BC Carbon Tax Goes Live!
On Canada Day yesterday, British Columbia instituted the first region-wide carbon tax in North America. Sure, Boulder, Colorado has theirs, and San Francisco is proposing one of their own, but this effort far exceeds the scale and scope of either initiative. Fundamentally, it is intended to drive structural changes in the BC economy by creating an incentive for large emitters such as utilities, to invest in new, low- or zero- emission renewables.
This tax has several important characteristics:
- The BC government sets a price on carbon according to a five-year schedule, beginning at $10 per ton and incrementing by $5 per ton each year, to reach $30 per ton in 2012.
- It is intended to be revenue-neutral, which means increased prices are compensated for by decreased individual income taxes. Interestingly, this is a similar mechanism to the way offsets themselves work. (I'll talk about this in a later post.)
- It is part of a wider set of measures aimed at mitigating greenhouse gas emissions. BC is an active participant in the Western Climate Initiative, which means that they will act in cap-and-trade system with other states and provinces in the Western US and Mexico.
It will be really interesting to see how this tax actually affects carbon emissions - it will add an estimated 2.4 cents per litre, or close to 9 cents per gallon to the price of gas.
It remains to be seen how severe the political fallout is. As with most taxes, the polls are not at all favorable at this point. There are an army of smart people who put this one together, but they may end up no match for consumer opinion. It is really difficult to implement a tax when just across the border in the US, or in Alberta, the same tax does not apply.
Others will be watching the impact of this tax on opportunities for investment in carbon offset projects, and the price of carbon in the WCI market. Personally, I feel a government-set price for carbon will limit the amount of investment in the industry.
If the price floated freely, based on carbon's increasing concentration, Sir Nicholas Stern estimates that we should be looking at a price of around $200 per ton, or more. Clearly, small taxes are more favorable than large ones, but large prices mean market opportunity. And that is what is needed to get us to reversing the course of emissions.


