B.C. will become the first jurisdiction in Canada to impose a “carbon tax” on fossil fuel consumption.
Minister of Finance Carole Taylor announced the tax, which goes into effect on July 1, as part of the 2008 provincial budget, Tuesday.
The tax equals $10 per tonne of carbon dioxide emissions in the first year and will ramp up $5 per tonne until it reaches $30 per tonne in 2012. In 2008, that will mean approximately 2.41 cents per litre of gasoline in 2008 and 7.24 cents by 2012.
The tax will be applied to wholesale purchases, much like the current gasoline taxes. It will apply to virtually all fossil fuels, including gasoline, diesel, natural gas, propane, coal and home heating oil.
“It is going to be totally revenue neutral. For every dollar collected, a dollar will be returned to British Columbians in personal income tax and business tax,” Minister of Agriculture and Lands Pat Bell said. “Certainly people’s behaviour is impacted by their pocketbook. We’re hoping people will make smart choices.”
The carbon tax is expected to generate approximately $1.85 billion over the next three years. That money will be used to cut personal income tax by two per cent in 2008 and five per cent in 2009.
On July 1, the corporate income tax rate will be reduced to 11 per cent from 12 per cent, and to 10 per cent in 2011.
The small business tax will be cut to 3.5 per cent from 4.5 per cent in July and to 2.5 per cent in 2011.
In addition, every resident of B.C. will receive a $100, one-time Climate Action Dividend and low-income families will receive an annual $100 per adult, $30 per child Climate Action Credit.
“We made a conscious decision today to make a major tax shift in B.C. We want to incent people to make good choices,” Minister of Education Shirley Bond said. “The carbon tax, the way we did it, is prudent and thoughtful. If you choose to reduce, you’ll pay less tax. I think we have struck a balance that is positive.”
The government can’t make people reduce their fossil fuel consumption, Bond said, but they can give them more of a reason to do it.
Turning the thermostat down five degrees at night or driving five kilometres less a week is enough to offset what the average family will pay into the carbon tax, she added.
According to the budget, 70 per cent of the province’s greenhouse gas emissions come from burning fossil fuels. The remaining 30 per cent comes primarily from industrial process emissions.
Those emissions won’t be included in the carbon tax however they will be included in the “cap and trade” system being developed by the Western Climate Initiative along with Manitoba, Washington state, Oregon, California, Utah, Arizona and New Mexico.
Bond said it would have been easy to continue the status quo, but the Liberals are, “a government that is prepared to be bold.”
NDP forestry critic Bob Simpson said the timing of the carbon tax given the current crisis in the forestry and agriculture sectors couldn’t be worse.
“These are sectors where we’ll be adding injury to insult. They don’t have the ability to pass those costs on to their customers,” he said.
Farmers, log haulers and other resource professions will have to absorb the costs of the tax, he said. Although low-income families are protected by the Climate Action Credits, people in rural areas with few options to reduce their fossil fuel consumption are not.
“The problem for the majority of the land base is we don’t have an alternative. A guy in North Vancouver can… walk, cycle, take a bus or drive a car,” he said. “The infrastructure isn’t there in rural areas.”
Many rural residents need larger vehicles and don’t have access to public transit or even B.C. Hydro service, he added.
In addition, he said, the tax won’t serve the stated purpose of reducing greenhouse gas emissions.
“I don’t consider it to be a true carbon tax. It’s a fuel tax. The only way it works is if you believe that taxing fuels… will drive alternate behaviour,” Simpson said. “Even they say, if they maximize the behaviour change, they’ll only reach seven per cent of their reduction goals. (But) there is no tax on the big emitters. They say they’ll be included in the cap and trade system. But a cap and trade system may be three to five years in the making.”
People with few choices to reduce their emissions will just use the personal tax cuts to pay the increased carbon tax, he said, making it a, “zero sum game.”
Prince George Chamber of Commerce president Garth Frizzell said the province’s economy is, “in a fragile time right now.”
“For the Lower Mainland it might mean parking the car three days a week and taking the Sky Train. There are not a lot of Sky Trains between Prince George and Chetwynd,” Frizzell said. “Certainly we’ve got a lot more energy we have to use to heat (homes and businesses). The needs of northern B.C. are different than the Lower Mainland. I don’t think northerners are decedent we use what we need.”
Frizzell said he is encouraged the carbon tax will be revenue neutral.
“The question is will that be evenly distributed? I think it’s going to tighten the belts in a lot of small businesses.”
B.C. Trucking Association president Paul Landry said the tax will hit truckers right in the wallet.
The average long-haul trucker will see their fuel costs go up $1,000 in the last half of 2008, $3,000 in 2009 and $6,000 by 2012.
“This morning I talked to an owner-operator in the North who… uses 16,000 L of fuel a month doing runs from Northern B.C. to Alaska,” Landry said. “For him in 2009, the tax will cost almost $8,000.”
Fuel costs normally comprise 20-40 per cent of hauling company costs, he said. Some companies will be able to recover all of those costs by passing them on to customers, others will have to absorb most or all of cost.
“It’s absolutely essential that our industry try to recover as much as possible,” Landry said. “For many of them that will make the difference of remaining working at this.”
However, Landry said truckers are not opposed to the carbon tax. They want to see the revenue used to provide financial incentives for improving efficiency.
“We’d like to be part of the solution, not part of the problem,” Landry said. “The new, smog-free trucks are very expensive. We’ve identified a package of equipment we’ve called the Enviro Truck’ which would reduce emissions by 30 per cent.”
Low rolling-resistance tires, aerodynamic improvements, new engine technology, anti-idling campaigns and other initiatives and technology could help the industry reduce smog emissions to almost zero and reduce greenhouse gas emissions, he said. But the industry needs help to afford those changes.
“We were hoping there would be financial incentives for that.”