We've just finished crunching the numbers to see how British Columbia’s pioneering carbon tax shift performed in its first five years. Check out our oped in the Globe and Mail and follow this blog series, where we tackle the biggest questions about the policy.
If the carbon tax shift has been a big environmental success, what about its economic effects? With all the political rhetoric from Ottawa about “job-killing carbon taxes”, one might expect to see a downturn in BC's economy. But that hasn’t happened. In fact, from 2008-2013 BC's GDP slightly outpaced the rest of Canada's, as the chart below shows. The carbon tax shift is just a small part of the overall GDP, so it would be a stretch to claim that it helped economically. But, at the very least, there is no evidence that the tax shift hurt BC's economy. And any policy that produces big environmental improvements without economic harm is a great policy.
The policy’s positive economic outcome is probably due, in large part, to the requirement that it be ‘revenue neutral’. In practice, the government has gone even further; it has cut income and other taxes by $760 million more than it has collected in carbon tax revenues, as this chart shows.
That means BC taxpayers have come out ahead, on the whole. BC now has the lowest personal income rates in Canada, and one of the lowest corporate rates in North America.
In effect, BC’s tax shift has discouraged pollution (by taxing carbon) and encouraged employment and investment (by cutting income taxes). That is smart tax policy.
More importantly, the tax shift helps position BC for prosperity in the emerging low carbon global economy. The economy of the future will reward companies (and countries) that are energy efficient, low polluting, eco-innovative and use scare natural resources wisely. Even companies in the resource and energy sectors will gain an edge by being sustainability leaders in their fields (like Canada’s forest industry), and pay a price for poor environmental performance (as our oil sands companies are now learning the hard way, with mounting opposition to pipelines).
One of the keys to success in the greening global economy will be “decoupling” economic growth from environmental impact; in other words, an economy can continue to grow, while its environmental footprint goes down — largely through policies that accelerate clean innovation. BC is accomplishing this, as shown by Figure 2, in my previous blog. Once the global downturn ended and the economy started growing again in 2010, fuel use in BC continued to decline, while it rose in the rest of Canada. This indicates that BC has managed to decouple economic growth from fuel use (and GHG emissions). And that puts B.C. at the forefront of the 21st century economy, an enviable place to be.
To learn more about the results of the B.C. carbon tax, including its environmental, economic, and political impacts, follow the series:
The true story of how B.C’s carbon tax is working