Eric Davis: Canadian province offers carbon tax data

A coalition of Vermont environmental groups recently held a press conference in Montpelier advocating that the Legislature enact a carbon tax in order to reduce the consumption of fossil fuels in Vermont.
The environmentalists were joined by Rep. Tony Klein, D-East Montpelier, the chair of the House Natural Resources Committee, who said that a carbon tax bill would be one of his committee’s high priorities in the upcoming legislative session.
The idea of a carbon tax was roundly denounced by Vermont Republicans, and by business interests, who said that increasing the cost of gasoline, diesel fuel, home heating oil and natural gas would further the affordability crisis in Vermont.
Although Gov. Shumlin supports the goal of reducing greenhouse gas emissions, he is skeptical about a single-state carbon tax. He believes it would hurt Vermont businesses at the expense of surrounding states. Shumlin said enacting a regional carbon tax covering all the northeastern states would be a better approach.
Before rushing to judgment on a carbon tax, Vermont policymakers should study the Canadian province of British Columbia, which has taxed carbon since 2008.
The B.C. carbon tax was phased in over a four-year period. Since 2012, it has been collected at a rate of $30 Canadian per metric ton of carbon dioxide. Translating from Canadian to U.S. dollars, and from metric tons of CO2 to gallons of gasoline, the tax on gasoline comes out to about 21 cents U.S. per gallon.
The B.C. carbon tax was designed to be revenue-neutral. The carbon taxes collected have been offset by a reduction in personal and corporate income tax rates, as well as by a tax credit for low-income households.
The goal of a carbon tax is to use traditional free-market economic incentives to change individual and business behavior. By making fossil fuels more expensive, the tax is designed to encourage the purchase of more fuel-efficient vehicles, energy-saving renovations to individuals’ and firms’ homes, offices and other facilities, and other behaviors that will result in less consumption of fuels that generate greenhouse gases.
By all accounts, the B.C. carbon tax has been successful in accomplishing the goal of reducing fossil fuel consumption. In the first five years the tax was in effect, fossil fuel consumption in B.C. dropped by 15.1 percent, and by 16.4 percent compared to the rest of Canada. Greenhouse gas emissions in B.C. dropped by almost 10 percent per capita, nearly double the reduction in the rest of Canada.
The total amount collected by the B.C. carbon tax is now about $1.2 billion Canadian per year. All of this revenue is returned to the provincial economy through individual and business tax reductions. B.C.’s personal and corporate income tax rates are now the lowest in Canada. Since the carbon tax went into effect, B.C.’s GDP has grown slightly faster than the rest of Canada. This includes the years of the Great Recession.
Interestingly, the B.C. carbon tax was proposed by the provincial Liberal Party, which, in the Canadian context, is a conservative political party, and was opposed by the provincial New Democratic Party, which is a social democratic party. The Liberals have been re-elected twice to the B.C. provincial parliament, with majority governments, since the carbon tax was implemented.
Preston Manning, a leading conservative political figure in Canada, recently wrote a column for the Toronto Globe and Mail, in which he argued that the B.C. carbon tax should be extended to all of Canada. Vermont businesses and Republicans should consider the experience of British Columbia, and the arguments of Canadian conservatives, before writing off a revenue-neutral carbon tax as an appropriate way to reduce greenhouse gas emissions and control climate change.
Eric L. Davis is professor emeritus of political science at Middlebury College.

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