How BC’s Revenue Neutral Carbon Tax Was A Triple Win

“The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty, and we must rise with the occasion. As our case is new, so we must think anew and act anew. We must disenthrall ourselves, and then we shall save our country.” Abraham Lincoln, 1862.

People love to talk about climate change. We debate it. We deny it. We set up committees and sometimes commissions. We have meetings. What is needed is action! Lincoln was right then, and he is right now.

In 2006, the British Columbia government decided to think anew and act anew on climate change. The B.C. Liberal s put in place a multi-pronged, multi-year Climate Action Plan in an effort to control the expansion of carbon emissions. Put bluntly, if we had waited for everyone to act all at once and with unanimous agreement, we would still be waiting.

After our government caucuses decision, in December 2006, I discussed joint action with Governor Schwarzenegger. BC launched its effort in February of 2007. It was ambitious and comprehensive. Over a period of a year we set out a comprehensive agenda for action.

Our announcement of the climate action initiative was popular with the public. It was popular with the government caucus.

The plan was multi-faceted and required relatively small changes in behavior to start but they asked everyone to be a part of the solution. The pricing of carbon emissions was predictable, fair and, most importantly revenue neutral.

There was a deliberate and specific message: “This is about climate not about the government raising revenue”, “The revenue neutral carbon tax is specifically, and demonstrably, not about raising revenue”, and “The revenue neutral Carbon Tax, is about taxing carbon emissions”. It was unconventional. All money brought in from the tax on carbon emissions was given back in personal and corporate income tax reductions. This was a real. We created a specific test for the Finance Minister to assure that was the case. It is a tribute B.C.’s Finance Minister that she knew that was important.

The policy worked:

It helped reduce carbon emissions. It was not solely responsible for the progress that was made but it was a cornerstone in the policy framework.

It built impetus behind investment in productivity which is a natural brother of reduced carbon emissions. BC uniquely had the chance to take the lead in climate action because low corporate income taxes (they are never low enough) and low energy costs (they are never low enough) were competitive advantages. While the revenue neutral carbon tax added a marginal cost that cost was mitigated by the reduction in corporate income taxes. The change was also, however, a stimulant to change how government and the private sector did business. Its predictability and lack of exemptions made it fair and few truly debated its merits. In fact, those who presented to the cabinet committee had the same message. “We are glad you are doing something”, “We are pleased to be asked about it before it is done”, and finally, “But we hope you will understand that our sector is different”.

That was understood but it was also understood that we are all part of the problem and to meet the challenge of being predictability with free riders. Everyone was included.

It was also important for the government to send messages of steadfast commitment and across the board fairness. One significant change was made to reflect the different circumstances faced by rural and northern British Columbia. Importantly, that mitigation was done through the property tax, not the revenue neutral carbon tax exemption or exception.

The key to its success was that people, who were driven by concerns for climate change, understood that they couldn’t say one thing and do another.

The NDP opposition thought opposition was more important but business generally understood that this created a new situation and as long as they knew the government meant it, they could live with it. Some opponents only focused on cost, but forgot the reductions in income tax and ignored the benefits. People who didn’t like anything called a “tax” also ignored the income tax reductions. Some like old problems better than new solutions.

A steadfast commitment to the principle of revenue neutrality, that is taxing carbon but reducing income taxes by at least the same amount or more, held firm.

It was a triple win:

For the economy and jobs, putting investments in new technologies and employing more people in those innovative enterprises.

The five year phase in worked. It would have been even better if it had been a 10 year plan. A recommitment to increase the revenue neutral carbon tax at the same rate while reducing personal and business income tax would be powerful. A ten year commitment shields against political expedience and encourages people to take their own actions to reduce their carbon footprint. Revenue neutrality assures that government does not convert the revenue neutral carbon tax into simply another tax.

Today, governments that care about climate change, that focus on innovation, that want to reduce middle class income taxes should adopt a revenue neutral carbon tax: the key is revenue neutrality. Costs on carbon emissions go up. Income taxes go down. Personal choices are increased. We all adapt to a changed world in a different way but carbon emissions go down.

For the environment

Putting a price on carbon allows people to choose to behave differently. Businesses think about their carbon footprint, increasing productivity and reducing their carbon footprint. They think about new service innovations that reduce the carbon footprint and that make sense economically. New businesses spring up and became both environmentally and economically successful, provincially, nationally, and globally.

And politically

The election in 2009 was a hard fought election. Small margins matter in B.C. politics. I believe that the action that the government took on climate change earned it the license for a third term to continue those policies.

“Think anew. Act anew. Disenthrall ourselves.” These are the keys to making real progress and to securing the qualities we value. We can no longer remain complacent and complicit in the environmental deterioration and loss that we are bequeathing our grandchildren.

It takes determination to make a difference. It takes commitment to stay the course. Those are the ingredients of positive change. These steps are not radical, they are sensible. A revenue neutral carbon tax is not all we should do but is a major step forward and from Canada’s example internationally as well.

Gordon Campbell, is the former Canadian High Commissioner to the United Kington, past Premier of British Columbia and former Mayor of Vancouver.

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