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British Columbia Intends to Levy Carbon Tax on Fuels Beginning July 2008

Bctax
Proposed BC Carbon tax rates for liquid fuels. Click to enlarge.

As part of the release of its budget program for 2008, the government of the Canadian province of British Columbia announced that it intends to introduce legislation that, if passed by the Legislature, would impose a broadly-based carbon tax on the purchase and use of fossil fuels such as gasoline, diesel, natural gas, heating fuel, propane and coal.  The carbon tax is also intended to apply to tires when used as fuel.

The tax rate will begin at C$10/tonne (US$9.82/tonne) of carbon dioxide equivalent (CO2e) emissions from the combustion of each fuel, and will increase in $5 annual increments to C$30/ton in 2012. The government intends the proposed carbon tax to be revenue neutral; revenues from the carbon tax will be offset through reductions in other provincial taxes.

The principle is simple. Tax carbon-emitting fuels to discourage their use, and give the money back to people, back to businesses, so they have control. They can make their own choices about how the tax affects them. At the same time, by making greener choices more commercially viable, it will stimulate innovation and open up new economic opportunities across British Columbia.

—Finance Minister Carole Taylor

The carbon tax is forecast to generate approximately C$1,849 million (US$1,817 million) over three years. This revenue will be returned to businesses and individuals through a new Climate Action Credit for persons with lower incomes (C$395 million) and reductions to personal income tax rates (C$784 million), the small business income tax rate (C$255 million), and the general corporate income tax rate (C$415 million).

In addition to the revenue-neutral tax reductions, every British Columbia resident will receive a one-time, $100 Climate Action Dividend “to help people adopt greener lifestyles.” At a total cost of C$440 million, the dividend payments will be issued in June, before the new carbon tax takes effect. It is the government’s hope that British Columbians will apply the funds toward purchases that can help reduce their greenhouse gas emissions and, by doing so, the amount of carbon tax they would otherwise pay.

The carbon tax will be a consumption tax like the motor fuel tax and provincial sales tax, and will be payable at the time of retail purchase or use of fossil fuels in British Columbia. All businesses, individuals and visitors to British Columbia, who purchase or use fossil fuel in the province, will pay the carbon tax. Fuel producers and manufacturers of fuel in British Columbia, such as oil and gas companies or coal mines, who use their own fuel in the course of their operations, will also pay the carbon tax on the fuel they use.

The tax collection and remittance procedures for the carbon tax will operate much like the existing Motor Fuel Tax Act collection and remittance procedures, with fuel sellers required to pay a security equal to the tax payable on the final retail sale, and consumers required to pay the tax. Fuel sellers will collect the tax at the time the fuel is sold at retail to the final consumer.

Certain  fuels, or the use of some fuels in certain circumstances, are not subject to the tax. Examples include:

  • Biofuels and renewable energy, such as biodiesel, ethanol, biomass, pulping liquor and wood;

  • Fuel exported from British Columbia for use outside the province;

  • Fuel purchased in British Columbia by commercial air services for use on routes that originate, or end in, British Columbia without any intervening stopovers in British Columbia, such as a flight from Vancouver to Hawaii; or for a portion of the fuel used on routes that include intervening stopovers in British Columbia not relating to the intra-BC segments;

  • Fuel purchased in British Columbia by commercial marine services for use by passenger-only cruise ships if used for a route that has a port of call outside of British Columbia; or for use by cargo ships or ships that carry both cargo and passengers on routes that originate or end in British Columbia without any intervening ports of call in British Columbia; or for a portion of the fuel used by cargo ships or ships that carry both cargo and passengers on routes that include intervening ports of call in British Columbia not relating to the intra-BC trips;

  • Fuel that is brought into the province in the supply tank of an aircraft or ship that is used in the operation of the aircraft or ship;

  • Fuel used as feedstock in the production of other products, such as petrochemicals or plastics;

  • Up to 182 litres of fuel brought into British Columbia in the supply tank of most motor vehicles, other than large commercial vehicles;

  • Certain fuel packaged and sold in small sealed containers;

  • Fuel purchased on-reserve by First Nations purchasers who qualify as Indians or bands under section 87 of the Indian Act (Canada); and

  • Fuel purchased by visiting forces and members of the Diplomatic and Consular Corps.

(A hat-tip to Paul!)

Resources

Comments

Andy

$10CAN per ton of CO2 from gasoline is approx 2.3 cents per litre tax.

So that'd be an extra 8.76cents (CAN) on a US gallon of gasoline.

Not much, and certainly not anything like the $4.72(US) TAX per US gallon that we face in the UK.

Andy

aym

Actually,

...diesel and home heating oil, it works out to about 2.7 cents per litre, rising to 8.2 cents by 2012. Meanwhile, drivers will have to pay an extra 2.4 cents on a litre of gasoline at the pumps, increasing to 7.24 cents per litre.

Gotta start somewhere.

DS

@Andy
what are you Limeys paying at the pump?
I was in Turkey last week, didn't have to buy any "Petrol", so I didn't bother to do the conversion. But now I did the math and it comes out to $9.45/gallon!!!

I admire them for taking prompt action. The merits of schemes like this and carbon trading are oft debated so it would be good to have concrete cases as evidence to get rid of some of the hot air.

The building I'm currently in is heated in a CHP plant co-firing with waste; so some of the petroleum becomes fuel via a means that would escape this tax. Just taxing carbon coming out of the ground should be easier to avoid loopholes.

I'm don't understand a retail tax that applies to fuel not sold for retail (eg oil companies using there own product). Would it cover the petrochemicals used to produce ethanol?

Ryan

Andy, this is a specific carbon tax on top of existing taxes. In metro Vancouver, existing taxes are around 30 cents/litre + 5% GST, AFAIK. Yes, fuel tax rates are higher in the UK, but this is a step in the right direction.

Andy

I have a suspicion that if the UK gov tried to impose carbon taxes ON TOP of our already ludicrous fuel duty, they'd be lynched.

Currently we're paying £0.99/litre just now.

Thats $7.34 (US) per US gallon with £1 Sterling = $1.96 US

Almost exactly 2/3rds of that is tax. The pre tax price is about 33.9 pence/litre.

This includes the retailers profit, the wholesalers profit, the refinery profit and the oil company profit. Plus of course all their costs too.

Its worth pointing out that we have plenty of 4x4 and Porsches tooling about even at those prices.

Still, if the price of raw oil went stratospheric overnight, the government could reduce/abolish fuel duty to prevent rampant inflation. The US does not have this option.

Andy

Rafael Seidl

As Ryan points out, this hike affects just the provincial portion of the fuel tax. That will still be low by 2012 relative to European taxes, but remember those were imposed long before global warming was an issue. Their purpose was to deter automobile ownership and keep annual mileage low because Europe is highly dependent on imported oil.

Canada's domestic production far exceeds demand, permitting massive exports. It will be interesting to see if Canada's federal government follows BC's lead or if Albertan interests will prevent that.

Joseph


What a bad idea! With all respect to those that think higher taxes is the answer. You could not be any more wrong. This will only increase the bourdon on the lower, lower middle and middle class. Even with the oppressive taxes that they have in Europe, they did not stop the rich guy from driving his Ferrari, nor did it stop the upper-middle class from getting their BMW.

sola

@Andy

No way should any governement reduce any duty on fossil fuels. There should be extra punishments for 4x4s and Porsches just like in the new system of France.

Joseph


sola

Be very careful of what you wish for. What they come for next could be something YOU like.

Mark M

Good debate folks but I object to DS's comments:

"what are you Limeys paying at the pump?"

there should be no place for ethnic or racial slurs and that's just what it is.
Honour the intellectual debate.

Matthew

Honour the intellectual debate.

Now that's just precious!

DS

@Mark
Christ! You must be a bloody Toff.

aym

The question isn't whether it stops the richer, more successful person from driving whatever he/she wants but to drive down total consumption of fuel. This can already be seen in areas where gas prices are higher than the US. Less mini-vans and SUVs. For example, in Canada, already sedans are sold in higher numbers than the light truck segment.

This is supposed to be revenue neutral as well, lowering taxes for people in general as well. Whether of course they will invest any savings in more efficient items of course is something else....

Engineer-Poet

Quoth Joseph:

This will only increase the bourdon on the lower, lower middle and middle class.
Few things amuse me more than people who can't read a short article and show any comprehension.  From the text (emphasis added):
This revenue will be returned to ... individuals through a new Climate Action Credit for persons with lower incomes (C$395 million) and reductions to personal income tax rates (C$784 million)....
In other words, roughly 1/3 of the tax money rebated to individuals goes straight to the poor (who probably account for much less than 1/3 of provincial income).

Hal

bcgasprices.com says that current gasoline prices are about 107 in BC. What is that, cents per liter? So an increase of 3-8 will be about that, 3 to 8 percent. As commented above it seems doubtful that this will drive much of a change in behavior.

I checked the electrical situation - coal fired electricity tends to get hit worse by carbon taxes than oil. But BC is lucky, they get 80% of their electricity from hydropower, so the tax won't make much difference there.

Neil

This is just a nudge, but it makes a clear signal that carbon will have a price in the future for those (mostly business) that make long range plans. I've never been a fan of the B.C. Liberals but I applaud this gutsy move. Hopefully this example will be followed by others.

Andrey

Revenue neutral, yes.

Half of BC population lives in sparsely populated Interior and North, and depends overwhelmingly on revenue supplied by primary jobs in energy intensive sectors like logging and mining. Logging companies are hit hard by US housing crisis, and both industries face dangerous erosion of profit margins because of high Canadian dollar. Additional carbon taxes to these import-oriented and energy intensive industries mean that some of them will close, and move operations to locations without carbon taxes, like S.America. Local folks thrown out of work by the last straw of carbon taxes will still have to heat their homes in harsh Canadian winter – in mountains and North – with huge amounts of propane and heating oil, and pay increased prices for grocery and everything else – almost everything is trucked (using –surprise! – diesel fuel) from thousands kilometers afar. And mind you, they drive pick-ups not for fun, it is close to necessity to their lifehood, their small businesses, and simply because of snowy mountain roads and regular high-speed collisions with deer.

If one want to reduce wastage of precious HC resources and reduce carbon emissions, start with taxing of limousine liberals, luxury SUV machos, and flights on private jets to conference in Bali. I voted in my local government to work on local problems, not to waste my money on global scams.

P.S. According to most precise data from coastal lighthouse meteo stations, climate in BC have not changed a bit from the beginning of 20 century. Last two years were substantially cooler and wetter than 20 years average (which led to heavy losses to agriculture), and two winters were especially cold and snowy, due to switching to cold phase Pacific Decadal Oscillation. No wonder new taxes are scheduled to kick in at July, statistically warmest month on Pacific coast

Joseph


Quoth Engineer-Poet

"Few things amuse me more than people who can't read a short article and show any comprehension"

Really, nothing saddens me more than people without a degree in Economics who have trouble extrapolating out the true effects of higher transportation costs.

Other than the fact that this is nothing more than a Robin Hood scam with a green coat of paint. The CREDIT that the poor get MIGHT be enough to offset the increase in personal transportation costs. However, it will not be enough to cover the price increases of everyday items due to the higher fuel costs. Have you noticed the price of milk lately. With every fuel tax increase that there has ever been, the middle class and working poor have ALWAYS been affected the most.

Neil

Joseph: If you value the opinions of Economists on this topic then check out publications by Prof. Mark Jaccard of SFU. He's an environmental economist who has a couple of books out on the topic of energy and public policy options for the reduction of AGHG emissions. If you wish to avoid the costs of climate change (assuming that you think that climate scientists are correct) then you're only options are regulation or taxation. On the surface regulation would appear to be tax free, but in fact has hidden costs and is often less effective anyway.

Engineer-Poet

Oho, an economist!  Aren't these the same folks who imply that offering more money will induce nature to put down more oil deposits 500 million years ago, and lowering taxes enough will get scientists to create perpetual motion machines?

<snort>

Joseph


Neil

I am an Economist on this subject. The good folks at TCU would agree. The theme of my Masters Thesis was 'Transportation Economics'. With regard to Prof. Jaccard, I have not read his work. However, if he believes that regulation and/or taxation are our only options, then his theory is short sighted. The price of fuel has more than DOUBLED in the last few years and that did not drastically reduce fuel consumption. Do you honestly think that .10 - .30 a gallon will do anything to change behavior? Diesel fuel has gone up .45 in the last month, it didn't change the distance between my front door and my office chair. We need to ENGINEER our way out of the problem, it is the only permanent solution.

AM

I believe the Premier/Finance Minister announced that large industrial emitters are not addressed by this proposed carbon tax, but a cap and trade policy is being drafted for them.

sjc

A carbon tax may be something that has occurred to the business economist as well. There has been talk of something like it for years. I would think that most people in business have at least considered the possibility.

There are so many externalized costs associated with the burning of fossil fuels the case almost makes itself. Industry can lobby against it, but when the revenue goes to helping the overall situation get better, you might just win the political battles.

AM

Neil et al,
No, this very modest carbon tax is only the first of hopefully many concrete signals to the fossil fuel burning consumer that the days of using the atmosphere as an open sewer for pollution is no longer going to free. There is a clear and visible cost that has to be accounted for.

Both the Premier, and Finance Minister concede that this single measure alone will only account for a reduction of about 3M tonnes of GHG, out of a targeted 66M.

This carbon tax was never meant to be an all encompassing solution. It is meant to be the first conscious psychological public policy signal that conspicuous consumption of fossil fuels is a behaviour that will have to be modified.

This is just a starting point. How about a carbon tax on manufacturing inputs? How much GHGs were emitted by the production of your Hummer? How much GHGs were emitted in the production of your chinese made Nike shoes? A comphrehensive carbon economy will not allow multi-national corporations to escape domestic carbon taxes by offshoring to a non-compliant jurisdiction.

Once we see the full effect of a cap and trade, carbon tax, carbon economy, will we see considerable behaviour modification of conspicuous fossil fuel consumption.

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