With rallies around the world calling for urgent action on climate change, and a federal election campaign where climate change is front and centre, the recently released results of a decade-long Canadian experiment – British Columbia’s carbon tax – offer a guide for the future.
This country’s longest-running scheme of pricing pollution is also a reminder that big cuts to carbon emissions will not be easy, or cheap.
B.C. introduced its economy-wide carbon tax in 2008. A decade later, the results appear underwhelming, at least at first blush. In 2007, the province’s greenhouse gas emissions were 62.1 megatonnes. In 2017, B.C. emissions were … 62.1 megatonnes.
The mainstream of the economics profession has long argued that a carbon tax is the most cost-effective tool to tackle climate change. Our economy runs on consumers responding to price signals; all else equal, if something costs more, people will figure out how to use less of it.
In 2017, B.C. was taxing gasoline at a bit less than 7 cents a litre. (It has since raised that to 9 cents a litre, or about double the level of tax introduced in Ontario and several other provinces this year by the federal government.)
That relatively modest tax has yielded modest results.
The good news: B.C. carbon emissions are lower than they would be without a carbon tax. Emissions did not rise between 2007 to 2017, even as the population was increasing and the economy growing. On a per-capita basis, emissions are down 12 per cent. And since 1990, emissions for each unit of economic output have been nearly cut in half.
The Ecofiscal Commission, a Montreal-based environmental economics group, estimates the province’s output, without the tax, could have risen as high as 71 megatonnes. The difference, nine megatonnes, is the size of a big oil sands operation.
Digging into B.C.’s numbers, however, highlights the limits of a modest carbon tax. B.C.’s emissions fell at first, but rebounded in recent years, paced by a strong economy.
One source: B.C. drivers. From 2012 through 2017, emissions from “passenger transport” – cars, trucks and motorcycles – climbed by 1.6 megatonnes in B.C., an increase of 20 per cent. In Ontario in the same period, with no carbon tax, emissions from passenger vehicles were up by roughly 7 per cent. For Canada as a whole, emissions from passenger vehicles were up 6 per cent.
However, B.C.'s vehicle emissions, when measured on a per-capita basis, were well below those of Ontario. It suggests that, compared with Ontarians, the average British Columbian still drives a bit less, uses a more fuel-efficient vehicle, or both.
The aim of a carbon tax is to shift behaviour. But in B.C., it’s clear that 9 cents a litre has induced only a relatively small shift. (The rate rises to 11 cents a litre in 2021, the same level Ottawa’s carbon standard hits in 2022.)
B.C.’s history puts the carbon tax debate in stark relief, for both critics and backers. The Conservatives say a carbon tax “punishes” Canadians and is an economy-killer. That isn’t true in B.C.; the economy is thriving. And when the province’s tax was created, by the right-leaning B.C. Liberal Party, it paid for cuts to personal and business tax rates.
But B.C. shows that a relatively low carbon tax cannot, by itself, propel Canada to the achievement of its Paris Agreement promises. It’s a key part of the solution, but not the whole solution.
The carbon tax catches a lot of political heat because consumers notice it. It is not, however, the only way to get to lower emissions. Regulations are part of the mix, and can sometimes be as or more efficient than pricing. But the carbon tax is generally the most efficient tool, which is why it has to be an important part of Canada’s plan to bring emissions down by several hundred megatonnes by 2030.
In June, after looking at the Liberals’ carbon tax and other climate-change measures, the Parliamentary Budget Officer concluded the package would not be enough for Canada to reach its required reductions. If the gap were to be made up by the carbon tax alone, the rate by 2030 would have to double from 2022 – to more than 20 cents a litre.
The progress B.C. has made, and still needs to make, is a lesson for Canadians. Any government serious about lowering greenhouse gas emissions has to put carbon taxes at the top of the menu. But it’s going to have to be something more than a modest serving, and it can’t be the only thing on the plate.