British Columbia Premier David Eby, pictured in December, 2022, plans to release details of what the province will do with carbon-tax revenue on Feb. 28. In a meeting with The Globe and Mail’s editorial board this month, Mr. Eby suggested it will be a mix of spending on emissions and targeted relief to individuals and businesses.CHAD HIPOLITO/The Canadian Press
In 2008, the British Columbia government unveiled the country’s first economywide tax on fossil fuels – billed by the province’s centre-right government as “a major shift in the way we levy taxes.”
The BC Liberals’ carbon tax started at $10 a tonne – about 2 cents a litre on gasoline. At the same time, personal and business income taxes were cut and a low-income tax credit was created. The aim, taking the advice of economists and climate scientists, wasn’t to raise more money for government but to discourage the use of climate-heating fossil fuels.
Fifteen years later, B.C.’s carbon tax has survived four elections and one change in government. (The NDP, who took power in 2017, lost the 2009 election when “axe the tax” was in its platform.) What has not survived was the original promise to be “revenue neutral” – that is, government not taking more carbon cash in than it sends back out.
The policy shift in B.C. hasn’t attracted much attention because the carbon tax remains relatively low, at $50 a tonne – about 11 cents a litre on gasoline. But as of April 1, it is set to escalate, as dictated by Ottawa, rising $15 per tonne each year to $170 – almost 40 cents a litre on gasoline – by 2030. In this fiscal year, B.C. expects $2.24-billion in carbon-tax revenue. In 2030, the haul could more than triple to about $7-billion.
The initial plan in B.C. included an annual accounting of the carbon tax’s money-in-money-out. A decade ago, the system was in balance: $1.12-billion in carbon-tax revenue was fully paid back in lower taxes and the low-income tax credit. But soon after, the math got wonky. By the BC Liberals’ last budget, in 2017, tangential tax breaks such as children’s fitness and arts credits, and existing subsidies to the film and TV industry, were included.
When the NDP won in 2017, they scrapped the revenue-neutral approach and reporting. The personal tax cuts remained, the low-income credit was increased, and the corporate tax cut was reversed, while the small business tax cut stayed in place. The NDP also said they would spend some of the extra revenue to reduce emissions.
That’s the system in place today. Most of the carbon tax is still refunded – to specific people. Of $2.24-billion in revenue, about $2-billion goes back to some taxpayers: the low-income tax credit costs $363-million and reduced small business taxes amount to $1.61-billion. The rest goes to spending $248-million on CleanBC programs, small investments in a range of initiatives to cut emissions.
For federal consumer carbon pricing, about 90 per cent is returned directly to households, in quarterly cheques, to compensate for the tax. It applies in Alberta, Saskatchewan, Manitoba and Ontario, and, as of this summer, Prince Edward Island, Nova Scotia and Newfoundland. Like B.C.’s, Ottawa’s consumer carbon tax is not revenue-neutral.
In the B.C. provincial budget on Feb. 28, the NDP plan to release details of what it will do with all the carbon-tax revenue set to roll into the treasury. In a meeting with The Globe and Mail’s editorial board this month, Premier David Eby suggested it will be a mix of spending on emissions and targeted relief to individuals and businesses.
The overall goal is the important thing to remember: cutting emissions. In B.C., emissions from the mid-2000s to the late 2010s rose 1.5 per cent. The muted impact is in part because the carbon tax so far has been a light pinch, at most.
Now consider Ontario. Emissions there from 2005 to 2019 fell 19 per cent, as the province got off coal power. Direct investments to slash emissions clearly can pay off – and far beyond a relatively low carbon tax.
The question in B.C. is how to best allocate the money as carbon-tax revenue shoots higher. The low-income tax credit is key and the small business tax credit is important, but what about middle-income families? According to B.C. data, a family of four, with a household income of $90,000, has an annual tax burden that is the second-lowest in Canada. The carbon tax costs $342; it could exceed $1,100 by 2030.
B.C. was Canada’s carbon-tax pioneer. But it is now, 15 years later, that harder decisions emerge, as the levy becomes more onerous.
Restoring the revenue-neutral approach and reducing other taxes would be ideal. But if the NDP opts to continue to focus on spending to reduce emissions, it must be clear that the source of those funds is rising carbon taxes paid by people in the province – who, in contrast to federal carbon pricing, will not receive offsetting payments.