Environmental tax shifting cannot replace regulation

October 27, 2000

The BC government released a discussion paper a few months ago on a relatively new policy tool: environmental tax shifting. The paper was intended to educate British Columbians on tax shifting and invited responses from interested parties.

Environmental taxes are premised on the fact that, in some cases, people (and businesses) do not pay the full cost, including environmental and social costs, of their activities. For example, many of the costs of driving a vehicle--air pollution, climate change, congestion, accidents, the health care costs associated with all these impacts, and so on--are not included in the price we now pay for driving. Placing a tax on the activity, in this case on the vehicle itself or on gasoline, allows those costs to be included in the price of driving. Environmental tax shifting requires that the revenue from environmental taxes be used to decrease other taxes--payroll taxes, income taxes or consumer taxes like the GST--by the same amount.

Our analysis of environmental tax shifting finds that this policy is a good idea in principle, but it should be applied with care and not used to replace environmental regulation. The BC government has already rolled back some environmental regulations, has cut the Ministry of the Environment's and Ministry of Forest's ability to monitor and enforce regulations, and appears to be moving towards energy deregulation. Environmental tax shifting is simply not capable of filling the void left by this regulatory retreat.

Unfortunately, the pilot project put into place by the government in the last provincial budget is an example of unwisely using environmental tax shifting to replace regulation. A ban on beehive burners, which incinerate pulp mill waste and spew out hazardous particulates, was extended for the fourth time and a tax was placed on these particulates. The result is that a technology that should have been banned in 1997, and has been banned in the U.S. for the past 30 years because of its impacts on human health, will now continue to be used in 21 BC communities for up to four years.

When looking to solve environmental problems, many different policy options--including environmental taxes and regulation--need to be compared using various criteria. Important considerations include what ecological benefit can be expected from the policy, how equitable is it, how easy is it to administer, and how politically feasible is it. Sometimes, using environmental tax shifting and regulation in conjunction allows society to benefit from the advantages of both. For example, an environmental tax on a polluting technology can reward industry for phasing out the technology before its legislated ban. Economic disincentives to pollute can also urge industry to not only meet but go beyond a regulatory threshold.

If, when evaluating different policies using established criteria, environmental tax shifting is chosen to be the best option--and it is in certain circumstances--it is important to consider unintended consequences that might result from the environmental tax. Because taxes are often not as targeted as regulations, they can lead to regressive effects (the poor paying a disproportionately high share of the tax), a loss of jobs in certain regions or sectors, and the loss of competitiveness for certain domestic firms. These effects should be addressed when any environmental tax program is put into place so that nobody is left behind as we "green" our society. To do this, tax programs must be constructed in such a way that inequality is not made worse.

Proposals to address an environmental problem should not be designed to spell the immediate end of polluting industries or to confer hardship on certain regions of the province, but rather to change BC's environmental regulations and taxes so that they reflect a more environmentally sustainable vision of the future. Focusing on worker, community, and industry transition is the key.