Just the facts, please: The true story of how B.C’s carbon tax is working

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.

“Never let the facts stand in the way of a good story,” Mark Twain famously wrote. In an op-ed published today in the Globe and Mail, a leading economist and a successful mining entrepreneur do just that. Drawing on the latest numbers from Statistics Canada, Ross Beaty, Richard Lipsey and I unravel one of the Prime Minister's favourite fables—that carbon taxes kill jobs and growth. As it turns out, the actual results from B.C.—one of Canada’s (and the world's) best carbon tax shift models—do tell a pretty good story. Just one that many of us aren't used to hearing.

Here's the main plot:

Six years after the policy was instituted, BC's fuel use is down a whopping 16.1%. Its economic growth has kept pace with the rest of Canada. And its personal and corporate income tax rates are now among the lowest in Canada. In short, the numbers indicate that BC’s carbon tax shift has been a remarkable success, environmentally and economically.

How did they do it? Outside of B.C., the true story of the carbon tax shift remains shrouded in mystery for many Canadians. Here’s a quick history. Six years ago B.C. did what almost all economists, and a growing slate of business and environmental leaders, recommend as the most cost-effective way to tackle climate change. It put a price on carbon emissions, and used the revenues to lower other harmful taxes.

The policy, which applies to almost all fossil fuels (oil, gas, diesel) based on their carbon content, started out at a low price of $10/tonne of CO2. Each year the price rose by $5/tonne, reaching $30 in 2012 (about 7 cents per litre, or 25 cents per gallon of gas), where it remains frozen today. This steady ramp-up meant the tax caused minimal pain in year one (when people had little chance to adapt); it gave households and businesses time to plan and make gradual fuel-saving changes in anticipation of rising prices.

The other key feature of policy is its requirement for “revenue neutrality”. The government must—by law—offset carbon tax revenues through matching cuts to other taxes (thus the name ‘tax shift’). In actuality, the province ended up cutting $760 million more in income and other taxes than required to offset the carbon tax revenue. As a result, (and here’s the plot twist!) taxpayers in B.C. have actually come out ahead overall.

BC’s true story is all-the-more-remarkable because it’s taken place at a time when governments across North America are grappling with “carbon price phobia.” A vocal cohort of politicians in the U.S. and Canada (mostly on the right, but some on the left) has painted a carbon tax as economically harmful and politically risky. These fears are based mainly on rhetoric and speculation. But in the absence of good information, superstition reigns.

That is why BC's real-life results are so important. They can help to bring some facts, and sense, to a policy debate in which both are badly needed. Over the next few blogs, we'll dig deeper into those results, probing the big questions and mythologies:

Our exploration confirms that BC’s experience offers a powerful, simple lesson: if well designed, carbon pricing works. It can drive down fuel use and greenhouse gas emissions, without hurting the economy – and can lay the foundation for future success in a greening global marketplace. That’s a story Canadians deserve to hear.

To learn more about the results of the B.C. carbon tax, including its environmental, economic, and political impacts, follow the series this week:

Is B.C’s carbon tax shift a silver bullet solution?
What’s behind B.C’s whopping fuel use drop?
Did the carbon tax shift burden or buoy B.C’s economy?
Is there a cure for carbon price phobia?
Appendix: A Note on Research Methods