How I lived through a carbon tax and survived to tell the tale

A guest post by Dan Moutal, the voice of the Irregular Climate Podcast. Follow him on Twitter @ScruffyDan

Just over three years ago the province of British Columbia (BC) on Canada’s west coast implemented a revenue neutral carbon tax. And the world didn’t come to an end.

But three years on it is easy to find people who continue to unfairly criticise the policy and show that they simply don’t understand it.

For example this article from the New York Times:

John Hunter despises [the carbon tax].

"I've already insulated my house to be energy efficient. I already turn down my thermostat. Why should I have to pay $20 on my natural gas bill for something that is doing nothing for me?" the 64-year-old engineer said in an interview from his home in North Vancouver, British Columbia. His anger about the C$21.85 charge on his C$263 December bill prompted a protest op-ed in a local Vancouver paper. (One Canadian dollar equals roughly 1.02 U.S. dollars.)

What John Hunter might not realize is that the the carbon tax here in BC is revenue neutral. Meaning that every penny collected by the tax is returned to the public in the form of tax rebates (aka cheques in the mail) and lower income and corporate tax rates. So while John Hunter might have to pay a little extra to heat his home, he gets to keep more of his income in his pocket, and so does his employer. In fact it is entirely possible that Mr Hunter’s income tax savings are a fair bit larger than the $20 monthly charge on his home heating bill.

And since Mr Hunter has already taken steps to insulate his house and make it energy efficient, he is emitting less carbon and thus paying less taxes. The carbon tax gives people some amount of control over how much taxes they end up paying.  Instead of taxing the good (aka income), the carbon tax taxes the bad (aka GHG emissions). Emit less and you pay less taxes.

In fact thanks to the carbon tax, BC has the lowest income tax rates in Canada for people earning up to $118,000, as well as very low rates of corporate and small business taxes.

Yet that is rarely mentioned when the tax is criticized.

But let's back up a little; what exactly is the carbon tax policy here in BC? I need to be upfront and say that the tax here is modest. It started out at $10/tonne and has been increasing by $5 each year untill it reaches a maximum of $30/tonne in 2012. And as I mentioned earlier, all the money raised by the tax is refunded back to residents and businesses in BC.

So how has my life changed since the introduction of the tax? The short answer is that it hasn’t really changed much at all. The biggest change is that I get quarterly carbon tax rebate cheques from the government, because I fall into the low income tax bracket.

Sure gas and home heating is a little more expensive. But the economy did not collapse and I am proud to say that at no time did we travel back in time to the Stone Age.

And that price on carbon is exactly the point. By pricing emissions there are now greater incentives everywhere to reduce greenhouse gas (GHG) emissions. Activities or products which lead to lots of emissions are now relatively more expensive, while their low carbon counterparts are not. This leads to millions of small individual choices that result in less emissions. Those renovations Mr. Hunter made will pay for themselves sooner than they otherwise would, because of the carbon tax.

But there are limits to what a modest carbon tax like the one here in BC can do. At the maximum rate of $30/tonne, the results will never be sufficient to reduce BC’s GHG emissions enough to avoid the worst impacts of climate change, to say nothing of the GHG emissions of the rest of Canada or the world for that matter.

For that the carbon tax would have to be higher, with coresponding larger tax decreases elsewhere, and apply to a much larger jurisdiction.

Here in BC we have just taken a successful first step.

Posted by Dan Moutal on Friday, 8 April, 2011

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