Is a carbon tax on the way?

British Columbia's right-of-center government has just introduced a carbon tax, making it the second jurisdiction in North America, after Quebec. It's hard to believe, coming from such an administration, but perhaps this is a sign of things to come. On the other hand ...

The BC tax, which will mean small increases in the consumer cost of fossil fuels, is only a baby step toward actually bring down greenhouse gas emissions. Indeed, calling it a baby step is generous. For example, the tax means gasoline will cost an extra 2.4 cents a litre (about 10 cents a gallon), this year, and rising to 7.24 cents a litre (28 cents a gallon) by 2012. That translates, according to analyses posted by the Globe and Mail, to about $10 a tonne of carbon dioxide emissions, rising to $30 a tonne four years from now.

Note that the Globe and other media refer to $10 a tonne of carbon emissions, but as a slide show from the BC government makes clear, it applies to carbon dioxide (or equivalent) emissions.

Quebec, which was the first one to introduce a carbon tax, last October, set the price at only a third of B.C.'s. But Quebec is also is targeting businesses rather than consumers, and isn't simultaneously giving more incentives to drill for more oil and gas as B.C. is doing.

Both provinces are logical candidates to be ahead of the curve on this one, because clean hydroelectricity is the main source of power. And yet, in both cases significant progress remains before such a tax leads to more investment in clean alternatives. Here's how Ted Nordhaus, Michael Shellenberger, Jeff Navin, Teryn Norris, and Aden Van Noppen sum up the problem in a paper in "Fast, Clean, & Cheap: Cutting Global Warming's Gordian Knot," which appears in January's Harvard Law and Policy Review:

The IPCC estimates that establishing a global carbon price of $184/ton -- a figure five times higher than what most legislation being considered by the U.S. Senate would set it at -- would still only result in a reduction of global carbon emissions by 20 - 38 percent by 2030....

Reducing carbon emissions by 80 percent worldwide through regulatory limits alone would require setting a very high price for carbon. For carbon capture and storage to become economically viable, carbon would have to be priced between $100 - 200/ton. For solar photovoltaic to become cost-competitive without other subsidies, carbon would have to be priced at over $800/ton, according to U.S. EIA.

Now, since we're talking about economics and not physics, it could very well be that those estimates are way, way off. Solar power gets more and more efficient every year. But even if they are, say, 100 per cent overinflated, that still means that a tax of $30/ton falls far short of what's needed to give existing alternatives a competitive edge.

That doesn't mean that we shouldn't cheer BC's groundbreaking decision. At least they're doing something. No one in a position of influence down in the U.S. seems to give carbon taxes the time of day, all preferring some kind of cap and trade system (and even poor John McCain can't seem to figure outwhether a cap is mandatory or not.)

[Update: Today the U.S. dollar buys 1.01 Canadian dollars. And for those not hip to the difference between a metric tonne and an imperial ton, don't lose any sleep over it.]


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Are those numbers in Canadian or American dollars?

I live in BC and I was generally pleased with yesterday's announcment. True, it doesn't go as far as it should, but hopefully, in 2012 when the scheduled increments have reached the $30/tonne, another government may continue to increase it. Of course this is unlikely to happen unless other jurisdictions in North America start similar taxation schemes and threaten to quench of self-satisfaction. I've been watching the public reaction as it's described on the local news and most people seem to be either supportive, or mildly annoyed, but aside from the ubiquitous nay-sayers, nobody seems to be particularly offended. And since the tax in revenue neutral, (ie. money collected as a carbon tax is returned as income tax cuts, and tax incentives for purchasing 'green' technologies) I'll probably make money on the deal since I walk to work.