Wednesday, June 11, 2014

Climate change: A carbon tax in action

Earlier in the month, the Greens promised to scrap the gutted and ineffective Emissions Trading Scheme and replace it with a carbon tax. The government immediately claimed that the sky would fall if we stopped subsidising polluters and allowing them to rort us. So will it? In 2008 British Columbia imposed a carbon tax. The sky didn't fall. Instead, it has done exactly what it was designed to do: reduce emissions while lowering taxes on ordinary people:

If the goal was to reduce global warming pollution, then the BC carbon tax totally works. Since its passage, gasoline use in British Columbia has plummeted, declining seven times as much as might be expected from an equivalent rise in the market price of gas, according to a recent study by two researchers at the University of Ottawa. That's apparently because the tax hasn't just had an economic effect: It has also helped change the culture of energy use in BC. "I think it really increased the awareness about climate change and the need for carbon reduction, just because it was a daily, weekly thing that you saw," says Merran Smith, the head of Clean Energy Canada. "It made climate action real to people."

It also saved many of them a lot of money. Sure, the tax may cost you if you drive your car a great deal, or if you have high home gas heating costs. But it also gives you the opportunity to save a lot of money if you change your habits, for instance by driving less or buying a more fuel-efficient vehicle. That's because the tax is designed to be "revenue neutral"—the money it raises goes right back to citizens in the form of tax breaks. Overall, the tax has brought in some $5 billion in revenue so far, and more than $3 billion has then been returned in the form of business tax cuts, along with over $1 billion in personal tax breaks, and nearly $1 billion in low-income tax credits (to protect those for whom rising fuel costs could mean the greatest economic hardship). According to the BC Ministry of Finance, for individuals who earn up to $122,000, income tax rates in the province are now Canada's lowest.

So what's the downside? Well, there really isn't one for most British Columbians, unless they drive their gas-guzzling cars a lot. (But then, the whole point of taxing carbon is to use market forces to discourage such behavior.)

Meanwhile, under our ETS, New Zealand's emissions are once again increasing.

From the BC example, this is a simple, effective policy. The "downside" is that it actually works, and that polluters have to pay or change their behaviour. And that's not a downside at all.