Carbon Tax Gets Another Voter Test Wednesday

Somewhere in the ridings of Vancouver-Burrard and Vancouver-Fairview there exists a voter who hasn't made up his or her mind about the carbon tax.

Maybe this person is torn between the Liberals' and New Democrats' conflicting rhetoric. Maybe this person is still researching the question, trying to decide if a carbon tax is indeed the most effective way to combat climate change.

Maybe this person just hasn't been paying attention.

That's OK. The Tyee is here to help. If you're that voter, we're going to offer some facts and some thoughts on the carbon tax to help you cast your vote in Wednesday's byelection.

The rest of you might want to follow along, too. Because, whether you like it or not, the carbon tax will probably have a serious impact not only on these byelections, but on the May 12 provincial election. If you don't think so, you haven't been paying attention to NDP leader Carole James lately.

'Axe the Tax' redux

Last Wednesday night Premier Gordon Campbell went on live TV to talk about the state of the B.C. economy in the face of the worldwide economic crisis. Before the speech, James's top piece of advice for Campbell was: axe the carbon tax.

After the speech, James went live on Global BC. Her number-one criticism of Campbell's 10-point economic plan? He didn't axe the tax.

A lot can change in seven months, but it's obvious that James is going to do everything she can to keep the "job-killing gas tax" alive as an election issue.

That's a lot of excitement over 2.3 cents on a litre of gas.

But then, this debate isn't really just about the carbon tax anymore. The Opposition has skillfully, if misleadingly, made it the lightning rod for all the complaints against a government that a lot of people think is out of touch and clueless.

Remember the One Tonne Challenge?

Amidst all this, it's easy to forget that the carbon tax started out as an environmental issue, rather than a tax issue.

But, while groups like the Canadian Taxpayers Federation may deny that carbon emissions are a problem, all the main parties in B.C. agree that we must cut our greenhouse gas emissions for the sake of the planet.

There are a couple of ways governments can try to cut emissions.

They can educate people about the problem and give them incentives. That was the basis of the federal government's strategy under Jean Chrétien. You may recall Rick Mercer and those ads for the One Tonne Challenge.

Unfortunately, Mercer's ads didn't do any good. Emissions went way up under Chrétien, despite Canada's Kyoto commitments.

Pick your penalties

If persuasion doesn't work, you can try compulsory measures. You can pass regulations and penalize people who don't reduce their emissions.

There are drawbacks to this method, however.

Recently, more than 230 Canadian economists signed an open letter that urged action against emissions and assessed the different methods of tackling them.

Regulation, the economists argued, "tends to be the most expensive way to meet a given climate change goal."

They conclude that, "while regulations imposed on firms may appear to be so far removed from the typical consumer that they might think they will not bear these costs, this is not true. Those increased costs will be passed on to consumers due to normal market forces.

"There may be circumstances when regulation is the appropriate policy tool, but in most cases it is the most economically damaging."

Most experts agree that it's better to put a price on carbon emissions and let the market go to work. The main B.C. parties all say they favour putting a price on emissions.

There are two ways you can do this.

You can put a tax on things like gas and heating fuel that emit greenhouse gases, in the hopes that people will use less. And you can create a cap and trade system that sets a limit (or cap) on emissions and makes polluters buy permits to spew harmful gases. Those that get their emissions below their limit can sell their leftover permits to companies that can't hit the target. That's the trade part.

Weighing the variables

Both ways have pros and cons.

A carbon tax, the economists say, "has the advantage of providing certainty in the price of carbon.

"Under a carbon tax, a charge is added to the sale of all fuels according to the carbon emitted when they are used. With a well-designed carbon tax strategy, the tax will be introduced gradually and increased in pre-announced increments until the environmental target is reached. This provides investors with a degree of certainty that is good for business, and allows consumers to make adjustments knowing what is coming.

"The exact impact of the price increase on the quantity of carbon emitted can be predicted, although with some margin of error. A carbon tax thus involves choosing price certainty but accepting some uncertainty in total carbon emissions."

Cap and trade, on the other hand, "provides certainty on the quantity of carbon emitted, but not on the price of carbon and can be a highly complex policy to implement."

There are many questions that go into the design of a cap and trade system: Who's covered? How do you make sure the permits accurately reflect emissions? Do you charge for permits, or hand them out for free? How much flexibility do you allow emitters in reaching their targets? What level of offsets do you let emitters buy to meet those targets?

The answers to all of these questions determine how successful the system will be. And, while such systems have worked well in some cases -- fighting acid rain in the 1990s, for example -- there have been failures, too.

The economists' open letter notes that "the Emission Trading System in the European Union began by distributing too many allowances and as a result the price fell to close to zero, rendering the policy ineffective.

"Thus, while a cap and trade system can in principle be equivalent to a carbon tax in terms of its ultimate impacts on the price and quantity of carbon, and will generally give more certainty in meeting environmental targets if the allowances are properly chosen, the price uncertainty in the cap and trade system generally implies a worse environment for long-range decision-making on the part of businesses and consumers."

The BC Liberals' approach

The B.C. Liberals have chosen to go with a program that includes both a carbon tax and a cap and trade program. The carbon tax kicked in July 1, and applies to virtually all fossil fuels burned in the province. It starts at $10 per tonne of greenhouse gas emissions and will increase to $30 per tonne by 2012.

The tax is revenue neutral, a term that has caused much derision since it entered B.C.'s political lexicon. By law, the government must give tax breaks equal to the amount collected in carbon tax. This doesn't mean that each individual in the province will get a tax break equivalent to what they pay in carbon tax, but the government predicts that people who don't drive gas guzzlers will turn out OK.

The Liberals have also committed B.C. to joining a cap and trade scheme known as the Western Climate Initiative. The WCI is still working on the system's design, but it has been criticized by environmental groups for a series of alleged faults, including a timeline that would mean a four-to-seven year delay before action would be taken on emissions.

NDP's counter-attack

The NDP's attack on the Liberal climate change policy has focused on the carbon tax, which it portrays as unfair and ineffective. They say the plan "lets big polluters off the hook" while taxing ordinary folk.

The claim implies that industrial emitters don't pay the carbon tax, which isn't true. Companies that burn fossil fuels pay the carbon tax, just like everyone else.

The NDP's claim about "big polluters" comes from the fact that about 30 per cent of B.C.'s emissions come from sources other than fossil fuels. That includes agriculture, landfills, leaks from the processing and transportation of fossil fuels and industrial processes like the production of lime in making cement.

It's these "industrial process emissions" -- less than 15 per cent of B.C.'s total emissions -- that the NDP's talking about. The government says it intends to include these emissions under cap and trade; it has also talked about taxing them once it's worked out the technical issues surrounding measuring them.

Inside the NDP 'policy framework'

The NDP's policy framework on climate change talks about applying a "carbon tax at source" -- meaning, apparently, not directly on the consumer.

However, the party has been moving away from the idea of any kind of carbon taxes as its climate platform evolves.

Instead, the NDP favours a cap and trade scheme that would target industrial polluters. Details are still being worked out. NDP environment critic Shane Simpson has said the existing policy is "not a final plan. It is a framework."

It remains to be seen how soon an NDP cap and trade system could be implemented, who it would cover or what proportion of emissions it will apply to.

Details will be available before the May general election, the party has promised.

We will pay, either way

In the meantime, one thing that is certain is that the NDP will scrap the Campbell carbon tax.

While taxes on business may be more politically palatable than direct taxes on consumers, the 230 economists who signed the open letter we mentioned above point out that, in the end, consumers will pay:

"Policies that impose costs on producers (big or small) affect consumers. Some voters seem to think that policies like cap and trade, which apply directly to producers, have less impact on the prices they face than carbon taxes, where the impact can be seen immediately. In fact, voters would do better to assume that all such policies would, ultimately, affect the prices they pay.…

"The argument that a policy capable of reducing carbon emissions will only affect producers is without economic merit."

The NDP acknowledges that their plan will involve some cost to the consumer, but again, no details are available yet.

Meanwhile, the Green Party favours a much steeper carbon tax. The party's policy, adopted earlier this month, calls for a tax of $50 a tonne by 2009 -- five times the current tax.

The Greens' carbon tax would apply to all greenhouse gas emitting industries -- meaning it would cover the "big polluters" the NDP claims are avoiding the current tax. And it would exempt low-income British Columbians.

Related Tyee stories:

• Is Carbon Tax Political Poison?
  Dion and Campbell might have just sold it badly: pollster.
• BC's Carbon Tax Shell GameEconomist who invented 'eco-footprint' analysis is not impressed.
• Bill Clinton praises Gordon Campbell's carbon tax as 'economic generator'