BC Introduces Carbon Tax

BC became the second province to introduce a carbon tax, following the rather timid lead of Quebec.

The tax will raise $1.85 billion over 3 years, and is 2.4 cents/l on gasoline and heating oil, as well as on natural gas, propane, coal etc.  This amount will triple by 2012.

Wisely, the government is also implementing tax refunds, in form of cheques of $100/person.  While the sending of cheques smacks of political populism and opportunism, the principal is sound:  the public will support carbon taxes only if they see clearly that other taxes are reduced.  Unfortunately, there is no similar tax break for businesses, which may be desirable to ensure that BC businesses continue to be competitive with other jurisdictions.  This is probably not a big deal with this low level of taxation, but it would be another important principal of carbon taxes.

The tax would seem to me to be just a start.  It is probably not high enough to drastically influence behaviour, but it may make a difference at the margins, and it is way better than nothing.  We should shift our taxes to energy, and off of incomes, so that the user of energy gets a price signal to encourage efficiency.

One interesting challenge this tax creates is that it will, albeit in a small way, encourage fuel switching from heating with natural gas or oil to electricity.  BC’s electricity is mostly from water, which has no emissions, and therefore doesn’t incur a tax.  It would seem to be wiser to apply the tax to all energy, to encourage efficiency of use of all types of energy.  BC has imported more power than they have exported lately – it would be wise for BC to also encourage efficient use of electricity too.  It would be profitable for all British Columbians, who after all, own BC Hydro.

It is good to see this step taken.  Hopefully it will encourage others to follow.

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