BREAKING DOWN THE CARBON TAX.
Understanding the issues around the policy tool
Canadians could come out ahead financially with a federally-imposed carbon tax, or so concludes the latest study on the policy as understanding of emission reduction options continue to evolve. The study by Mark Cameron, executive director of the pro-carbon tax group Clean Prosperity, found individuals in almost all income brackets would take in more money than they pay in carbon taxes because businesses subject to the tax wouldn’t get a refund. Prime Minister Justin Trudeau has committed to impose a carbon tax on provinces without their own form of emissions pricing, starting at $20 next year, and said he could send the revenues back directly to citizens. The Cameron study out this week found lowest-income households would see the most benefits from such a policy. Those with incomes of under $20,000 would see a net benefit of $195 in Ontario to $831 in Saskatchewan for next year, two provinces without a carbon tax, while households over $150,000 would gain $2 and $621 respectively. The findings add another layer to the debate on the controversial policy that Trudeau has embraced and conservatives at the provincial and federal level have vowed to oppose. But as the issue looks to become a major election topic next year, many Canadians are still unsure of what carbon taxes are, how they might affect household budgets and if they’ll have any effect on reducing emissions. Carbon taxes are designed to reduce the greenhouse gas emissions responsible for climate change. Governments set a price, generally per tonne of carbon dioxide, charged to emitters. The revenue from the tax on fuel, heating, and other carbonbased energy uses is then used in a variety of ways such as reducing income tax in B.C., funding energy efficiency programs in Alberta, or into general revenue in the case of Ireland. The idea is that by putting a price on pollution, people and companies can find their own lowest-cost ways to reduce emissions. The price also boosts demand for low-carbon alternatives, spurring innovation. The clear price signal makes for potentially efficient choices, but because the tax is visible and put burdens on everyone, many feel it’s punitive, said Kathryn Harrison, a political science professor at the University of British Columbia. “There’s lots of reasons to believe we could achieve emissions reductions at a lower cost by relying on this approach, but there’s no question there’s a lot of political challenges associated with it as a policy instrument.” To make the tax more acceptable, some governments have tried to make it revenue neutral. British Columbia committed to doing this in 2008 by cutting income taxes while imposing its tax. Since everyone in the same tax bracket got the same cuts, those who create fewer emissions pay less carbon tax, providing a clear incentive to try and reduce emissions. Most governments however, have found the lure of the billions of dollars brought in by carbon taxes too tempting, lending strength to the criticism of the whole thing being a government cash grab. Alberta used some of the revenue from its carbon tax to give money back to low- and middle-income households, but like Ontario and Quebec, it also diverted money from a carbon price to spend on other climate initiatives. The federal government may be the first to clearly show voters what a revenue neutral carbon tax looks like by sending revenues from the carbon tax directly to citizens if their provincial government doesn’t establish one. Unlike the tax cuts that B.C. residents didn’t really notice, sending money could drive home the idea that the tax can be genuinely revenue neutral, said Harrison. “If people receive quarterly cheques in the mail, the idea that they are being compensated for those taxes is more palpable, it’s more concrete. And it also makes it harder to take away down the road.” So will it work to reduce emissions? The current carbon prices of about $20to $30-per tonne haven’t led to dramatic results. A study of B.C.’s experience found emissions still rose with a carbon tax, but by about five to 15 per cent less than they otherwise would have.