BC brings in revenue-neutral carbon tax

February 27, 2008 10:36 PM

The revenue-neutral carbon tax: an idea whose time has come? The British Columbia government has just introduced a carbon tax, starting at $10/tonne in July 2008 and rising to $30/tonne in 2012. All revenues from the tax (close to $2 billion over three years) will be returned to taxpayers in the form of income tax cuts, reducing income and corporate taxes to the lowest levels in Canada. Details from the BC budget. Globe and Mail.

More on the idea of the revenue-neutral carbon tax: a 1997 column by Paul Krugman. Reason magazine. William Nordhaus. And Dave Sawyer is a Canadian environmental policy analyst with a blog.

posted by russilwvong (27 comments total)

This is a fairly reasonable idea. I've long thought that the only rational taxes would be to correct for situations where one person was passing off a burden on another, such as is the case with carbon emissions.

Here's to hoping it works well.
posted by mosch at 10:42 PM on February 27, 2008

This is an awesome way to drive any remaining native Canadian industry to China.
posted by nasreddin at 10:46 PM on February 27, 2008

nasreddin: the key is it's *revenue-neutral*. The total business tax levy will remain pretty much constant. However those companies that can improve their emissions will pay less than their competitors.
posted by Popular Ethics at 11:10 PM on February 27, 2008

This is an awesome way to drive any remaining native Canadian industry to China.

The last I heard, textile is doing pretty well in Quebec, auto production is sill around in Ontario, the Maritimes have fisheries, and the West has a booming natural resources based economy. BC has a variety of tech/knowledge/entertainment industries as well as a natural resource export sector. Some of these produce a lot of carbon, some of which don't. Also, while all the sectors I mentioned have economic ups and downs, the key here is that they're all pretty diverse.

And this brings me back to your comment: it's a tax only in BC, not a federal tax. Saying a BC policy will have federal effects is like saying Shenzhen is the economic norm in northern China. However, if this tax was to have positive contributions to the BC economy, I'll bet you it'll be adopted elsewhere, in the Prairies, in central Canada and in the East.

I agree with mosch, this tax is re-balancing and reshaping externalities. Of course this policy isn't without political motives and the government in BC isn't doing this out of altruism, but let's wait and see before saying Canada's losing their industries because of a provincial tax.
posted by phyrewerx at 11:10 PM on February 27, 2008 [2 favorites]

This is an awesome way to drive any remaining native Canadian industry to China.

I say the same thing every time people bring up silly notions like human rights, equal pay, democracy, rule of law and non-poisonous toothpaste. People need to learn that the economy must be completely free. Consequences are for people without capital.
posted by srboisvert at 12:34 AM on February 28, 2008 [13 favorites]

William E. Rees has something to say about it as well.

Conclusion: "As matters stand, B.C.'s seemingly "aggressive" move is politically designed to have minimal impacts. The province is still dedicated to outmoded notions of economic growth at any cost -- and if the costs exceed the benefits (as many suspect is the case at the global level) we are actually encouraging uneconomic growth that will ultimately impoverish us all."
posted by Pseudonumb at 12:58 AM on February 28, 2008

And (not surprisingly) Bill Tieleman has an opinion too.

Conclusion: "The $100 cheque is simply a bribe to make you forget you are being hosed as the government adds $1.8 billion in revenue to its coffers while it gives huge tax breaks to banks and businesses. And don't forget it is creating expensive new bureaucracies that won't likely save a single polar bear from global warming."
posted by Pseudonumb at 1:15 AM on February 28, 2008 [1 favorite]

*knights srboisvert*
posted by chuckdarwin at 1:34 AM on February 28, 2008

I admire the effort, but I'm starting to worry that all environmental problems have been condensed into the word "carbon". We're doing a lot of nasty things to the environment, and putting carbon into the atmosphere is only one of them, and probably not even the worst.
posted by hoverboards don't work on water at 3:17 AM on February 28, 2008 [2 favorites]

That's true hoverboards; "carbon" is the celebrated cause at the moment, and it seems everyone but scientists and hardcore environmentalists have stopped caring about habitat loss, species extinction, water issues, other forms of pollution...

However, things are all linked. Keeping your forests around, instead of cutting them down, is a good way to gather carbon credits, for example. In Tasmania, Australia's most forested and logged state, people are seriously pondering whether they can make more money by keeping the forests in place and earning money from the carbon sequestration than by cutting them down to make toilet paper.

The idea of using carbon taxes to replace income / business taxes is interesting; I hadn't thought of it before, I'd always just thought of private carbon trading schemes outside the tax system. It seems like a pretty radical change though. How far back along the chain does it go? Does it take into account the amount of CO2 released in the manufacture of foreign products, for example? Is a hefty tax slapped on something imported from China? If it is, what does the WTO think of that?

Reading the links, it looks like it's only a tax on fuel, so it's a pretty half-arsed effort I guess.
posted by Jimbob at 4:26 AM on February 28, 2008 [1 favorite]

The last I heard, textile is doing pretty well in Quebec, auto production is sill around in Ontario, the Maritimes have fisheries

Whomever your source is on this... sucks.
posted by crowman at 4:34 AM on February 28, 2008

I say the same thing every time people bring up silly notions like human rights, equal pay, democracy, rule of law and non-poisonous toothpaste. People need to learn that the economy must be completely free. Consequences are for people without capital.

Yep, that's exactly what I said. You win a cookie.
posted by nasreddin at 4:49 AM on February 28, 2008

So, I'm not sure I get it. They are going to tax you and then later give you back the money? So I'm not really sure where the incentive is to reduce consumption other than just cash-in-hand. The more everyone consumes, the more the tax return later. They're also just going to give everyone $100 in june to offset the tax, so they're even giving you a down payment to make up for the whole cash-in-hand incentive that is the only motivating factor I can see. This seems more like an expirement in bureaucracy rather than a positive step towards carbon-neutrality.

Why don' they just tax the carbon and use the money to offset the cost of clean energy and thereby level the field?
posted by Pollomacho at 4:55 AM on February 28, 2008

Sounds good to me. Let's give it a couple years and see what happens.
posted by seanmpuckett at 5:09 AM on February 28, 2008

The more everyone consumes, the more the tax return later.

The more individuals consume, the more tax individuals pay. If you want to take advantage of a sudden fairly generous income tax reduction, ride a bike.

I guess the theory is, individuals will want to save money, so individuals will consume less, which means consumption will go down over all once you add all those individuals together.

Of course, if it "works" and people quickly stop using greenhouse-gas emitting fuels, the government's tax base will disappear. I guess we'll have to wonder what they'll do when that happens.
posted by Jimbob at 5:15 AM on February 28, 2008

No tax is a good idea when you can implement cap-and-trade, getting all of the benefits with none of the red tape.
posted by fusinski at 5:32 AM on February 28, 2008

Yep, that's exactly what I said. You win a cookie.

Like I would take a cookie from someone whose overriding concern is harmonizing with China's environmental policies for the sake of competitiveness. I understand why you would be opposed to environmental standards though. Hot air could be next.
posted by srboisvert at 5:36 AM on February 28, 2008

Why don' they just tax the carbon and use the money to offset the cost of clean energy and thereby level the field?

Because this is the BC government.

Don't get me wrong. I love BC. Living there was one of the happiest periods of my life. But the BC government (of whatever stripe) has these weird bouts of insanity. This would be an excellent case in point.

I guess that basically every BC government is essentially like the NDP (who I theoretically support): long on really bloody good ideas that will make life better for people, short on practical ways of executing those ideas.
posted by dirtynumbangelboy at 6:14 AM on February 28, 2008

But the BC government (of whatever stripe) has these weird bouts of insanity

I would amend this to say that the BC government, of whatever stripe, periodically emerges from its continuing lunacy in a weird and uncharacteristic bout of rationality.
posted by Turtles all the way down at 6:35 AM on February 28, 2008 [1 favorite]

You make an excellent point, TAWTD.
posted by dirtynumbangelboy at 6:45 AM on February 28, 2008

This is a fairly reasonable idea.

So seemed a "temporary" income tax introduced during WWI. Somehow I doubt the middle class is going to escape being skewered (or screwed?) by this new tax, while for business, it will be business as usual.

You would have to actually live in British Columbia to understand how much this government is fond of doublespeak and outright lies when communicating ideas.
posted by KokuRyu at 7:11 AM on February 28, 2008

An interesting idea, but I too wonder if cap-and-trade wouldn't be a better solution. Also, I think calling any new tax revenue neutral because it will be returned in the form of a tax cut needs to have an asterisk next to it, pointing to the dead-weight loss that the collection and disbursement bureaucracy will inevitably involve. There's going to be a hit there of at least a few percent no matter what.

Still, it's an intriguing idea and I'm glad it's being discussed. I'd like to see a lot more serious policy discussions along the lines of the William E. Rees piece that chuckdarwin linked to above: too often we take on premise -- or the politicians that represent us do, anyway -- that economic "growth" is a good thing, and I'm not sure that's the case.

We're rapidly reaching a point in the West (and probably worldwide) where we need to figure out other modes of increasing happiness and living standards besides continuous growth, whether of population, resource extraction, or even economic. A whole lot of government policies essentially boil down to giant Ponzi schemes, betting that in the future they'll be more shoulders on which to place today's burden (with interest!), and pass their burden on down the line. It's irresponsible and it needs to stop.

Growth is not a good thing.
posted by Kadin2048 at 7:20 AM on February 28, 2008

I'm not sure I understand how this ends up working out in the end. Does this mean that BC's traditional industries -- forestry, mining, etc -- will end up paying the largest bulk of the taxes, while service sectors like say, law firms, banks, etc, will end up paying virtually none? Because taxing the hell out of corporations that actually produce something and instead of corporations that just push paper around seems kind of, uh, what's the word I'm looking for here? Insane.
posted by jacquilynne at 7:58 AM on February 28, 2008

drive any remaining native Canadian industry to China.

Oh come on. $10 a ton, even $30 a ton is a line item on a spreadsheet, it's not going to make a difference to most companies (coal fired power plants excluded). This is what most people don't get, carbon tax is not a huge deal. Most individuals in the USA consume about 5 tons a year (without flying), perhaps 10 if you fly.
posted by stbalbach at 8:01 AM on February 28, 2008

jacquilynne, I believe the term you're looking for is service economy. And I disagree with you completely.

I am all for Canada doing less mining, less chopping down of trees, less heavy manufacturing, less oil refining; Canada is the worst polluter in the world per capita (because of small and diffuse population, and an abundance of natural resources). Our environmental capital should be money in the bank, not a line of credit. Canadians need to develop innovation sectors to be more globally competitive, and this carbon tax seems like a good way to promote those kinds of businesses.
posted by dobie at 8:09 AM on February 28, 2008 [1 favorite]

Because taxing the hell out of corporations that actually produce something and instead of corporations that just push paper around seems kind of, uh, what's the word I'm looking for here? Insane.

I agree with you to some extent -- I've never really heard a cogent explanation of how, exactly, we're supposed to maintain the lifestyles to which we've all become accustomed (which require and consume a lot of real stuff) in an economy that does nothing but sell services to each other, and seems more than a little masturbatory.

But that ship has sailed and it ain't coming back. Most Western countries are already deep into the "service economy," and most people in both the U.S. and Canada work in those paper-pushing jobs. If the people who actually make the stuff we depend on decide they don't want to buy our services anymore, we're so screwed that the remaining heavy industry in the U.S. and Canada isn't going to make much of a difference.

So since we're committed to the service economy, better or worse, as it is, we might as well put a bullet into the head of the remaining dirty industries and at least enjoy clean air and nice forests while we're waiting for our civilization to collapse.
posted by Kadin2048 at 11:00 AM on February 28, 2008

Today's Globe and Mail: Majority of BC residents support carbon tax

... the Environics Research survey, obtained by The Globe and Mail, highlighted the government's weak spot: The greatest opposition to the tax introduced in the budget comes from rural communities.

Pollster Keith Neuman said the finding that 55 per cent of British Columbians support the new tax is striking and poses a challenge to both other provinces and Ottawa.

"B.C. has set a new standard and assuming that it takes - and this research suggests it will - other provinces can no longer ignore this kind of measure," Mr. Neuman, a vice-president with Environics, said yesterday. "They are either going to have to adopt it or explain to their constituents why they won't."

... The poll found that 15 per cent of respondents strongly support the new tax, and 40 per cent somewhat support it, while 27 per cent strongly oppose it. While the sample size drops dramatically for smaller communities, the poll hints at what some Liberal MLAs had feared, finding that 43 per cent of rural British Columbians strongly oppose the tax.

I was a bit surprised to see that the NDP criticized the tax, as the NDP is generally pro-environment. (The idea of shifting taxes from income to carbon emissions has been around for years--it's a standard Green Party plank.) However, they didn't say they would cancel it if they were elected! I think it'd be difficult for them to do so, since it'd mean raising income taxes again.

Jimbob: The idea of using carbon taxes to replace income / business taxes is interesting; I hadn't thought of it before, I'd always just thought of private carbon trading schemes outside the tax system. It seems like a pretty radical change though. How far back along the chain does it go? Does it take into account the amount of CO2 released in the manufacture of foreign products, for example? Is a hefty tax slapped on something imported from China? If it is, what does the WTO think of that?

Using carbon taxes has a number of advantages over cap-and-trade; one of the big ones is that international harmonization is relatively straightforward. With a cap-and-trade system (like Kyoto), you have to figure out how much of the cap should be allocated to each country. What's fair? Should it be by population? By historical levels? There's endless room for arguments. With a carbon tax, it's much more straightforward: everyone should have their carbon price at the same level. If you want to make allowances for developing countries, they can wait longer to phase it in.

hoverboards: We're doing a lot of nasty things to the environment, and putting carbon into the atmosphere is only one of them, and probably not even the worst.

True. But it's one of the toughest problems to tackle, because of the global nature of the problem, and the difficulty of coordinating international action.
posted by russilwvong at 2:38 PM on February 29, 2008