Why 70 Economists Urge BC Carbon Tax

Premier asked for support, we supplied some.

By David Green 1 Nov 2007 |

David Green is a professor in the Economics Department at UBC and a member of VTACC (Voters Taking Action on Climate Change).

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Campbell and Taylor: Time is right.

I would like to share with you a letter now in the possession of Finance Minister Carole Taylor. The letter is signed by 70 academic economists from the University of British Columbia, Simon Fraser University and the University of Northern British Columbia. I am one of the UBC economists.

In the letter, we call on the B.C. government to enact a revenue neutral carbon tax in order to reduce our greenhouse emissions.

Under this policy, a tax would be added to the price of carbon intensive fuels when they are sold in B.C., with the aim of inducing firms and families to switch away from goods produced with heavy use of those fuels.

The revenue neutral component of the plan would mean that other taxes (such as income taxes) would be cut at the same time as the carbon tax is introduced, leaving the revenue of the BC government unchanged and the average B.C. family with the same after tax income as they had before the reform.

The obvious question is why now? Economists have favoured taxes of this form to address environmental issues at least since the time of Alfred Pigou's writing in the early 1900s. The simple answer is that there appears to be a window of opportunity around this issue in B.C. right now.

I belong to a neighbourhood environmental group called VTACC (Voters Taking Action on Climate Change), a group of neighbours and friends whose goal is to let politicians know that regular voters care deeply about this issue. It just so happens that this group is centred in Gordon Campbell's riding and, because of that, we were able to get a meeting with the premier on climate change issues. During that meeting, I suggested to Mr. Campbell that a carbon tax could do much of what he was advocating through other means (some of them rather vague and slated for sometime in the future).

To my surprise the premier turned to me and said he and other members of his government were interested in a carbon tax, but needed support.

Based on this, it seemed to me that this budget round provided an opportune moment to demonstrate both to the finance minister and the public how strongly economists favour this policy. I was sure that if I wrote such a letter, many of my colleagues would sign it, and that prediction turned out to be right.

Here is the letter:

Dear Minister Taylor,

We are writing to urge you to include a revenue neutral carbon tax in your upcoming budget. Your government identified action on global warming as a critical policy goal. We believe that a carbon tax is the most efficient and effective way to reach that goal.

A carbon tax would consist of adding a tax to the price of carbon intensive fuels (e.g., oil, gas or coal) when they are sold in BC. Such a tax would induce consumers of carbon-intensive products to switch to more environmentally friendly goods. It would also induce firms to find more environmentally friendly ways to produce.

Right now the prices of the goods we buy don't fully capture the costs to the environment of making those goods. A carbon tax will make the prices more accurately reflect all the costs of making a good.

The carbon tax could be made revenue neutral by offsetting increased carbon taxes with cuts in other taxes (e.g., the income tax). As a result, the average British Columbian family would see no change in its after-tax income. Families would still, however, have incentives to change their consumption patterns to make them more environmentally friendly. Even with the same income, if gas prices increase, families will choose to drive less, for example.

A carbon tax is superior to regulatory mandates because it allows both ordinary citizens and firms to adjust in the way that is best for them. It will also provide incentives for people to innovate, finding more environmentally friendly ways to produce and to live. In contrast, regulatory mandates force a "one size fits all" approach, are likely more costly to administer, and will always be one step behind in terms of the environmental technologies being applied.

In order not to impose too large a burden on BC businesses, the tax could be phased in with clearly announced steps. The initial steps may be small. This would allow BC firms time to innovate and adjust. All firms in all jurisdictions will eventually face requirements related to addressing climate change. Quebec is introducing a carbon tax in October of this year, for example.

We recognize that implementing a carbon tax involves complex decisions, including how to mitigate its impact both on the least well-off in our society and on BC firms. We stand ready to help the BC government develop an effective plan.

There is a growing consensus that the time to act on climate change is now. The most effective way to address problems related to carbon consumption is with a carbon tax. With a carbon tax, we can have a cleaner environment, a stronger economy, and a brighter future for our children.

Carbon Tax Letter Signatories

UBC Economics

Siwan Anderson, Paul Beaudry, Mathilde Bombardini, Gorkem Celik, Clive Chapple, Brian Copeland, Michael Devereux, Erwin Diewert, Catherine Douglas, Mauricio Drehlichman, Mukesh Eswaran, Patrick Francois, Giovanni Gallipoli, Robert Gateman, David Green, Yoram Halevy, Joseph Henrich, Viktoria Hnatkovska, Atsushi Inoue, Tsvetanka Karagyozova, Ashok Kotwal, Amartya Lahiri, Thomas Lemieux, Kevin Milligan, Hugh Neary, Donald Paterson, Michael Peters, Angela Redish, W. Craig Riddell, Shinichi Sakata, Henry Siu, Rashid Sumaila, William Troost, Okan Yilankaya

Sauder School of Business

Richard Barichello, Anthony Boardman, Keith Head, Thomas Hellman, Sanghoon Lee, Peter Nemetz, Thomas Ross, Ratna Shrestha, Veikko Theile, Ilan Vertinsky, Ralph Winter,

Faculty of Land and Food Systems

Richard Barichello, Katherine Baylis, Sumeet Gulati, James Vercammen,

SFU Economics

Steeve Mongrain, Gordon Myers, Krishna Pendakur, Arthur Robson, Nicolas Schmitt, Simon Woodcock,

Public Policy

Dominique Gross, Jonathan Kesselman, John Richards,

School of Resource and Environmental Management

Mark Jaccard

University of Victoria Economics

Merwan Engineer, Martin Farnham, Elisabeth Gugl, Malcolm Rutherford, Herbert Schuetz, Paul Schure, David Scoones, G. Cornelius van Kooten,

University of Northern British Columbia

Paul Bowles, Ajit Dayanandan, Fiona MacPhail

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