Canada: British Columbia Proposes Broad Carbon Tax

On February 19, the provincial government of British Columbia announced, as part of its 2008 budget, that it plans to introduce legislation that would impose a broad tax on the purchase or use in B.C. of gasoline, diesel fuel, natural gas, home heating fuel, propane, coal and possibly other fossil fuels. According to the government, this new tax, which would take effect on July 1, 2008, would be revenue neutral and among the broadest and most comprehensive in the world.

The tax would be phased in, starting at a rate of $10 per tonne of carbon dioxide equivalent (CO2e) emissions released from the burning of each particular fossil fuel. This initial rate would translate to a tax of $0.0241 per litre of gasoline purchased or used in B.C.; $0.0276 per litre of diesel fuel; $0.4988 per gigajoule of natural gas; $0.0276 per litre of heating fuel oil; $20.79 per tonne of Canadian bituminous coal; and $17.72 per tonne of sub-bituminous coal. Although the initial price per tonne of CO2e is lower than that advocated in many jurisdictions, the tax rate would increase to $15 per tonne on July 1, 2009; $20 per tonne on July 1, 2010; $25 per tonne on July 1, 2011; and $30 per tonne on July 1, 2012. For gasoline, the 2012 rate would translate to a tax of approximately 7.24 cents per litre.

To achieve neutrality, the government has indicated it will offset the tax revenue, which is expected to reach $1.849 billion over the next three years, with a number of tax credits and reductions. Certain lower-income British Columbians would receive an annual Climate Action Credit, indexed to provincial inflation, starting at $100 per adult and $30 per child in 2008. The bottom two provincial personal income tax rates and the provincial general and small businesses corporate income tax rates would also be lowered. In addition, a one-time dividend of $100 would be paid to each British Columbian resident in the province on December 31, 2007.

The B.C. proposal, if enacted, would be the second carbon tax in the country, the first having taken effect in Quebec on October 1, 2007. Much narrower than its B.C. counterpart, the Quebec tax directly affects only energy producers and importers, rather than purchasers or end users of fossil fuels. Currently, it applies to some 50 companies, which operate primarily in the gasoline, heating oil, electricity and natural gas sectors. As a result, the Quebec tax is expected to generate only $200 million in annual revenues. Rather than making equivalent tax cuts, Quebec has opted to deposit all revenue into a provincial Green Fund, established in 2006 to help fund reductions in greenhouse gas emissions and improvements to public transportation. Like the B.C. proposal, Quebec's tax rate varies for each fuel, depending on the amount of CO2e it produces during combustion. Currently, the rate is 0.8 cents per litre of gasoline distributed in Quebec; 0.9 cents for diesel fuel; 0.96 cents for light heating oil; 0.5 cents for propane; and $8.00 per metric ton for coal. The volume or mass of fuel attributable to a regulated company is determined, in any given year, by the numbers disclosed in an annual declaration that such a company is required to submit.

Both provinces have initiated carbon taxes in part to meet their targeted greenhouse gas (GHG) reductions. Quebec has adopted targets based on Canada's obligations under the Kyoto Protocol to reduce GHG emissions by 6% below 1990 levels by 2012. B.C. has legislated targets of 33% below 2007 levels (approximately 10% below 1990 levels) by 2020. It remains to be seen whether other Canadian provinces will adopt similar taxes to achieve their own targets, particularly after the National Round Table on the Environment and the Economy (NRTEE) suggested in its January report that the most effective marketbased emissions reduction policies are either (i) a downstream cap-and-trade regime for emissions of CO2e coupled with a carbon tax or (ii) an upstream cap-and-trade regime on fuels sold by energy importers, producers and distributors.

Looking more broadly, carbon taxes have been embraced by nearly a dozen European countries, and by some for more than a decade. Finland, which first adopted a combined carbon/energy tax in 1990, currently has a tax rate equivalent to $27 per tonne of CO2, though last January industry was required to pay just 50% of the amount due. A year later, in 1991, Sweden and Norway introduced their own carbon taxes, which currently range from $16–$63 per tonne of CO2. Both countries assert that the tax has accounted for a reduction of 15%–20% of their overall emissions. In 2001, Great Britain introduced a "climate change levy" on the use of non-renewable energy in the industrial, commercial and public sectors. Germany has also implemented a carbon tax as part of its broad environment-fiscal reform package that also includes subsidy-shifting, renewable energy incentives and other fiscal measures to reduce GHG emissions. Adoption of carbon taxes has not been universal in Europe. The European Commission, for example, had proposed a continent-wide carbon tax, but member countries abandoned this proposal, adopting instead the EU Emissions Trading Scheme as the preferred climate change policy tool on the continent.

For further information on the proposed B.C. carbon tax, please see For further information on the NRTEE report, please see Torys' Climate Change bulletin, January 25, 2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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