North America gets its first carbon tax

Taxing carbon-spewing machines to slow global warming certainly has an eat-your-peas aspect to it: "Trade your SUV for a hybrid or we'll make you pay!"

Then again, tax policy can have a huge and positive impact on individual and group behavior. In part, high cigarette taxes explain why rates of smoking among Americans have plummeted.

The Canadian province of British Columbia last week became the first jurisdiction in North America to enact a consumer-based tax on carbon emissions. The Vancouver Sun reported:

"The move was seen as a huge win by environmentalists, who depicted B.C. as a leader in taking action on climate change. 'I think this is a landmark decision in North America as far as government addressing global warming,' said Ian Bruce of the Suzuki Foundation. 'The B.C. government has decided to use one of the most powerful incentives at its disposal to reduce pollution,' he added...."

The goal is to raise US$1.75 billion over the next three years by taxing virtually all fossil fuels, including gasoline, diesel, natural gas, coal, propane, and home-heating fuel. It starts in July at $10 per ton of carbon emissions, rising to $30 per ton by 2012. Consumers will pay an extra 2.4 cents a liter (9 cents per US gallon) this year for gasoline, rising to 7.2 cents by 2012. Home heating oil would rise 2.8 cents a liter (10.6 cents per US gallon), going up to 8.3 cents per liter over the same period. The Globe and Mail (subscription required) reported:

"'It has been a dramatic turn, I think, for this province with this budget to say we're not just going to be talking about climate action,' said Finance Minister Carole Taylor. She said the strategy is to 'tax something that we know is bad for us,' and use the revenue to stimulate wide social change by providing incentives for people and businesses to become more energy efficient."

The plan is meant to be "revenue neutral," meaning that overall taxes won't climb. To compensate, corporate and personal income tax rates will drop, and low-income families will receive an annual tax credit of $100 per adult and $30 per child. To jump start the program, every resident will get a one-time payment of $100 this year. The Canadian Press reported:

"[British Columbia] Premier Gordon Campbell said he won't try to pressure any other provinces to take action on climate change but he hopes B.C. serves as an example. He said by giving British Columbians tax breaks on things such as fuel-efficient cars and energy-efficient appliances, British Columbians are being given real choices on battling climate change. 'It'll drive investment in the economy,' Campbell said."

The new carbon tax is not seen as a panacea. It's expected to help cut B.C.'s greenhouse-gas emissions by about 5 percent by 2020, but that's well short of the government's goal of a 33 percent reduction. The Times Colonist in Victoria, B.C., quotes University of Victoria climatologist Andrew Weaver as saying that the tax will send an important message:

"To me, what's important is the actual signal to the market that carbon is going to have a price. And that price is going up, not down. And that, in itself, is enough to do a paradigm shift as to how we do stuff."

So far, the rest of Canada is not following British Columbia's lead. Ontario's strategy, for example, includes a commitment to shut down the province's coal-fired generating plants. United Press International quotes Ontario Premier Dalton McGuinty as saying:

"We're doing something differently here in Ontario that suits our economy and the direction that we're pursuing...."

Some federal officials in Canada are concerned that individual plans by provinces could be more costly and less efficient than a unified approach. The National Post reported:

"'(Canadians) don't want to pay more for cars, they don't want to pay more for other things because the governments can't get their act together and co-operate,' [Finance Minister Jim Flaherty] said."

That's essentially the argument the Bush administration has been using to block California and other states from regulating vehicle greenhouse gas emissions.