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B.C. will raise its carbon tax July 1 by $5 a tonneStefan Redel

British Columbia is set to boost its controversial carbon tax by $5 a tonne on July 1, further driving up the price of gasoline and other petroleum products as the province attempts to cut greenhouse gas emissions by 33 per cent below 2007 levels by 2020.

Environment groups have applauded the province's carbon levy, which was offset by cuts to personal and corporate income taxes when it was introduced four years ago. The carbon tax has contributed to a 15 per cent drop in British Columbians' use of petroleum-based fuels since it was introduced in 2008, said an Ottawa-based think tank, Sustainable Prosperity, in a report issued Wednesday.

B.C. motorists grumble that the tax has given the province some of the highest gasoline pump prices in the country. This week, the average pump price in Vancouver was $1.365 per litre, compared to a national average of $1.237. And as of Sunday, the province will increase the tax by 1 cent a litre.

But in its report on the levy, Sustainable Prosperity says it has led to substantial reductions in greenhouse gas emissions that are linked to climate change, but has had no negative impact on economic growth, as some critics feared.

"B.C.'s GDP growth has outpaced the rest of Canada's (by a small amount) since the carbon tax came into effect – suggesting that it has not adversely affected the province's economy," the report said.

The federal Conservative government has blasted all opposition efforts to push for a carbon tax, most recently releasing an attack ad that accuses New Democratic Party Leader Thomas Mulcair of proposing "risky" economic policies, including a carbon levy. However, several industry groups have urged the federal government to adopt such a tax.

British Columbia's Liberal government introduced a $10 per tonne carbon tax on July 1, 2008, and has increased it by $5 a tonne each year on Canada Day. The provincial government is expected to release its own report on the carbon tax late Wednesday, and Liberal Premier Christy Clark has committed to a full-scale review of the levy.

In its report, Sustainable Prosperity notes that consumption of petroleum products has fallen by 15 per cent since the introduction of the carbon tax, while demand in the rest of Canada rose by 1.3 per cent, including a steep drop during the recession and a rebound in the past two years.

Between 2007 and 2010, B.C. greenhouse gas emissions from sources subject to the tax fell 9.9 per cent, while the rest of the country saw a 4.6 per cent drop. The researchers note that B.C. likely saw an even greater decline in GHG output, relative to the rest of the country, last year when its petroleum fell while demand in rest of Canada rose. But figures for 2011 emissions are not yet available.

While some motorists may disagree, the Sustainable Prosperity report concluded the GHG improvements was achieved with little economic disruption. The province kept its promise to make the levy revenue-neutral by implementing other tax cuts that more than made up for the additional burden at the pump.

And the provincial economy has outperformed the Canadian average – by a slight margin. It has, however, lagged resource-rich provinces like Alberta and Saskatchewan.

"B.C. has brought in a serious policy to curb fuel use and GHG emissions." the report said.

"It has a carbon price that is higher than anywhere else in North America, and most other countries in the world – one that seems to be effective in curbing fuel use and GHG emissions. Yet there is no evidence at this point that it is harming B.C.'s economy."