nation’s Intergovernmental Panel on Climate Change has long stressed the value and importance of carbon pricing, as it has also led the world’s efforts to quantify, stem and lower global greenhouse gas emissions.
Canada’s National Round Table on the Environment and the Economy reinforced that point in its 2007 report, Getting to 2050: Canada’s Transition to a Low-emission Future.
It stressed, “the policy package required to achieve deep long-term reductions must place a price on carbon emissions, and needs to be complemented by other policies, such as regulations for certain sectors that may not respond to a pricing mechanism.”
It also explained the options for carbon pricing.
“The choice of the preferred emission price policy involves considering either a tax on emissions, a cap-and-trade system or a combination of the two. A GHG emissions tax imposes a price on each unit of CO2e [carbon dioxide equivalent] emitted by a source, whereas a cap-and-trade system is a regulatory program under which government sets a limit on the volume of GHG emissions, distributes permits for allowable emissions and enables firms to buy and sell the permits after the initial distribution. Both options are market-based in that they transfer abatement decisions to emitters, and both will signal that GHG emissions have a monetary value, stimulating actions that will lead to emission reductions.”
Prime Minister Stephen Harper’s former Conservative government was not enamoured with its own advisors’ position, or with other urgings for climate action.
So it basically killed the Round Table altogether in 2013. Yet its arguments for carbon pricing are even more critical today than they were a decade ago, including in British Columbia.
Despite all of the actions taken over the last nine years since B.C.’s 2007 Throne Speech commitment to fight climate change, with bold targets and a comprehensive plan, the province’s net greenhouse gas emissions are once again on the rise.
And those GHG emissions are going to escalate exponentially under the government’s vision for carbon-intensive growth, fueled by natural gas development and LNG exports.
As the principal author of that 2007 Speech from the Throne, and of all of the Campbell administration’s 12 throne speeches from 2001 through 2010, I had more than a minor hand in shaping B.C.’s climate action commitments.
These words I wrote in the 2008 Throne Speech further laid that imperative on the line:
“Waiting for others to act is not a solution –— it compounds the problem. Taking refuge in the status quo because others refuse to change is not an answer. It’s avoiding responsibility and being generationally selfish. The argument that British Columbia’s mitigation efforts are, in global terms, too miniscule to matter misses the point.
Every molecule of carbon dioxide released into our atmosphere by human activities matters. It hangs there for decades or even centuries, and adds to the accumulated burden of global warming on our planet. The benefit of our actions is not negated by the actions of others who add to the problem. They are cumulatively beneficial, globally significant and scientifically discernible. They contribute to the efforts being taken by growing legions of people around the world who are acting today to prevent the problem from becoming even worse.
We cannot be paralyzed into inaction by the scale of the task at hand. Rather, we will act now to make a real difference, and to encourage behavioural changes that will drive sustainable growth as a global imperative. Market forces can play a positive role in this regard.”
B.C.’s carbon tax was introduced by premier Gordon Campbell’s B.C. Liberal government, in the 2008 provincial budget. It was to be guided by the following three basic principles:
- All carbon tax revenue would be recycled through tax reductions and not used to fund government programs, a principle assured in legislation that would also require annual reporting of how that funding is allocated.
- The tax rate would start low and increase gradually, to provide individuals and businesses time to adjust, to respect decisions made prior to the announcement of the tax, and to provide rate certainty for at least the first five years.
- Low income individuals and families would be protected via a refundable Climate Action Tax Credit that would ensure that those with lower incomes are compensated for the tax, and that most are financially better off.
This piece from the David Suzuki Foundation provides a good primer on B.C.’s carbon tax and a bit more about its history.
The carbon tax was always intended to work in tandem with a cap-and-trade system, to make B.C. a global leader on climate action.
It was phased-in over five years, with annual increases of $5 per tonne, which raised its initial rate of $10 per tonne to $30 per tonne as of 2012.
That rate has been frozen ever since by B.C. Premier Christy Clark, who came to power in 2011. Her government has made it clear that it will not lift that freeze until at least 2018, a year after the next provincial election.
As the government said following its last review of the carbon tax, in the 2013 post-election Budget Update, “When other jurisdictions, especially those within North America, introduce similar carbon taxes or carbon pricing, government may again review and consider changes to the carbon tax.”
Perhaps Canada’s First Ministers will shock us all by coming to some sort of common agreement on that front, following the forthcoming report from their Working Group on Carbon Pricing Mechanisms and their commitments, in furtherance of their Vancouver Declaration.
The danger of the government’s politically expedient decision to freeze the carbon tax for at least six years has been noted by Clark’s own Environment Minister.
Her ministry’s 2014 Climate Action Report stated the obvious: “Some policies lose effectiveness over time if they are not updated. For example, the carbon tax impact effectively diminishes if the rate remains unchanged, as inflation dampens the price signal.”
The carbon tax drives down greenhouse gas emissions by raising the cost of carbon pollution, which makes renewable energy and energy efficiency options increasingly more affordable relative to fossil fuels.
That drives innovations in technologies, production, heating and transportation and anything dependent on the combustion of carbon-intensive, non-renewable fossil fuels.
It drives behavioural changes that rightly encourage people and companies to reduce their carbon footprints through increased energy conservation, efficiency, fuel-switching and carbon neutral choices.
The problem with the carbon tax is that it does not necessarily lead to a decrease in emissions if its rate increases can also be profitably accommodated through higher consumer prices for the end products that contain those embedded emissions.
If any industry can simply incorporate its carbon tax costs into the products it produces, and still sell them for a profit, they may not feel too pressured to use less energy, cleaner sources of energy, or cleaner technologies that lower emissions.
Same for consumers. If we don’t feel the cost of our carbon emissions, the financial incentive to change our lifestyles and to make cleaner choices will not motivate us to action.
Which is why the price of the carbon tax has to continually go up over time to be most effective.
Because even with a carbon tax, if it is not high enough to drive new low-carbon behavioural shifts and cleaner production processes, emissions will not go down; they will go up.
The carbon tax does not directly limit or reduce emissions, as cap-and-trade systems do. It only provides a price signal aimed at indirectly encouraging a low-carbon economy in individual’s and industry’s financial self-interest.
That problem is further aggravated by the fact that the current carbon tax does not even apply to industrial process emissions, including so-called “fugitive” emissions from non-combustion sources. It only covers about 66 per cent of industrial emissions in British Columbia.
The Climate Leadership Team does not propose to extend the carbon tax to those emissions for another five years, opting instead for a number of mostly voluntary measures to somehow achieve a 40 per cent reduction in methane emissions by 2021.
The Pembina Institute rightly argues that is too long to wait. Too bad its representative on the CLT was not successful in convincing his colleagues on that point.
Leaving any sector or any such huge source of carbon emissions exempt from the carbon tax does nothing to help its perceived fairness or its GHG reduction mission.
The oil and gas industry has already had eight years to make a serious commitment to reducing its untaxed emissions. Ditto for landfills, the cement industry and other key sources for those types of emissions.
The original climate action plan vowed to eliminate all routine flaring at oil and gas producing wells and production facilities by 2016 with an interim goal to reduce flaring by half (50 per cent) by 2011.
We are not there yet.
It also sought to “facilitate and foster innovation in sequestration …[including] market oriented requirements with a graduated schedule. In consultation with stakeholders, a timetable will be developed along with increasing requirements for sequestration.”
We are not there yet.
We need to get there, fast, as we also need to dramatically reduce fugitive emissions from oil and gas pipelines.
These sorts of glaring flaws in the current carbon tax pose a significant challenge for B.C.’s updated climate action plan.
It is folly to rely on shaky carbon modeling, aimed at quantifying how the carbon tax will actually perform over the next several decades, to reassure us that we will actually meet our GHG reduction objectives.
We need to supplement the carbon tax with other strategies that impose hard, measurable, incrementally lower caps on carbon emissions.
So as not to bet our last dollar — or the health of our planet — on any one government’s vision for an escalating carbon tax that only indirectly lowers emissions.
We surely should commit ourselves to fully using the tool that the carbon tax provides to help achieve its intended purpose, which means gradually raising its price.
Indeed, we must use every available tool at our disposal to have any credible hope of achieving B.C.’s target of an 80 per cent reduction in GHGs by 2050.
And we can’t afford to pretend that politics won’t play a critical part in the success of that endeavour. It already has and it always will.
In the final analysis, any climate action plan will only succeed if it is also a politically astute economic plan that is sustainable in every respect — environmentally, fiscally, socially, economically and politically.
The Politics of Carbon Pricing
Most British Columbians support the carbon tax because they know it is a responsible tax shift.
They understand that is intended to tax something that we don’t want — carbon pollution — to generate revenue for things we do want — be it other tax cuts or new public investments in public infrastructure, critically important public services, or environmentally sustainable technologies.
In short, the carbon tax is a very good policy tool to “do the right thing.”
Still, it’s a tax. And increased taxes are always a hard sell.
Any proposal to increase them, each and every year, for as far as the eye can see, is not bound to be very politically popular, to put it charitably.
Even if those tax hikes are supposedly “revenue-neutral.” Or if the politicians who want to impose them also suggest that those revenues will fund other tax cuts or new investments that people might want.
The imagined pain of tax hikes is always more palpable than its promised relief.
Particularly if the latter demands trusting politicians to keep their word. Especially if they are in no position to make promises on behalf of their successors.
The Climate Leadership Team wants to increase carbon tax by $10 per year until 2050, starting in 2018.
Count me among the decided minority of taxpayers who would support that plan. Indeed, I do.
But I sure wouldn’t want to bank on that as the pivotal feature of a politically viable plan to cut B.C.’s greenhouse gas emissions by 80 per cent. Even though I agree that the only way we will ever reach that goal is by dramatically increasing the price of carbon pollution, as the CLT suggests.
As eminently sensible as its proposal surely is, on so many levels, I would be utterly shocked if either the B.C. Liberals or the NDP will ever embrace it.
The Green Party, maybe. It doesn’t really hope to form the next provincial government, even if it succeeds in its quest to hold the balance of power in a minority government. But the two legitimate contenders for power? I think the CLT is dreaming in Technicolor.
To make such a far-reaching commitment on the carbon tax would be tantamount to political suicide. If either party unilaterally supported such an increase, its opponent would have a field day at their expense.
And that would very likely do more harm than good to the vital goal of carbon pricing, to the crucial role of the carbon tax in particular, and to the ultimate success of the urgently needed plan to dramatically reduce B.C.’s carbon emissions.
Any plan to raise the carbon tax must be politically sensitive and realistic.
It is hard to imagine any government that would be willing to hitch its political wagon to a carbon tax that would increase from today’s level of $30 per tonne to $360 per tonne over for the next three-and-a-half decades.
Not unless they have a death wish.
Moreover, it is probably not even constitutionally viable for any government to so bind its successors.
The most that any government could therefore really do is propose that those future governments follow its lead, by sticking to a plan for such annual carbon tax increases over the next 34 years.
A laudable vision, I agree, but not one that is likely to succeed as articulated, in political reality.
The only thing we can predict with certainty is that future governments will have very different plans.
Some might want to freeze, lower or (heaven forbid) even repeal the carbon tax. Others might want to increase it by more or less than $10 a tonne in any given year, or add to the list of exemptions that the Clark government has created and invited.
In fact, as much as it makes sense to price carbon with such predictable annual increments that steadily ratchet up the cost of unwanted greenhouse gas emissions, making that bold commitment would probably backfire.
There are simply too many voters and vested interests that would be easily mobilized by any party that promised to stop a proposed 12-fold increase in the carbon tax, dead in its tracks.
Those of us who are deeply supportive of a gradually escalating carbon tax that will succeed in its central role in driving B.C. ever closer to a low-carbon economy need to be politically smart.
We would be shooting our own mission in the foot if we inadvertently provoke a broad backlash that could irreparably harm today’s widely-supported carbon tax. It could wind up killing that mode of carbon pricing altogether.
Just ask Australia, where a similar taxpayers’ revolt resulted in the repeal of its nascent carbon pricing system. And it was only even applicable to large emitters, not to individuals or families.
There is a fine line between what is environmentally and/or socially desirable and what is politically prudent and possible.
In any case, in the most likely event that neither the B.C. Liberals nor the NDP dares to publicly support the CLT’s carbon tax plan, a fallback plan is essential for climate action.
This poses a significant problem for any government that only relies on a carbon tax as it chosen means for carbon pricing.
What About Cap-and-Trade?
Tax hikes always need social license for their long-term success, which is hard to achieve decades in advance, no matter how much the politicians might try to convince their constituents that they will be “revenue-neutral.”
It is why the chief alternative to a carbon tax — a cap-and-trade system — is so much more politically palatable.
That is the means for carbon pricing that Ontario, Quebec and California have embraced, which British Columbia had also intended to adopt in combination with its carbon tax.
In fact, B.C. was the first Canadian jurisdiction to join the Western Climate Initiative, in partnership with seven U.S. states, back in 2007.
In that same year it also joined the International Carbon Action Partnership, together with 14 other national and subnational governments from North America and Europe.
Both of those partnership initiatives were — and still are — aimed at creating a truly global emissions trading network that is integrated with the European Union Emissions Trading System, which is far the world’s largest cap-and-trade system.
The Campbell government was also the first government in Canada to pass a Cap-and-trade Act that authorized hard caps on emissions levels. It provided a legislative basis for B.C. to supplement its carbon tax with a cap-and-trade system.
Essentially, the Clark government walked away from all of those initiatives aimed at putting hard caps on carbon emissions and at partnering with others in cap-and-trade systems.
Its Greenhouse Gas Industrial Reporting and Control Act repealed the Cap-and-trade Act, to mimic the previous Alberta government’s approach, which was properly assailed in this article published by DeSmog Canada.
The NDP government that replaced that Conservative administration over a year ago has now embraced a carbon tax, similar to British Columbia’s, in force and design. Its initial rate of $20/tonne, to be imposed next January, will be increased to $30/tonne in 2018, making it the same as B.C.’s rate.
That move by the Clark government to do away with hard caps on regulated emissions that might have lowered overall absolute emissions, year over year, was a huge step backwards for B.C. climate reduction plan.
Instead, in its zeal to appease the LNG industry, the Clark government adopted “emission intensity” benchmarks, which it brags are the “cleanest in the world.”
Under its new policy, B.C.’s liquefaction terminals would be permitted to emit 0.16 tonnes of carbon dioxide for every tonne of LNG exported, without penalty.
Theoretically, companies that emit above that level would be subject to a penalty. They might pay $25 per tonne that would be paid into a technology fund, which will ultimately go back to their industry. Or they would have to buy offsets.
Here’s the catch.
The government has also announced plans to subsidize that penalty by as much 100 per cent, for any plants that have emission levels just above the new intensity benchmark.
That subsidy from taxpayers to the LNG companies drops on a sliding scale to 50 per cent of the penalty that would otherwise be applicable at 0.23 tonnes of CO2 emissions.
And that’s not even the half of it, as I will explain in my next installment. The Clark government has extended unprecedented tax concessions to the LNG industry that will be locked-in for 25 years and underwritten by B.C. taxpayers.
Any changes in those guaranteed tax rates, tax credits or to the carbon tax that is specifically applicable to the LNG sector will be fully compensable by B.C. taxpayers for at least the next 25 years.
If any subsequent LNG plant gets a more favourable tax deal than the Pacific Northwest LNG proposal, headed by Malaysian state-oil giant Petronas, that project will get it too.
Bottom line of that sweetheart scheme is that B.C. taxpayers will be obliged to shell out potentially tens of millions of dollars to subsidize LNG companies’ rightful penalties on their uncapped emissions. And they get to make billions in profits.
At the same time, the government has exempted those LNG plants from having to account for their upstream natural gas production emissions from fracking, processing and pipelines.
The emissions from those LNG plants, as defined, only account for 30 per cent of the natural gas industry’s GHG emissions in British Columbia.
To make matters worse, the Clark government has simply redefined any gas-fired energy used to drive those LNG plants as “clean power.”
That flatly contradicts the Campbell government’s definition of clean, renewable power, which underpinned its clean energy plan and laws. It is anathema to the CLT’s vision for 100 per cent renewable power, as opposed to the 93 per cent renewable power portfolio requirement that exists today, as a result of the 2008 climate action and clean energy plans.
As Clean Energy Canada has rightly argued, the government has a long, long way to go before it can credibly claim that B.C.’s LNG industry will be even close to the “cleanest in the word.”
Those standards for regulating the amount of carbon that is allowable per unit of LNG only deal with the intensity of those carbon emissions.
Reducing emissions intensities is a necessary step to reducing the overall volume of emissions produced. But in itself, it does nothing to stop that total volume of carbon pollution from increasing along with higher production levels.
The government’s approach will allow carbon emissions to dramatically increase, despite those efficiency gains in the emissions intensity levels.
It is yet another sop to Big Oil that has co-opted B.C.’s climate action plan for the sake of liberating new investments in fossil fuel developments and higher profits for those companies.
By comparison, a cap-and-trade system works very differently, most importantly, by ensuring that overall net carbon emissions go down, not up.
That system purports to let the market decide how much the price of carbon should be, as regulated emitters buy, sell or bank their needed or unused emissions allowances, to meet the hard caps that governments impose upon them for their allowable emission levels.
A huge downside of such cap-and-trade systems is that they only cover a portion of any jurisdictions’ carbon emissions. Mostly those from large, regulated industrial sectors. So it is not a total solution and should be employed with a carbon tax to capture those emissions from the rest of the economy.
Those cap-and-trade systems don’t much affect individual behaviour or the vast amount of carbon emissions that are created by individuals, families and small businesses that are not subject to those emission caps.
Plus, those cap-and-trade systems do not provide much certainty or predictability to the industries and sectors they regulate about the costs of those carbon prices, as emissions caps go down and as the cost of meeting those ever lower emission thresholds goes up.
The environmental upside of that system is that it provides more certainty in regulating and reducing absolute emissions levels in each regulated sector.
The political upside of that system is that no government has to quantify its escalating price of carbon, let alone decades into the future.
The politicians don’t have to set the price for carbon, or even impose a carbon price on the voters, per se.
Instead, they can simply tell their constituents that the “free market will decide” the price on carbon that is necessary to achieve the absolute reductions in emissions levels that are mandated by government for each regulated sector.
Whether such emissions trading systems actually work as intended is another question. Especially if they are embraced without also having some type of carbon tax in place.
The European experience in that regard is not very encouraging, to say the least, as Greenpeace has highlighted in its excellent prescription for putting the EU’s Emission Trading System back on track.
It has been open to all sorts of abuses that have allowed large emitters to meet their legal obligations without yet adopting the types of measures that are essential for ensuring that they actually reduce their own emissions.
The very elements of cap-and-trade that are intended to give those emitters flexibility in meeting their emissions caps are in some cases legally used as license for them to pollute.
Emissions allowances are typically initially allocated either by grants from government to industrial emitters, by auctions that sell those allowances to the highest bidders, or a combination of both.
Too many allowances have been granted for free or for next to nothing, which has reduced the price of their associated carbon emissions, as it has also subsidized corporate polluters.
Those allowances are also usually “bankable,” to be sold or used by those who hold them as they see fit, when most opportune. It’s not unlike trading stocks. The price impacts of how and when those allowances are offered for sale are wildly unpredictable.
Large polluters can meet their declining caps on emissions by buying allowances from others who don’t need them, because they acted to cut their own emissions.
In essence, the price of carbon was not in itself sufficient to force them to cut their emissions as envisioned, to the extent that they could achieve those reductions and still have so many surplus emissions allowances left over, to sell or use at a later date.
The Slippery Slope of Carbon Offsets
Emissions trading systems allow polluters to claim credit for reducing their own emissions, even when they have not. That is equally true of the Clark government’s new emission intensity benchmarks for LNG plants, which can be met through most of the same mechanisms.
To meet their legislated emissions caps or intensity standards, the regulated sectors can buy others’ unused emissions allowances or they can buy carbon “off-sets.”
Such offsets provide emissions credits for theoretically offsetting an equivalent amount of emissions through new green investments.
Typically they are investments in energy efficiency, carbon sequestration, fuel switching or GHG destruction that facilitate net new reductions in greenhouse gas emissions that would not otherwise occur.
Indeed, that was what the now defunct Pacific Carbon Trust was set up to facilitate, to help B.C.’s public sector entities meet their new legal obligations to be “carbon neutral” — which they have been since 2010. Another first in North America.
That commitment to carbon neutrality has also been supported by 96 per cent of all local governments in B.C.
At least 182 of those local government signed onto the B.C. Climate Action Charter that was initiated in 2007, as yet another part of the initial climate action plan, which among other things, obliged those institutions to be carbon neutral in respect of their operations by 2012.
They, too, use offsets to help them meet that self-imposed requirement.
Those offsets are only potentially credible if they are additional, verifiable and conform to stringent international standards and jurisdictional regulations.
But the reality is, they are very much open to abuse, and they are extremely hard to confirm, especially in countries that specialize in creating offset projects that look great on paper, but are essentially fraudulent upon closer inspection.
Even in B.C., the history with offset purchases is sketchy at best.
Many of those reinvestments in British Columbia effectively amounted to gifts to industries — the forest industry and the alternative power industry especially — that gave them money for projects that many believe they would undertaken anyway.
As well, public-sector organizations that were obliged to buy offsets from the Pacific Carbon Trust at a rate of $25 per tonne to meet their legal obligations for carbon-neutrality sometimes paid over twice what the Trust has been charged for those carbon credits.
Still, offsets are an integral part of any emissions trading system and with the right safeguards, they certainly can and do serve to reduce the planet’s overall greenhouse gas pressures.
As with so many debatable climate action areas, the CLT plan calls for “a review of the current offset policy to determine if changes are required to support the new Climate Leadership Plan.”
How bold. Not.
The prelude to that almost meaningless recommendation points to its real purpose: “The province could expand the use of offsets beyond the Carbon Neutral Government Program to specific industrial sectors, or use them to help meet provincial carbon reduction targets.”
It is further aimed at allowing greater provincial use of offsets, including from investments in jurisdictions outside of B.C., which isn’t necessarily a bad thing, and is common in cap-and-trade systems.
But as the CLC also noted, “given concerns about the credibility of offsets from some jurisdictions outside of B.C. and their ability to ensure greenhouse gas reductions, any external offsets considered should meet or exceed the standards set in B.C.”
Good luck with enforcing that.
Although to be fair, B.C. has a lot of home-grown expertise in that area, including some great companies that are helping the B.C. government to develop and assert its leadership role in shaping North American offset policies and standards.
Virtually everyone accepts that the only way that we will hope to meet our GHG reduction targets is if we “properly price” carbon by continually raising the tax penalty on greenhouse gas emissions, as we also act to mitigate those emissions in every other conceivable way.
Carbon taxes and cap-and-trade systems have different strengths and benefits that should be fully utilized, if only to help offset their respective weaknesses.
Towards a Fairer and More Effective Form of Carbon Pricing
To my mind, there is no point in getting bogged down in a political argument about how much the price of carbon will be obliged to rise over the next 34 years. Whether it is through a carbon tax, a cap-and-trade system, or a combination of both, as I would advocate.
Such a debate would only most hurt the party that most wants to responsibly fight and adapt to climate change. It would help to re-elect the Clark government, which I submit, has shown it does not care a fig about that imperative.
In that sense, it would be counterproductive to its cause.
In any case, as the Climate Leadership Team basically also acknowledged, British Columbia’s carbon prices cannot be too far out of synch with the price that other jurisdictions are imposing on carbon through other systems, like cap-and-trade.
The key is to keep B.C. on the leading edge, slightly ahead of its competitors on carbon pricing, attuned to the global free market realities and to the domestic political realities of the capacity to sustain carbon tax increases.
To that end, B.C.’s Opposition parties would be wise to focus on ‘right pricing’ carbon with firm commitments for the next four-year term in government, instead of prescribing annual increases to the carbon tax over the next 34 years that they are beyond their ability to control.
They should commit to raising the carbon tax by $10 a year — or maybe even by $15 per year — over each of the next four years, starting in 2017, a year earlier than the CLT called for.
And they should commit to integrating the carbon tax with a cap-and-trade system that also imposes hard emissions caps on large industrial polluters, to ensure they cannot simply pay to pollute for profit without restriction, as the current carbon pricing regime allows.
We must remain vigilant not to allow B.C.’s heaviest carbon polluters to transfer their risks and costs to other taxpayers, especially to individuals and families.
That is what is now happening and it is a key weakness in the CLT’s plan, as I argued in the second installment of this series. I will have much more to say about that problem in the next and final installment.
Having said that, it is important to put the CLT’s recommendation on the carbon tax in perspective, especially for voters who might be too easily swayed by those who promise to freeze the carbon tax or minimize its increases in the near term.
It is equally important to obtain voters’ buy-in for the ways in which any incremental carbon tax revenue will be recycled, either through additional tax cuts, as is now legally required, or through new public investments.
To that end, we would be wise to take our cue from what has politically worked in other jurisdictions.
At least 15 jurisdictions have introduced some form of direct carbon tax, as this short publication from the World Bank points out.
In Canadian-equivalent dollars, Denmark’s carbon tax is about $45 a tonne and Finland’s carbon tax is over $50 a tonne.
Switzerland’s carbon tax is almost $89 per tonne. Norway charges up to $90 per tonne, depending on the type and usage of fossil fuels covered by its carbon tax.
Like that country, Sweden has had a carbon tax since 1991 that has increased over time and now stands at about $219 CAD a tonne.
You can bet that it will easily exceed the CLT’s target of $360 a tonne in 34 years’ time, even with the exemptions that are creeping in, under the European Union Emissions Trading System.
The world hasn’t ended for any of those countries, many of which are large energy producers. Their economies have not collapsed.
Sweden’s example, in particular, shows that the CLT’s vision for a carbon tax is completely doable, if it is not derailed by politics born of its zeal for “proving” the unprovable and of a debate about timelines and long-distant tax hikes that undermines its own purpose.
Just last year Sweden announced that it is also intent on being one of the first nations in the world to become fossil-fuel free.
So it can be done, if we are smart about how we “right price” carbon in British Columbia.
The CLT’s plan for an annual $10/tonne increase in the carbon tax from 2018 to 2050 would mean that it would rise from today’s level of $30 per tonne, to $360 per tonne by 2050 — a 12-fold increase.
Simple multiplication suggests that that increased carbon tax would mean that the price of gasoline would rise from the 6.67 cents per litre now charged for that tax, to about 80 cents per litre over those 33 years.
That should not be too hard to absorb over those next three-plus decades.
After all, in joining the International Zero-Emission Vehicle Alliance last December,
the Clark government also signed onto to a pledge “to make all passenger vehicle sales in our jurisdictions Zero Emission Vehicles as fast as possible, and no later than 2050.” (Emphasis added.)
If we achieved that goal, through fully electric vehicles, the carbon tax basically would not even apply to most people’s cars or trucks, or even to many buses and other public transit vehicles.
The CLT plan offers some suggestions to help encourage electric vehicles, but much more needs to be done.
As well, the incremental demand that those electric vehicles will impose on British Columbia’s electrical system has not been properly quantified by anyone.
That plan also makes recommendations to encourage fuel switching, to help buses, large and medium-duty trucks convert to less carbon intensive fuels, like compressed natural gas.
While that might make sense as a bridging strategy, we should not be investing a lot of money in infrastructure aimed at perpetuating fossil fuel dependency, even from non-renewable natural gas.
Which brings me to home heating.
Under the CLC’s plan, the carbon tax on that energy would go up from the current rate of about $1.49 per gigajoule to about $17.88 per gigajoule in 2050.
Considering a typical home in Vancouver uses about 60-90 gigajoules of natural gas, that cost would be considerable. That annual carbon tax bill would rise from around $89-$134 currently, to about $1,072-$1,609 by 2050 — just for the carbon tax, not including the price of the natural gas itself.
You can see how that escalating tax might motivate most families to seek lower carbon transportation and heating alternatives.
The CLT vision calls for all sorts of targets and unspecified best practices to make buildings more energy efficient and to reduce “built sector” emissions by 50 per cent.
Those are all great goals to pursue, but the CLT plan says little about how to achieve them.
Suffice it to say, there are many ways we can rebalance that carbon price burden, to lay more of it where it properly belongs: at the feet of the heavy industrial emitters who should be obliged to pay the full freight of their carbon pollution.
Rethinking the “Revenue-Neutral” Carbon Tax
Most British Columbians do not really believe the current carbon tax is actually revenue-neutral, even though the government’s annual accounting treatments purport to prove otherwise.
Nevertheless, it’s all there on page 58 of the 2016 Budget and Fiscal Plan, for anyone who cares to look.
This year, the government expects to collect $1.2 billion in carbon tax and it plans to return $1.7 billion in tax relief. In other words, it is budgeting to return $500 million more in tax breaks than it projects it will collect in carbon tax revenue.
As such, the carbon tax scheme is not just revenue-neutral, it’s revenue-negative.
The law requires the province to at least pay back in tax cuts an amount equivalent to what it receives from the carbon tax.
Because it cannot be sure what either that amount of carbon tax revenue will be, or what the cost of its associated tax relief measures will be, the province always budgets to return more than it takes in.
Plus, the cost of that tax relief attributed to offsetting the carbon tax has tended to outpace the growth of that revenue over time. Hence the widening gap between carbon tax revenues and carbon tax relief expenditures.
The problem is, precious few taxpayers feel that they are breaking even on the carbon tax that they pay.
That is partly due to the fact that most people tend to vastly overestimate what the carbon tax is costing them.
But it is mostly due to the reality that most taxpayers and businesses actually do pay more in carbon taxes than they get back in discernible tax breaks.
Then again, some families more than break even on the exchange — typically, those on lower incomes and those who live in rural and Northern areas, as counterintuitive as that may seem.
In fact, of the $601 million in total tax relief for individual and families that will be funded this year from carbon tax revenues, almost half — $278 million — will be dedicated to those beneficiaries.
That includes $195 million for the low income climate action tax credit of $115.50 per adult, plus $34.50 per child. And it includes $83 million for the Northern and rural home owner benefit of up to $200, which is only available to people living outside of the Capital, Greater Vancouver and Fraser Valley Regional Districts.
Most of the balance of that $601 million in personal carbon tax-related relief goes towards funding the five per cent reduction in personal income tax rates that was extended when the carbon tax was launched, eight years ago.
Few people remember that tax cut or perhaps even notice it, especially those with modest incomes.
When you look at how the carbon tax revenues are reallocated back into taxpayers’ pockets, the benefits they provide are not as material to most individuals and businesses as the highly visible costs that confront them at every turn.
This is one reason why the CLT recommended using some of the incremental revenue from a higher carbon tax to lower the provincial sales tax from 7 per cent to 6 per cent.
I think that would be a big mistake. Sales tax cuts are regressive, insofar as they most benefit those who spend the most — namely, people with large incomes.
Cutting that tax by a point won’t do much to help those with lower incomes, many of whom are already receiving a low income carbon tax credit.
As the David Suzuki Foundation has said, that should be increased and indexed to the rate of any future carbon tax hikes, to maintain its effective support for those on low incomes.
Given the heavy weighting in favour of tax relief for businesses, the last thing we should be doing is devoting an even larger share of an ever-larger amount of carbon tax revenue back to businesses.
Especially not the oil and gas industry.
Yet that, too, is something the CLT recommends to help those emissions hogs remain globally “competitive” and to help them offset their costs of reducing their emissions.
It proposes to eliminate the sales tax on electricity for industry, just as it was previously eliminated for households.
That would represent a massive tax transfer to industry, especially to B.C.’s heaviest carbon emitters, in the hope of encouraging them to switch from fossil fuels to renewable electricity.
I will address that issue a greater length in my next piece, but for now it is enough to note that whatever its intended benefits, that recommendation would be yet one more needless subsidy to business that will make public acceptance of any future carbon tax increases that much harder to swallow.
It would represent another hidden subsidy to some of B.C.’s worst carbon polluters that is only contemplated to help attract more carbon-intensive investment. Wrong, wrong, wrong.
If anything, as carbon taxes go up, as they should and must, proportionately more of that revenue should be reinvested to mitigate cost pressures on families.
At least some of it should be used to invest in carbon reducing social “goods,” such as public transit, LiveSmart BC programs, targeted tax relief, affordable “green” housing, and more.
The CLT plan acknowledges those needs, but it also proposes all sorts of new measures that are mostly aimed at further subsidizing businesses, including the oil and gas industry.
As it is, the Clark government has already badly distorted the very notion of a revenue-neutral carbon tax by using that revenue for so many tax cuts and subsidies that should properly be funded from General Revenue, if at all.
In fact, of the $1.7 billion in tax relief attributable to the revenue-neutral carbon tax scheme, over $1.1 billion is dedicated to business — almost twice the amount going to individuals.
And that gap is projected to grow wider, not smaller, over the next three years.
Fully one-third of the $1.2 billion generated in carbon tax revenue this year will go towards subsidizing the film industry — $400 million for film incentive and production services tax credits.
Another $150 million of that carbon tax revenue is also now ostensibly funding the scientific research and experimental development tax credit. And a further $45 million is going towards the interactive digital media tax credit.
All of those tax credits have increased under the Clark government. They all used to be funded from General Revenue, not from the carbon tax.
The five per cent reduction in their personal income taxes that was extended with carbon tax revenue way back in 2008 has not been increased in all that time.
Before any cuts are made to the sales tax from carbon tax revenue, it would be much fairer to reduce income taxes for middle-income earners, adding a high-income surtax to offset those benefits for B.C. wealthiest individuals.
Truth is, the initial five per cent income tax is barely discernible in most middle class families’ take-home pay. They only see it once a year, at tax filing time, which is perhaps one of the reasons that the CLT is suggesting a more highly and constantly visible sales tax cut at some point down the road.
The low income climate action tax credit and the Northern and rural home owner benefit have also not changed in years, and they only apply to a relatively small subset of individual taxpayers. Most taxpayers don’t receive or feel those tax relief benefits.
Other tiny tax credits funded from the carbon tax were mostly cheap political ploys introduced by the Clark government to curry favour with their targeted constituencies.
They include a children’s fitness tax credit, a children’s arts credit, a training tax credit, a B.C. seniors’ home renovation tax credit and even a small business venture capital tax credit.
All arguably enough worthy measures, and all ones that were or should otherwise be funded from General Revenue, or from the LiveSmart BC program — not from the carbon tax.
Again, their reach and their actual tax benefits are so small, almost no one knows they even exist.
So it is not surprising that most taxpayers do not see the connection between the carbon taxes they pay and the tax relief or other social benefits they receive.
That needs to change — dramatically — as part of any plan to raise the carbon tax.
The government should end the carbon tax exemption it put in place two years ago for coloured gasoline and coloured diesel fuel that is used for farm purposes, including for on-farm equipment and for eligible farm trucks on the highway.
It should end the Greenhouse Carbon Tax Program that provides greenhouse growers a grant equal to 80 per cent of the carbon tax paid on their purchases of natural gas and propane burned for heating and CO2 production within their greenhouses.
The Clark government opened the door to the slippery slope of carbon tax exemptions that arbitrarily exempt some sources of carbon emissions from that tax on pollution that only works if its charged on all measurable emissions, across the board.
Tax exemptions are always a mug’s game that is politically manipulated for mostly political gain. We should avoid them like the plague in respect of the carbon tax, which is all about taxing all carbon pollution as if it matters.
In future, we should be rethinking the revenue-neutral carbon tax to use some of that money, as the CLT suggests, for public investments in carbon-reducing infrastructure, technology, facilities and behavioural incentives.
This is the approach that Alberta has chosen for its new carbon tax. It makes sense to more dedicate carbon tax revenue to the thing it is supposed to encourage — lower GHGs.
If governments hope to maintain and build broad public support for any carbon tax, they would be well-advised to clearly demonstrate that linkage with every penny it collect from that tax on carbon emissions.
People very much want and need major improvements in public and rapid transit. They want more pedestrian and bicycle-friendly communities. They want more green spaces, with more trees that clean the air as they sequester carbon.
They want much more help in making their personal transitions to more energy efficient homes, to electric and hybrid vehicles, and to cleaner, more sustainable consumer products that contain less packaging.
They want to make smart choices that will help to heat their homes and run their appliances using truly renewable sources of electricity and renewable biogas that helps to eliminate methane emissions.
Those are only a fraction of the most obvious targets for needed public investment that might be supported by using at least some of B.C.’s carbon tax for carbon-reducing priorities that taxpayers want.
They offer the types of benefits that more people would actually see and feel, which might make them more amenable to paying gradually higher carbon tax rates.
They are the types of investments that can really make a difference in helping taxpayers to make smarter choices that can truly save them money, net of the carbon tax.
Finally, we should consider imposing differential carbon tax rates, as Norway has done, that impose a heavier proportional carbon tax burden on carbon-intensive industries and activities that demand a distinctly more onerous price signal to achieve the carbon tax’s intended purposes.
Far from charging the oil and gas industry less, we should be charging it more, especially in the absence of cap-and-trade, which might achieve the same end at a lower cost, by dint of absolutely limiting and decreasing those related carbon emissions.
Martyn Brown was former B.C. premier Gordon Campbell’s long-serving chief of staff and a key architect of B.C.’s climate action plan and clean energy plan. He was the top strategic advisor to three provincial party leaders, and a former deputy minister of tourism, trade, and investment in British Columbia. A frequent contributor to the Georgia Straight, Brown is also the author of the ebook Towards a New Government in British Columbia. Contact Brown at email@example.com.
Image: Province of B.C./Flickr