Fix carbon tax by ending corporate tax breaks, using revenues for climate action and new tax credit: study

February 23, 2011

(Vancouver) A new study from the Canadian Centre for Policy Alternatives and Sierra Club BC calls on the provincial government to scale up BC's carbon tax, and makes a number of recommendations to make the tax more effective and fair.  

“As currently structured, the BC carbon tax is increasing social inequality, while squandering revenues on expensive corporate income tax cuts," explains Marc Lee, senior economist at the CCPA and author of Fair and Effective Carbon Pricing: Lessons from BC. “But in my view it can be fixed, and has the potential to be transformational for BC in the fight against climate change.”

A carbon tax makes it more expensive to emit greenhouse gases, but revenues should be used to accelerate climate action, says the report. Public transit, energy efficiency, forest conservation and green job creation are investments that need to be funded from carbon tax revenues.

The study finds that once tax cuts and credits are figured in, the carbon tax as currently structured has a negative impact on low-income British Columbians, while providing a net benefit to the highest-income households, which are, ironically, also the biggest greenhouse gas emitters.

This is largely due to a growing share of carbon tax revenues going to corporate income tax cuts, which will total $1 billion in 2012/13 – equal to two-thirds of revenues (compared to only one-third when the carbon tax was introduced). The BC carbon tax is currently “revenue-negative” – costing the treasury more than it collects – due to escalating corporate income tax cuts.

"The wealthiest households in BC get more back in tax cuts than they pay in carbon tax," says George Heyman, Executive Director of the Sierra Club of BC. "That is unfair, and needs to be reversed if the carbon tax is to increase."

Lee recommends that the provincial government rethink how carbon tax revenues are spent, calling for half of revenues to support climate action, and the other half to go towards a new refundable tax credit aimed at low- to middle-income households to ensure households are not adversely affected.

“How the revenues are spent is critical to a fair outcome,” says Lee. “A new round of climate action must scale up the carbon tax in way that is effective and equitable.”
The report also looks at other BC carbon pricing initiatives such as the commitment to carbon neutral government and the Western Climate Initiative. It makes ten recommendations for more equitable and effective carbon pricing in BC, including:

  • The carbon tax should be raised to $200 per tonne by 2020, a level that would see BC’s gas prices in 2010 match those that prevail in Europe today;
  • Loopholes that allow major industrial polluters to avoid paying the carbon tax need to be closed; and
  • Requirements that public sector institutions purchase offsets are eating into needed public services, and should be rescinded.

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Fair and Effective Carbon Pricing: Lessons from BC is available at www.policyalternatives.ca/carbonpricing

Imagine… a working carbon tax for BC, a slideshow based on the study, can be viewed at: www.policyalternatives.ca/workingcarbontax

For more information or to arrange an interview with Marc Lee, contact Sarah Leavitt at 604-801-5121 x233 or sarah@policyalternatives.ca.

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