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Money-losing carbon tax must be fixed: CCPA, Sierra Club

The next Premier should scale up and modify BC's carbon tax in order to make it more fair and effective, according to a new study from the Canadian Centre for Policy Alternatives and Sierra Club BC.

"The wealthiest households in BC get more back in tax cuts than they pay in carbon tax," says George Heyman, Executive Director of the Sierra Club of BC. "That is unfair, and needs to be reversed if the carbon tax is to increase."

The report states that the BC carbon tax is "revenue-negative," meaning it costs the treasury more than it collects, as a result of escalating corporate income tax cuts.

"As currently structured, the BC carbon tax is increasing social inequality, while squandering revenues on expensive corporate income tax cuts," says Marc Lee, an economist at the Canadian Centre for Policy Alternatives.

The report argues that instead of funding $1 billion a year in corporate tax cuts, revenues from BC's carbon tax should be spent on climate action investments such as public transit, energy efficiency, forest conservation and green job creation.

The study, titled Fair and Effective Carbon Pricing: Lessons from BC, calls BC's first-in-North-America carbon tax a "positive first step with "serious flaws." Among those flaws:

• The carbon tax is too low to significantly reduce emissions;

• Tax cuts and credits have reduced government revenues by more than what the carbon tax brings in, making the tax “revenue negative”;

• This drain on the public sector is worsened by requirements that the public sector pay an additional tax (or “offset”) for emissions, leading to reduced public services; and

• Even after tax cuts and credits are figured in, the carbon tax has a disproportionate impact on low-income British Columbians, and most benefits the highest-income households that are also the biggest emitters.

Lee has described BC's carbon tax as "a weensy $20 a tonne," and argues, "the price on greenhouse gas emissions needs to be about ten times higher – $200 a tonne – by 2020 if it is to have a meaningful impact on the consumption patterns on businesses and individuals."

But Lee argues that the next government should fix the tax, not scrap it.

"In my view it can be fixed," he says, "and has the potential to be transformational for BC in the fight against climate change."

Among the recommendations suggested in the report:

• ESTABLISH AN UPDATED CARBON TAX FRAMEWORK — Ideally, a carbon tax would be implemented globally or even regionally (North America), but in the absence of agreement, sub-national jurisdictions like BC should press forward. To give an appropriate price signal to businesses and consumers, a medium-term framework out to 2020 is needed.

• AIM FOR $200 PER TONNE IN 2020 — Based on modeling of GHG reductions that keep global temperature increase under 2° Celsius, carbon prices should hit $200 per tonne by 2020. In gasoline terms this would imply a carbon tax of 44.5 cents per litre by 2020, an amount that would put BC gas prices at the levels currently prevailing in Europe. Carbon-intensive luxury items should face a $200 per tonne tax immediately.

• EXPAND SECTORAL COVERAGE — BC’s carbon tax currently does not cover GHG emissions in key industrial areas, in particular process emissions associated with cement, lime and aluminum production, and venting and pipeline leakages in the oil and gas sector.

• COUNT CARBON EMISSIONS FROM TRADE — The tax should apply to exports of fossil fuels, such as coal and natural gas, which have a large carbon footprint when combusted in other jurisdictions. By the same token, a carbon price on imports would level the playing field for domestic producers.

• COMPENSATE LOW- TO MIDDLE-INCOME HOUSEHOLDS — Half of carbon tax revenues should be used to fund a new refundable tax credit that reaches more households than the current low-income credit. We model a scenario where the bottom half of households (up to $60,000 of income) would receive, on average, more in credits than they pay in carbon tax.

• USE CARBON TAX REVENUES TO REINFORCE CLIMATE ACTION — Revenue neutrality provisions should be rescinded, and the other half of carbon tax revenues used to fund major green investments in public transit, retrofit programs for buildings, green jobs programs, forest conservation and other complementary actions.

• PHASE OUT OFFSETS AND RE-EVALUATE THE PACIFIC CARBON TRUST — Offsets are not a long-term solution to global warming, and they should be phased out in favour of a rising carbon price applied equally to public and private sectors. The role of the PCT in mitigation strategies across the BC economy should be re-evaluated.

• DEVELOP COMPLEMENTARY REGULATIONS AND STANDARDS — Carbon pricing alone is not likely to lead to BC achieving its legislated targets, so climate policy must also develop rules for industry and the marketplace that reduce GHG emissions.

• CONSIDER THE INTERACTION BETWEEN CARBON AND CLEAN ELECTRICITY PRICES — To avert a danger that looming electricity price increases lead to perverse incentives to shift from clean energy to dirty sources (conversion of electric to natural gas in homes, for example), it is essential that carbon prices rise by relatively more than electricity prices.

• INVESTIGATE ALTERNATIVE MODELS — Other possibilities for carbon pricing, such as carbon quotas that would be allocated to households, may have greater appeal once GHG emissions become more scarce, and the right to emit them a matter that necessitates a more equitable allocation than would be achieved by market mechanisms.

Fair and Effective Carbon Pricing: Lessons from BC, can be downloaded here.

A slideshow based on the study can be viewed here.

Monte Paulsen researches sustainability for the nonprofit Tyee Solutions Society.

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