Gosh darn it, Canada. British Columbia’s “textbook” revenue neutral carbon tax seems to be . . . working out. How could you do this, British Columbia? You’re brimming with mushy Canadian Marxists, right? Your policy experiments are therefore supposed to result in economic disaster. Your carbon tax, however, is holding up to scrutiny. Your carbon pricing success has quieted – and apparently converted – a former critic, conservative Prime Minister Stephen Harper. After years of criticizing carbon taxes as “job killers,” he recently suggested that another province consider implementing one. Preston Manning, the godfather of Canadian conservatism and Harper’s own mentor, is also now an advocate for carbon taxes and a “happy marriage” between environmentalism and conservativism.
Why this about face from Canadian conservatives? The seven-year-old carbon tax has delivered on its promises:
- The tax remains revenue neutral, with proceeds used, in part, to lower corporate and personal income taxes in British Columbia;
- Fossil fuel consumption in the province plummeted 16%. For context fossil fuel use in the rest of Canada has risen 3%. This is remarkable when one considers that Canada’s Kyoto target was 6% reduction; and
- The GDP of British Columbia has remained on par with the rest of the nation.
Economists will ponder this matter and quibble over the extent of causation. But the provincial carbon tax, at first blush, appears to have contributed to a reduction in fossil fuel usage without chilling the local economy.
There are reasons why British Columbia’s experience might be an aberration. Foremost, the province is situated in North America’s pacific northwest, which enjoys an abundance of glorious, carbon-free, hydropower. Most of the United States relies on coal or natural gas for its electric power, so a carbon tax here would be more expensive a proposition.
Other reasons offered for why the British Columbian experiment should not inform American climate policy are not particularly compelling.
One argument used to cast the British Columbia carbon tax as a poor climate policy example is that British Columbia operates at a surplus, while the US national government operates at a deficit. The U.S. government will not be able to maintain revenue neutrality, say detractors, because the carbon tax cash will be a slush fund too irresistible to a broke government. This is a legitimate concern, but raising taxes is demonstrably hard. In this country, narrowing is far more popular than taxing as a means of meeting bills. Even so, a national carbon pricing law can be written in such a way that makes it difficult-to-impossible for the government to use carbon tax dollars to fund anything but tax cuts.
Another argument against looking to British Columbia as a climate policy model is that a carbon tax does not automatically lead to a reduction in the regulatory state. True enough. But a federal carbon tax bill can be crafted to include a repeal of EPA regulatory power over greenhouse gas emissions.
British Columbia’s experiment with carbon taxes is a data point … and a good one for advocates of something like that here in the United States.