The emergence of a carbon tax in British Columbia reflected a confluence of political conditions ripe for carbon taxation: availability of untapped hydro potential, a surge in public concern for climate change, and broad support from a government that was trusted by the business community.
The tax, which applied to all combustion sources of all fossil fuels, was introduced at a rate of CAD$10 per tonne of CO2, with a schedule for annual increases of CAD$5 per tonne of CO2 until the tax reached CAD$30 per tonne of CO2 in 2012. Tax revenues were fully recycled via a combination of corporate and income tax cuts, phased in over time.
The tax did provoke public opposition, including from business, as other North American jurisdictions failed to follow through on their commitments to carbon pricing. But though its launch was rocky, the carbon tax has enjoyed smoother sailing as time has passed. Five years later, the BC experience suggests that the political economy of an established carbon tax is very different from that of a new tax. Public support has rebounded, with the number of voters supporting the tax now almost double the number opposed to it.
Today, academic studies are beginning to emerge suggesting that the tax has prompted reductions in greenhouse gas emissions without doing significant harm to the economy. Moreover, the carbon tax revenues have been an important source of income for the BC government during a period of limited economic growth. That said, with BC being rather alone in its commitment to carbon pricing, the question of how the government will respond to the tax’s influence on the province’s competitiveness remains.
©OECD Observer No 297, Q4 2013