Carbon Pricing in BC – It Works: The How and Why this is Important to Canada’s Efforts to Combat Climate Change

The searing temperatures across much of Canada and raging wildfires in BC that characterized the summer of 2018 could be a harbinger of the upcoming heated political debate on the role of carbon pricing within national and provincial climate action plans. The issue of implementation of the Liberal government’s Pan Canadian Framework on Clean Growth and Climate Change may well emerge as the central issue in next year’s federal election.

In Canada, the majority of politicians on the right of the political spectrum oppose carbon pricing. Carbon taxes and emissions trading systems are often criticized as costly and ineffective in reducing emissions. Opponents of carbon pricing raise concerns that an increase in the costs of emissions intensive fuels and practices will place an unfair burden on industry and consumers and that industry and jobs will be motivated to relocate to more “business friendly” jurisdictions without carbon pricing.

This brings us to the real-world experience with carbon pricing in British Columbia. In 2008, BC introduced North America’s first broad based carbon tax. The tax applies to fossil fuel purchase and use and covers approximately 70% of provincial emissions. As of April 1st, 2018, BC’s carbon tax is $35 per tonne of CO2. This price will increase at annual increments of $5 arriving at $50 per tonne by 2021. BC’s carbon tax is revenue neutral and is offset by cuts in other taxes. At the current level, the carbon tax adds ¢7.78 per litre to the cost of gasoline and ¢8.95 per litre to the cost of diesel fuel. Since inception of the carbon tax, consumption of all fuels has declined by 17.4% per capita and declining combustion of fossil fuels has been a major contributor to the 5% curtailment of provincial greenhouse gas emissions since 2007. In 2016, per capita greenhouse gas emissions in BC were 12.6 metric tonnes of carbon dioxide per person. This rate of emissions was 35% below the national average. Imposition of a carbon tax in BC has had little, if any, discernible effect on economic performance. BC’s GDP increased by 21% between 2007 and 2016 and this rate of economic growth exceeded the national rate by nearly 6%. Overall, cuts to income and other taxes were such that the aggregate effect of the revenue neutral carbon tax has been a net benefit to tax payers in BC.

The BC experiment with carbon pricing is now in its 10th year and performance data from 2017 and 2018 will continue to emerge. The real-world experience with revenue neutral carbon pricing in BC supports the models developed by economists and other experts in climate policy as to the efficacy and cost effectiveness of carbon pricing.

Over the past 10 years a much different scenario of fuel use and greenhouse gas pollution has transpired in Saskatchewan. Saskatchewan has yet to enact meaningful climate change legislation and is stridently opposed to the implementation of economy wide carbon pricing. Since 2007, greenhouse gas emissions from Saskatchewan have increased by 8.5% and net sales of gasoline has gone up by nearly 30%. The per capita annual rate of greenhouse gas emissions in Saskatchewan is among highest in the world and at 67 tonnes per person is over 5-fold greater than the rate of emissions from BC. Emissions from an expanded fleet of light duty trucks in the province has increased by nearly 50% over the last 10 years.

Zero and very low emissions alternatives to carbon intensive fossil fuel use are becoming increasingly cost-competitive. Technical advances in the transportation sector are such that electric vehicles are beginning to approach cost parity with conventional internal combustion vehicles. Over the next 5 years, options for electric vehicles will expand to include pickup trucks and heavy-duty road vehicles. Electrification of road vehicles in conjunction with decarbonization of the electricity supply sector are core components of pathways leading to a greater than 80% cut in emissions within advanced economies by mid-century. Well designed climate action plans contain carbon pricing and other policies that function to accelerate these transitions.

Ultimately, Canada must target a 30-40% cut in emissions by 2030, progressing to deep decarbonization by mid-century if we are to meet our regional obligations under the Paris Agreement. During this transition, new economic opportunities will evolve as energy use shifts away from fossil fuels to low and zero emissions alternatives. Job opportunities and economic growth in emerging sectors are projected to offset and may well exceed the inevitable downturn in traditional energy sectors.

The Pan Canadian Framework on Clean Growth and Climate Change is designed as a stop gap measure that will be imposed on provinces that fail to implement effective climate action plans. In the absence of economy-wide carbon pricing mechanisms, these plans are dependent on a complex web of non-market policies that are unlikely to adequately drive changes in consumer and industrial practices to lower emissions options. An opposition to carbon pricing mechanisms is an opposition to meeting Canada’s international obligation under the Paris Agreement. Canada can either commit to a pathway of progressive decarbonization or continue to follow business as usual practices and fail to contribute to the global effort to avoid the extreme costs and hardships of unmitigated climate change. Future generations may well look back on the 2019 federal election as a defining point for the nation.

Data sources:
1. Statistics Canada. https://www150.statcan.gc.ca/n1/en/type/data
2. Government of British Colombia. https://www2.gov.bc.ca/gov/content/environment/climate-change/planning-and action/carbon-tax.

 

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