Ask economists what to do about climate change, and some will say a carbon tax is the best solution. But that doesn’t mean there are carbon taxes everywhere. Just the opposite. Governments have tended to go with options that are easier politically, like subsidizing cleantech industries, if they’ve gone for anything at all.
British Columbia is an exception. In 2008, it introduced a tax on about three-quarters of the fossil fuels consumed in the province, gradually raising the level year-by-year. By mid-2012, it was charging $30 U.S. dollars per ton of carbon dioxide. That means drivers now pay about seven cents a liter more for gas than they did five years ago.
The result? Appreciably lower fossil fuel consumption. A study by Stewart Elgie, at the University of Ottawa, finds that fuel use per person dropped 17.4% by 2012, and 18.8% compared to the rest of Canada, where fuel consumption actually rose a bit. This reduction, in turn, has allowed B.C. to lower its emissions by 10% over the period–a pretty good dent in its greenhouse gas emissions reduction target of 33% (compared to 2007 levels) by 2020.
The really good news is that B.C. appears to have achieved this without hurting its economy. Economic output per person, while negative, was better than in other provinces. And taxes are now lower overall. B.C. reinvested the carbon tax income to reduce its personal and corporate tax rates (its income taxes are now the lowest in the country). In fact, it managed to give out more than it took in: about $500 million more, according to the study.
“B.C.’s experience shows that it is possible to have both a healthier environment and a strong economy–by taxing pollution and lowering income taxes,” Elgie says, in a press release.
Elgie cautions that more work is needed to prove a link between the tax and the apparent outcome. But one point seems to suggest a positive relationship: B.C. exempted aviation fuel, and saw consumption continue at the same rate as other provinces. If the tax wasn’t causing the drop in other fuel uses, you would expect airlines to have also used less fuel.
As an early carbon tax adopter, B.C. is an important case to follow. The U.S. has often discussed a similar policy but has shied away under pressure from the anti-tax lobby. B.C. proves that, while a carbon tax does raise fuel prices (a point that shouldn’t be minimized) that burden can be offset in other ways. That it also seems to cut emissions is obviously an important bonus.