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B.C. finds success with controversial carbon tax Add to ...

At Richmond Plywood Corp., on an arm of the Fraser River just south of Vancouver, a new energy system that burns the company's own waste has slashed natural gas costs - almost completely insulating the firm from British Columbia's carbon tax.

The carbon tax wasn't the sole reason Richmond Plywood made the move - high natural gas prices were also a factor - but it was the tax's introduction that sparked the change. And it's exactly the type of action that then-premier Gordon Campbell hoped industry and individuals would undertake when he introduced one of the world's first carbon taxes three years ago.

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"We're like anyone else - we don't like taxes - but we understand where [the government]was coming from," said Terry Davis, a vice-president at Richmond Plywood. "At the end of the day, it was to heck with it: We're going to a new energy system."

As the carbon tax turned three on Canada Day, early results on emissions data and economic growth suggest B.C.'s experiment with one of the world's first carbon levies has been a success. Research by Stewart Elgie, an economist and professor of law at the University of Ottawa, found that B.C.'s per-capita fuel usage had fallen more than 4 per cent compared with the rest of Canada and its economy, measured by gross domestic product, hasn't been hurt, keeping with Canada as a whole.

The tax applies to about three-quarters of the province's emissions, everything from gasoline purchased by consumers and business, to natural gas and coal burned to power industrial facilities. The intent is to reduce carbon dioxide and other emissions that contribute to global warming. B.C. wants to cut greenhouse gases by a third from 2007 levels by 2020. Ottawa has set a goal of a one-sixth cut by 2020 from 2005 levels.

But the policy success hasn't inspired imitators and given that few other jurisdictions have followed B.C.'s lead, large companies operating in the province such as gas developer Encana Corp. are lobbying new Premier Christy Clark to rethink B.C.'s strategy.

Other governments do not appear likely to quickly follow B.C.'s tax. The federal government has categorically rejected the idea after Stephen Harper savaged former Liberal leader Stéphane Dion for his proposal in the 2008 election. Efforts to push new green legislation on the federal level in the United States are completely stalled as well, especially after the Republications won control of the House of Representatives from the Democrats.

And no other province in Canada is contemplating an economy-wide tax that would have consumers pay more for gasoline, natural gas and electricity in order to reduce greenhouse gas emissions. Mr. Dion's green goals led to a failure at the polls, a result that still resonates. In Ontario, where an election is set for Oct. 6, all three major parties have promised they will not put forth a carbon tax.

Mr. Campbell made the carbon tax palatable by pairing it with cuts to personal and corporate income taxes, and the B.C. government last week said individuals will receive almost $200-million more in tax breaks in the 2011-12 fiscal year than they pay in carbon taxes, although industry insists it pays more than it gets back.

The Liberals won re-election in 2009, even as the NDP pushed an "axe the tax" campaign.

The real challenges lay ahead. The tax has escalated each year and in 2012 - after there are no planned increase - the charge on a litre of gasoline will be 6.7 cents. Economists consider this level still too minor to encourage widespread and significant emissions reductions. Environmental think tank Pembina Institute has research that suggest a carbon tax of near 50 cents a litre would be needed by 2020 to achieve emission reduction goals.

Beyond the carbon tax, business is wary of additional rules under a possible cap-and-trade system to cap emissions for large emitters.

While industry has generally accepted the certainty provided by the carbon tax, there is a wariness of additional rules under a possible cap-and-trade system to cap emissions for large emitters.

Another issue for business in the province is that B.C. stands alone with its carbon tax.

Teck Resources Ltd., the Vancouver-based miner, is expanding its coal operations in the province and the tax isn't dissuading those plans. Still, it competes with Australian coal miners, selling coal to steel makers in Japan and China. Australia doesn't have a carbon tax but politicians there are debating an introduction.

Teck paid $23-million in carbon taxes in 2010 - a tiny fraction, 0.2 per cent, of its annual revenue of $9.34-billion - and the figure will likely rise to about $40-million next year.

"We obviously can't pass the cost on to our customers in international markets, so at a certain point it does raise a question of general competitiveness," said Marcia Smith, a Teck spokeswoman.

The next question in B.C. is a cap-and-trade scheme, in conjunction with Western Climate Initiative leader California, to cap industrial emissions. It has not been decided how a carbon tax would blend with a cap-and-trade system. It is possible that large emitters could be freed from a carbon tax and then end up paying less under a cap-and-trade system. Joel Wood, an economist at the conservative think tank Fraser Institute, said the carbon tax is preferable to a cap-and-trade system, which is more unwieldy, fluctuates and needs brokers to facilitate the system.

In Europe, the cost of a credit for a tonne of carbon dioxide emissions traded on the IntercontinentalExchange futures market is about $19 - down from a two-year high of about $24 earlier this year. In B.C., the carbon tax cost per tonne rose to $25 last Friday and jumps again to $30 next year, after starting at $10 in 2008.

Mark Jaccard, an economist at Simon Fraser University, praises the carbon tax as one of the world's best climate change policies but said no single measure is the right answer. He said research is showing that the stiff regulation in California for fuel efficiency and clean-electricity generation may be the keys to reducing emissions.

The real hurdle, he said, is selling the policies to the public.

"People will tell politicians they want to save the planet but won't pay more for gasoline," Prof. Jaccard said. "The policy making is extremely difficult."

While some in industry and in the general public grumble about carbon taxes and other green policies, the former chief executive officer of oil sands miner Shell Canada, Clive Mather, said there is a growing acceptance of the reality.

He added that a carbon tax makes more sense than cap-and-trade, calling B.C.'s system "smarter, more focused" than Europe, but noted that a cap system for large polluters is a good idea.

"From the industry's perspective, there is now a pretty solid unanimity that says this sort of idea has to be tried so that we find the best way of marshalling all the forces we can to address the issue," Mr. Mather said.

A TAX ON CARBON

British Columbia is the only jurisdiction in North America with an economy-wide tax on carbon fuels, from gasoline to natural gas, from automobiles to industrial users. Proponents argue that such a tax is the best and fairest way to take on global warming caused by greenhouse gases.

2 percentage points

The cut in the corporate income taxes introduced with the carbon tax, alongside with cuts to personal taxes for lower-income earners

77 per cent

The amount of emissions in B.C. the tax applies to - other sources not taxed include landfills and agricultural uses

5.6 cents a litre

The carbon tax on gasoline as of July 1, 2011, up from 2.3 cents in 2008 and below 6.7 cents next year

18 cents a litre

Federal and provincial consumption taxes on regular gasoline in B.C., the most in Canada, compared with 14.7 cents in Ontario and 9 cents in Alberta

34 per cent

Percentage of taxes in the price of gasoline in Vancouver, compared with 22 per cent in Calgary and 31 per cent in Toronto

Compiled by David Ebner, Sources Government of B.C., Kent Marketing

Follow us on Twitter: @smccarthy55, @davidebner

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