B.C. is the first jurisdiction in North America to introduce a broad-based revenue carbon tax. The B.C. government announced the carbon tax as one component of its budget on February 19, 2008. Unexpectedly, criticism of the carbon tax has been muted, with the Board of Trade calling it a "smart carbon tax" and giving the budget an "A" grade. As well, recent polls show that just over a majority of B.C. citizens support the carbon tax.
How could a government introduce a new tax without incurring a political backlash? The answer is two-fold: first, the tax is revenue neutral and second, it starts low and then gradually moves up over time to the expected range per tonne as carbon markets develop.
The carbon tax is revenue neutral because every dollar raised from the carbon tax must be used for the reduction of personal and corporate income tax. The B.C. government has committed to include this mandate in the legislation so that neither the current nor future governments will be able to give in to the temptation of using the carbon tax money to fund special projects or to pay general expenses.
This approach of taxing carbon-intensive activities, while increasing the amount of money in the economy in the hands of businesses and consumers, reflects the B.C. government's underlying strategy of dealing with global environmental issues while developing the local economy. Several times during the budget speech, Finance Minister Carole Taylor emphasized the need to twin these two objectives.
The carbon tax is expected to generate about $1.85 billion in the first three years, and the entire amount will be returned to businesses and individuals in reduced income tax.
General corporate income tax will be reduced from 12 per cent to 11 per cent and small business corporate income tax reduced from 4.5 per cent to 3.5 per cent from July 1, 2008. Personal income taxes on the two lowest tax rates will be reduced by 2 per cent in 2008 and 5 per cent in 2009.
Starting July 1, 2008, the price for carbon will be $10/tonne and rising $5/tonne for the following 4 years. This means that in the first year, gasoline prices will increase by $.0241/litre and diesel by $.0276/litre. Purchase or use of biofuels, such as biodiesel and ethanol, are exempted from the carbon tax. B.C.'s carbon tax is similar to a consumption tax as it is payable by the end user at the point of purchase or use on fossil fuels in B.C.
McCarthy Tétrault Notes:
B.C.'s carbon tax is only one of a variety of possible approaches, depending on the province's carbon characteristics and view of the role of government. For example, Québec introduced a form of carbon tax last year that supports developing green technology by collecting just under one cent a litre from petroleum companies. Its tax raises about $200 million a year.
What may work in B.C. may not work in other provinces. In Alberta, for example, the oil sands significantly skew that province's carbon characteristics, just as in B.C. the significant hydroelectric resources allow electricity generation without significant reliance on fossil fuels.
Over the next couple of years, it is expected that each province will introduce a variety of policies and regulations to deal with carbon emission and economic development in their region. Keeping abreast of these changes should prove to be a challenge.
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