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British Columbia Introduces Historic Carbon Tax

Vancouver, British Columbia, 10-March-2008 - British Columbia will become the second province in Canada to introduce a progressive carbon tax. BC expects to collect $1.8 billion over the next three years from the tax, which will be returned to the taxpayers, making this tax revenue neutral. Quebec, by comparison, will invest the anticipated $200 million carbon tax revenues into the province’s Green Fund.1

B.C.’s Finance Minister Carole Taylor, who introduced the carbon tax as part of her 2008 budget, rejected the idea that the province must choose either a healthy environment or strong economy. Rather, the province intends the budget to add momentum to plans to reduce greenhouse gas (GHG) emissions at the same time as maintaining the economy’s 150-year history of strength and growth.

Reactions to the tax are unsurprisingly mixed and after providing an overview of what the tax actually entails, this article will explore where opposition and support for the carbon tax are coming from and possible implications for businesses in BC.

An overview:

  • Phase one: Taxing carbon emitting fuels

 

As of 1st July 2008, British Columbians will be subject to a tax on carbon-emitting fuels, including gasoline, diesel, coal, propane, natural gas and home heating fuel. The government is quick to point out that the tax will be one hundred percent revenue neutral, which means that every dollar raised by the tax will be returned to the people of BC in the form of lower taxes elsewhere. This commitment will be enshrined in law.

Initially, the carbon tax will be low so that businesses and individuals have time to adjust. Starting at $10 per equivalent tonne of associated carbon emitted, the tax will translate to an increase of 2.4 cents per litre of gasoline at the pump and 2.8 cents per litre for diesel and heating oil.2

However, the rising cost of the tax ($5 each year until 2012) will draw attention to the fact that there is a cost associated with generating GHGs and consequently, greener and cleaner lifestyle choices will become even more attractive.

The government anticipates raising $1.8 billion from the carbon tax over the next three years. In line with the revenue neutral aspect of the tax, other taxes will be reduced by the same amount. For example:

 
 
General Corporate Income Tax
Pre 1st July 2008: 12%
Post July 2008: 11%
By 2012: 10%

This will make BC’s Corporate Income Tax one of the lowest in the country

Figures from Budget Speech p.4

 
 
Small Business Tax rate
1st July 2008: reduced to 3.5%
2011: further reduced to 2.5%

 

Figures from Budget Speech p.4

To make this phase possible, the government has budgeted $395 million for the new credit and $1.45 billion for business and tax cuts.3

 

  • Phase Two: Climate Action Dividend

 

So that BC residents see the immediate benefit of the revenue neutral carbon tax, the government will implement phase two of the Balanced Budget 2008, rather than waiting for people to file their 2008 tax form before seeing the financial gains. Phase two is an upfront payment of $100 to every adult and child in B.C., which will be distributed in June; just before the carbon tax comes into effect. The money is taken from the surplus for the previous year.4

It’s a no strings attached payment but the government is hopeful that people and businesses will use the money in ways that will reduce their carbon footprint, for example, paying to take public transit to work or weather stripping doors and windows so that less energy is needed to heat the building.

The dividend will also mean that everyone in BC will have money in their pockets and the government consequently anticipates a potential $440 million being injected into the economy.5

 

  • Phase Three: Investing in a Green future

 

To compliment the carbon tax, the BC government will also be investing $1 billion in programs and tax incentives to make green choices easier and more affordable. Sales tax reductions on vehicles that comply with Transport Canada’s Eco-Auto Rebate Program will, for example, be introduced, as will PST relief on electric bicycles and scooters. Remote communities will receive funding so that they can rely on renewable energy sources for power, rather than diesel generators.6

Reactions:

Reactions to the carbon tax are mixed. Environmental groups are supporting its introduction while criticism has come from several health and education groups who claim the tax will hurt students, patients and low-income earners.

The Federal Government has also expressed criticism. Federal Finance Minister, Jim Flaherty, declared a “variety of carbon taxes and greenhouse gas emissions rules across the country aren’t a good solution to Canada’s environmental woes” and made clear his preference for a set of regulations common to Canada.7

The Opposition New Democrats claims the carbon tax is flawed since it is part of a budget that rewards banks with a $220 million tax break by phasing out corporate capital tax but temporarily allows industrial polluter to keep on polluting even when ordinary British Columbians start paying.8 NDP finance critic, Bruce Ralston, accused the province of figuring out a way to make ordinary people pay right off the top but failing to figure out how to make big polluters pay.9

The business world also has a mixed reaction to the tax. The Vancouver Board of Trade described it as “a smart carbon tax” and Bernie Magnan, the Board’s chief economist, lauded the province’s success at making “…[the carbon tax] neutral to the pocket book of the individual consumer and business”.10

More specifically, Mark Startup, CEO of retail BC, predicts that the $100 stipend will be beneficial to his industry but also expressed concern that although the carbon tax is designed to be revenue neutral, retail might actually end up experiencing an increase in cost in terms of doing business.11

Laura Jones, B.C. and Yukon VP for Canadian Federation of Independent Business, was less enthusiastic about the carbon tax and described it as “a stick without incentives”.12

John Winter, President of BC Chamber of Commerce, was less damning and remarked that overall the Balanced Budget 2008 is “business friendly”, that it’s impact will be definite but not sudden and that it could end up attracting green business to B.C.13

Round-up:

The 2008 Federal Budget also made some provision for going green by offering tax breaks for companies engaging in clean energy generation, for example. Furthermore, it also allocated $66 million for the development of a national cap & trade system. The Federal government may be a long way behind BC and Quebec in terms of making people pay to emit GHGs in the near future, but we should see all these changes as signs of things to come where going green is becoming an increasingly attractive financial option. Put another way, not going green is likely to become increasingly expensive in Canada. Those businesses that are already practicing energy management and efficiency will be best placed to adapt to these changes and benefit from their advantages.

 


1 British Columbia Minister of Finance. Budget Speech: Turning to the Future, Meeting the Challenge February 19, 2008 (available as a pdf) March 3, 2008 http://www.bcbudget.gov.bc.ca/2008/speech/
2Budget speech p.3
3Budget Speech p.5
4Budget Speech p.6
5Budget Speech p.6
6Budget Speech p.7
7Meissner, D. “BC carbon tax draws mixed reaction” The Chronicle Herald Canada February 20, 2008 February 29, 2008 http://thechronicleherald.ca/Canada/1039035.html
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9“New carbon tax receives praise, sparks criticism” CBC News online February 19, 2008 March 3 , 2008 http://www.cbc.ca/canada/british-columbia/story/2008/02/19/bc-carbon-tax-reactions.html
10“Business lauds provincial budget” Vancouver Sun February 19, 2008 February 29, 2008 http://www.canada.com/vancouversun/news/story.html?id=8af5827e-c800-47d6-abc8-14ee5d72c77c
11ibid
12ibid
13MacLeod, A. “ ‘Landmark’ Green Budget, with Some Brown Spots” The Tyee February 20, 2008 March 3, 2008 http://thetyee.ca/News/2008/02/20/Budget/