Taxes for the Common Good: Putting a Price on Carbon

carbon tax


The seventh in a seven-part series, “Taxes for the Common Good.”

The premiers gathered July 15-17 to discuss the proposed Canadian Energy Strategy.  Some among them insisted that this strategy go beyond oil sands and pipelines to include green technologies and renewable energy.

Before the conference even began, tensions were clear.  Saskatchewan Premier Brad Wall expressed displeasure at Ontario and Quebec’s growing emphasis on reducing greenhouse gas (GHG) emissions (and the corresponding implications for pipeline development).

At the core of provincial differences is a disagreement on the role of the oil industry in the Canadian economy, and whether clean energy initiatives can effectively support our nation’s economic well-being.

Fortunately, British Columbia demonstrated several years ago that energy and the economy are not isolated issues.  They are, in fact, part of a larger conversation that involves tax policy.

Carbon tax: proven effective in British Columbia

A carbon tax places a price on emissions of greenhouse gases by taxing carbon-containing fossil fuels.

It is considered to be an effective, efficient way to curb energy use, and help offset the harmful impacts of climate change.  It also generates revenue that can support important social and environmental goals.

In 2008, British Columbia introduced a tax on all fossil fuel sources that currently sits at $30/tonne.  It raises $1 billion in revenue each year, which is used to cut other taxes and provide transfers to low-income households.  Since the tax was introduced in 2008, fossil fuel consumption in the province is down 15%, while GDP has continued to rise.

A large and growing majority of British Columbians believes that the carbon tax has been good for the province.

A downside of B.C.’s carbon tax is that it is revenue-neutral.  So as the use of fossil fuels continues to reduce, revenue will decrease.  More positive impacts could be achieved by using revenue generated by the tax for credits to off-set the adverse impact of higher energy costs on the poor, and also for programs to mitigate and adapt to climate change – rather than reducing other taxes.

Carbon tax: good energy policy, good economic policy, good social policy

In light of growing climate change concerns, 54% of Canadians would support a B.C.-style carbon tax in their province as a way of addressing climate change.  An even larger majority say that “Canada should introduce a policy that provides a financial incentive to reduce carbon emissions over time.”

A harmonized carbon tax starting at $30 per tonne of GHG emissions would increase government revenues by about $15 billion per year.

Half of the income from the tax could be passed on to low-income families in the form of a rebate to help cover the carbon tax’s impact (since low-income people spend a higher percentage of their budgets on energy).

The remaining income from the carbon tax could fund programs that will reduce Canada’s GHG emissions:

  • Support for programs that help families and businesses make environmental retrofits in the homes and buildings;
  • Investments in the research and development of new, green practices and technologies;
  • Encouraging energy efficiency, and renewable energy; and,
  • Investing in clean energy infrastructure to facilitate the transition off fossil fuels.

Taken together, the policy possibilities afforded by putting a price on carbon would certainly benefit the environment – and help Canada move towards its fledgling international climate change targets.  They would also, however, support the development of a vibrant, green economy, and the well-being of all Canadians.

Carbon tax: the best option available.

At the Premiers’ Climate Summit in April, Ontario announced it would be joining Quebec in the Western Climate Initiative (WCI), a partnership to lower GHG emissions through a multi-regional cap-and-trade system.  While the cap-and-trade model is a useful way to price carbon, a carbon tax is more efficient since it can be administered using the governments’ existing tax infrastructure.  What is more, by imposing a single price on carbon, it offers price stability and predictable tax revenues.

Still, this is ultimately a good news story.

Facing Canada’s economic and environmental challenges is best done simultaneously.

Putting a price on carbon would assist in advancing Canada’s international climate objectives, while also generating resources for social and environmental investments that would provide useful injections into the Canadian economy.

So while federal tax policy isn’t on the premiers’ agenda, a closer look at the intersection of energy, the economy, and the environment would serve us all well.

Karri Munn-Venn is a policy analyst at Citizens for Public Justice, a national organization of members inspired by faith to act for justice in Canadian public policy.  Taxes for the Common Good: A Public Justice Primer on Taxation is available free at Karri and her colleagues on Twitter @karri.munnvenn and @publicjustice.


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Other articles by Karri Munn-Venn

Taxes for the Common Good: Tax Spending
Taxes for the Common Good: Corporate Responsibility
Taxes for the Common Good: Fair is Smart
Taxes for the Common Good: The High Cost of Low Taxes
Taxes for the Common Good: Good Value for Money
Taxes for the Common Good: Building a Better Canada

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