By Dr. Adam Fenech

I’ll be there in Paris next week for the conference where the United Nations will negotiate a legally binding agreement on climate with the aim of keeping global warming below a dangerous level of 2°C. Discussions have turned to carbon pricing as a means of reducing greenhouse gases to combat global warming such as carbon taxes.

A carbon tax is a tax based on greenhouse gas emissions generated from burning fossil fuels. It puts a price on each tonne of greenhouse gas emitted, making products more expensive and therefore less demanding, resulting in reduced emissions. It has the advantage of providing an incentive without favouring any one way of reducing emissions over another. By reducing fuel consumption, increasing fuel efficiency, using cleaner fuels and adopting new technology, businesses and individuals can reduce the amount they pay in carbon tax, or even offset it altogether. A carbon tax was considered back in the late 1980s as the climate change issue emerged into the world’s consciousness but rejected due to the experience of the oil crisis of the 1970s. In 1973, the price of oil increased from $3 per barrel to nearly $12 globally (even higher in the United States) in one year following an oil embargo by the Organization of Petroleum Exporting Countries (OPEC). Such a radical price increase did little, if anything, to reduce the amount of fossil fuels used by North Americans.

But this did not prevent Canadian provinces from introducing carbon taxes. In 2008, British Columbia introduced a carbon tax of $10 per tonne of greenhouse emissions (2.41 cents per litre on gasoline) increasing each year by $5 per tonne until 2012 when it reached a final price of $30 per tonne (7.2 cents per litre at the pumps). Before the tax actually went into effect, the B.C. government sent out “rebate cheques” of $100 to all residents of British Columbia. And revenue neutral by law, the proceeds from the B.C. carbon tax are matched by cuts in other taxes (like income tax).

Stewart Elgie, a professor at University of Ottawa, has examined the impacts of the B.C. carbon tax both environmentally and economically. According to Elgie, since the carbon tax was introduced, B.C.’s total use of fossil fuels has dropped by 16.1%, while in the rest of Canada fuel use went up by 3% over that time. B.C.’s economy as measured by the Gross Domestic Product (GDP) has slightly outperformed the rest of Canada’s since the carbon tax began. Since 2008, the province has cut income taxes by almost $1 billion more than it has taken in carbon revenues – so taxpayers are ahead overall. According to Elgie, British Columbia’s personal and corporate income tax rates are now among the lowest in Canada, making it an attractive place to do business. The international weekly newsmagazine The Economist describes British Columbia’s carbon tax as “a winner.” Critics are not as optimistic facetiously calling the carbon tax “the miracle of British Columbia.”

But Alberta is listening and just announced their own carbon tax this week to be introduced in two steps: $20 per tonne in January 2017 and $30 per tonne in January 2018. As part of a climate change plan endorsed by both environmentalists and the oilsands industry, Alberta estimates their carbon tax will amount to roughly $470 in increased heating, electricity and transportation costs for an average household in 2018. The carbon tax on industry is expected to raise $3 billion a year, which will be reinvested in renewable energy sectors and cover the increased costs to consumers.

Carbon taxes have been demonized in Canada. Both carbon taxes in British Columbia and Alberta were not election issues before they were implemented. The Canadian Liberal Party of 2008 was not as lucky. In the 2008 Canadian federal election, a carbon tax proposed by Liberal Party leader Stéphane Dion became a central issue in the campaign. It would have been revenue-neutral, with increased taxation on carbon being balanced by tax cuts for individual citizens. However, it proved to be unpopular and contributed to the defeat of Liberal Party with its worst share of the popular vote since Confederation.

There remain skeptics, especially those suggesting that the carbon tax needs to be implemented internationally to create an “even playing field” for businesses. But I’m sold. I believe that a carbon tax that depresses our demands for fossil fuel, and then reinvests those tax dollars to behaviours that we wish to promote, such as energy conservation schemes or renewable energy, is a good thing. And there is now evidence to prove it.