Mon, Mar 07, 2016 page9

• British Columbia shows a carbon tax works

  Despite doubts over the policy to cut greenhouse gas emissions and slow global warming, the Canadian province has proved that the tax, while not flawless, does work

  • By Eduardo Porter / NY Times News Service, VANCOUVER
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  US Senator Ted Cruz said climate change is not happening. Donald Trump said he does not believe in it, while Senator Marco Rubio, whose hometown, Miami, is projected to be largely underwater within the not too distant future as ice caps shrink and the sea level rises, said that government efforts to combat it would “destroy our economy.”

  However, those views are not widely shared by conservatives elsewhere around the world. Indeed, not that long ago, in a not too distant nation, a right-leaning party that shares many of the anti-tax, pro-business beliefs of Republicans in the US did exactly what its unbelieving candidates so fear.

  In 2008, the British Columbia Liberal Party, which confoundingly leans right, introduced a tax on the carbon emissions of businesses and families, cars and trucks, and factories and homes across the province. The party stuck to the tax even as the left-leaning New Democratic Party challenged it in provincial elections the next year under the slogan “Axe the Tax.” The conservatives won soundly at the polls.

  

  Illustration: yusha

  Their experience shows that cutting carbon emissions enough to make a difference in preventing global warming remains a difficult challenge, but the most important takeaway for US skeptics is that the policy basically worked as advertised.

  British Columbia’s economy did not collapse. In fact, the provincial economy grew faster than its neighbors’ even as its greenhouse gas emissions declined.

  “It performed better on all fronts than I think any of us expected,” British Columbia Minister of the Environment Mary Polak said. “To the extent that the people who modeled it predicted this, I am not sure that those of us on the policy end of it really believed it.”

  The tax, which rose from C$10 (US$7.51 at current exchange rates) per tonne of carbon dioxide in 2008 to C$30 by 2012, reduced emissions by 5 percent to 15 percent, with “negligible effects on aggregate economic performance,” according to a study last year by economists at Duke University and the University of Ottawa.

  The tax made fuel more expensive: A gallon (3.78 liters) of gasoline, for example, costs US$0.19 more. It encouraged people to drive somewhat less and be more careful about heating and cooling their homes. Businesses invested in energy efficiency measures and switched to less polluting fuels.

  Despite the price increases, voters warmed to the tax. Last year, only 32 percent of British Columbians opposed the tax, down from 47 percent in 2009.

  Perhaps most surprisingly, so did big business, and for good reason. As it turns out, a carbon tax is the most efficient, market-friendly instrument available in the quiver against climate change.

  “We were not very happy when it was first announced,” said Jock Finlayson, head of policy at the Business Council of British Columbia.

  Now, “within the business community there is a sizable constituency saying this is OK,” he said.

  Christopher Knittel, an expert on energy economics at the Massachusetts Institute of Technology, said a properly calibrated carbon price in the US could effectively replace all the climate-related regulations businesses hate so much, including renewable fuel mandates and US President Barack Obama’s Clean Power Plan.

  That would create a clear incentive for businesses and consumers to use less fuel, invest in efficiency and switch to cleaner energy. The only other necessary action, in Knittel’s view, would be more government support for research and development to accelerate the quest for new energy technologies.

  However, in British Columbia, it was not the efficiency argument alone that won people over. The pioneering legislation provided critical political cover by ensuring every single carbon tax dollar would be returned to families and businesses through a variety of breaks.

  That “is the thing that saved us,” said Carole Taylor, who was British Columbia’s minister of finance at the time the tax was introduced.

  “If I had said: ‘Give us the carbon tax and trust us,’ I knew it would have been a failure,” she said.

  The corporate income tax was cut to 10 percent from 12 percent, to stimulate a flagging economy in 2010. Though it is back to 11 percent, it is still the lowest among Canada’s provinces. The bottom two personal income tax rates were also cut. Low-income families got a tax credit.

  All in all, the government is to return about C$1.7 billion to businesses and families this year, more than the C$1.2 billion it expects to collect though the carbon tax, which amounts to roughly 5 percent of the province’s total tax revenue.

  According to the World Bank, about 12 percent of the world’s global emissions of greenhouse gases are subject to a carbon price — either a tax or, more commonly, a levy under a regime of cap and trade like that in California and Europe, in which permits to emit are auctioned among companies.

  With few exceptions, British Columbia’s tax is the steepest and broadest in existence. While that sets British Columbia apart as a leader on the cutting edge, it is also part of its problem. For the policy to work best, it needs the rest of the world to catch up.

  Local leaders now recognize that they probably have to do more. Carbon emissions started rising again after the province froze the tax at C$30 in 2012.

  An advisory panel to British Columbia’s Ministry of the Environment recently laid out the problem: British Columbia is missing its goal of cutting greenhouse gas emissions by one-third from 2007 to 2020. On its current path, the province is also to miss its target of an 80 percent reduction by 2050.

  This is not entirely British Columbia’s fault. True, the tax might have been too low. Spending some of the money on green initiatives might have curbed emissions faster, but its experiment has battled a harsh headwind: a collapse in the prices of oil and gasoline.

  Look at it this way: A study by Michael Greenstone and Thomas Covert of the University of Chicago and Knittel concluded that at current battery prices, for an electric vehicle to be cheaper to run than a gas-powered car, oil would have to cost US$350 per barrel. Last year, it averaged US$50.

  To make up the difference would require a carbon tax of US$700 per tonne of carbon dioxide.

  Nobody in British Columbia is talking about going that far, but to hit its long-term target, the advisory panel concluded that the tax must start increasing again in 2018, at a rate of C$10 per tonne per year, perhaps all the way to 2050.

  That is where the support from business starts to break down. If British Columbia were to proceed on its own without providing some form of protection to its energy intensive industries, they would simply lose markets to producers outside its borders that pay no carbon tax, Finlayson said.

  Cement makers, for example, say that imports from China and the US grew from 5 percent to 40 percent of the market as the carbon price was introduced and raised gradually to C$30.

  Teck, a Canadian mining company, said that alone among its competitors it pays C$50 million in carbon taxes.

  Rather than seeing the tax burden rise further, Teck wants the gap narrowed, Teck senior vice president for sustainability Marcia Smith said.

  The advisory panel recommends unspecified adjustments to protect such trade-exposed industries. Still, the Business Council of British Columbia opposed an increase.

  “Keep the BC [British Columbia] carbon tax in place at the current level over the balance of the decade,” it said. “Post-2020, policymakers should review the tax in light of actions by other jurisdictions to narrow the existing gaps with BC in carbon pricing.”

  British Columbia could do with some help from its neighbors. Four other provinces have carbon prices either pending or in place, though they are generally much lower. If more embraced a carbon tax, they would mitigate many of the concerns over competitiveness.

  Canadian Prime Minister Justin Trudeau’s government seems ready to hop on board, imposing some pan-Canadian minimum price. If the US embraced a carbon tax as part of a comprehensive overhaul of its tax system, the path would be much easier.

  However, that would require Republicans in Washington to recognize that the threat of climate change is not simply a left-wing fantasy. If they do, British Columbia underscores that there is a market-friendly way to do something about it.
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