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Carbon tax tactics: Raise, freeze or scrap?

Economists weigh in on what government should and shouldn't do with B.C.'s carbon tax
Christy Clark, economics, Sauder School of Business, University of Ottawa, Carbon tax tactics: Raise, freeze or scrap?

Depending on who you talk to, it's B.C.'s gift to a carbon-emitting world – or a business-stifling tax grab.

In the lead-up to the May 14 election, B.C.'s four political parties have markedly different views about what to do with the province's carbon tax.

Premier Christy Clark has committed to freezing the tax at its current rate of $30 per tonne (just under $0.07 per litre for gas). The NDP has just announced its plans to broaden the type of emissions the tax will apply to. The Green Party's Jane Sterk would raise it to $50 per tonne. The BC Conservatives would scrap it altogether.

The final option is not what Brandon Schaufele would recommend. The University of Ottawa economics professor said the tax is doing what it was designed to do: lower B.C.'s carbon emissions while having a negligible effect on the provincial economy.

"In British Columbia's case, the GDP numbers are unchanged compared to any other province as a result of the carbon tax," Schaufele told Business in Vancouver.

The tax being revenue-neutral is one reason it has worked so well.

"For every dollar raised by the income tax, personal and corporate income taxes were cut."

There are also tax credits for low-income people and for rural and northern residents.

Schaufele argued that the tax has worked so well that it could be described as revenue-negative. In a 2011 study, he and co-author Nicholas Rivers found that gas consumption in B.C. dropped dramatically after the tax was introduced.

The BC Liberals' plan to freeze the carbon tax now might be a good idea, said Werner Antweiler, a business professor at UBC's Sauder School of Business. That's because B.C. is currently the only jurisdiction to have a carbon tax and a "relatively high price on carbon [see sidebar]."

He cautioned against raising the tax, as the Greens want to do.

"Raising it would put B.C. business at a disadvantage. We have to wait for other jurisdictions to pull closer."

Sectors that have been hard hit by the tax – greenhouses and cement manufacturers – were exempted from the tax in 2011; in the last budget, the B.C. government made the exemption permanent.

But both Antweiler and Schaufele oppose carbon tax exemptions. They said having businesses pay the tax and then get a rebate would be more effective.

"[Paying] the carbon tax will still force them to change their behaviour," said Schaufele.

Antweiler noted that many businesses that changed the way they operate in response to the carbon tax saved not just the tax but overall costs as well.

As for using carbon tax money to pay for green infrastructure, such as better transit, Antweiler cautioned against that idea too.

"Earmarking is always a bad idea," he said. "Finding a matching project where the revenue you get from one thing fits the other, that hardly is ever the case."