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What 'axing' the carbon tax would mean for British Columbians

Ahead of a pivotal election, an analysis of the payoffs and consequences of eliminating B.C.'s carbon tax
gas-prices
Experts say eliminating the carbon tax in B.C. will do little to quell the swings in gasoline prices seen in recent years. Photo Dan Toulgoet

On campaign trails across Canada, eliminating the carbon tax has emerged as a political lever — an electoral promise to pull back government intervention and help households cope with the rising costs of living.  

Federal Conservative Leader Pierre Poilievre has promised to “axe the tax” should his party win the next general election. 

In B.C. — where the carbon tax policies first emerged in North America in 2008 under the right-of-centre Liberal government — B.C. Conservative Leader John Rustad has latched on to that messaging.  

The party’s semi-costed platform, released this week, commits to end B.C.'s price on carbon, what it describes as an “ineffective policy” that “kills jobs” and hampers “every part of our economy.” Rustad's platform promises are part of a long list of public comments expressing doubt climate change is real.

Earlier this year, he told The Globe and Mail the science around human-caused climate change is an unproven “theory” and “not even a crisis” — a position widely at odds with global scientific consensus. And in a YouTube video with controversial author and fellow climate denier Jordan Peterson, he expressed incredulity that anyone could hold another position.

“How is it we have convinced carbon-based beings that carbon is the problem?” he said.

While climate change remains a top issue among many Canadians, polls have shown its importance dipping far behind concerns over housing and the cost of living.

Ahead of B.C.'s election Saturday, BC NDP Leader David Eby has responded by promising to do away with a consumer carbon tax — but only if the federal government ended its federal version of the levy.  

For many, how the carbon tax works, who it benefits and how its demise would impact climate policy and the wider economy remain unclear.

Glacier Media analyzed government budget documents and spoke to several experts, asking them: what would ending the policy cost B.C. voters? Who would come out on top? And would its elimination sink B.C.’s commitment to fight climate change?  

How do carbon taxes work?

Carbon taxes are designed to put a price on greenhouse gases based on the harm they cause to society. By taxing fossil fuels — the main driver of climate change and the harm it causes — industry and individuals are incentivized to switch to cheaper forms of energy, while developing and adopting new technologies like electric vehicles or heat pumps, the thinking goes. 

Large emitters pay carbon tax through industrial pricing programs, whereas the consumer carbon tax is paid by people and small businesses through their gas heating bills, or at the pump. 

In line with federal regulations, B.C.’s carbon tax now sits at $80 per tonne, and will increase $15 every year until it hits $170 per tonne in 2030. 

The tax currently adds 17.61 cents per litre to the cost of gasoline; 20.74 cents per litre to the cost of diesel; and 15.25 cents per cubic metre to the cost of natural gas.  

Outside of B.C. and Quebec, the consumer carbon tax is administered by Ottawa through a federal backstop. The system returns the carbon tax through rebates to every household based on size and the carbon intensity of the energy system in their province.  

Someone living off Ontario’s relatively cleaner grid spends less on fossil fuels and therefore receives a smaller rebate than Albertans, for example.

In B.C., the calculation is different. The once revenue-neutral program now cuts cheques to households based on both their size and income.  

About $2.21 billion was raised through B.C.’s carbon tax in the 2022-23 fiscal year, according to provincial budget documents. Of that, about $1.7 billion, or three-quarters of the total revenue generated by the carbon tax was given back through rebates.

BC NDP says that under its leadership rebates will climb as the price of carbon increases and total revenues from the tax tick up to $7 billion by 2030. The rebates will also go to more households — 80 per cent by 2030, compared to 65 per cent today.  

Under the B.C. Conservative platform, the elimination of the carbon tax accounts for $3 billion of a forecasted $7-billion drop in revenue over the next three years.

How would switching from B.C.'s carbon tax for the federal backstop change things?

The Conservative Party of B.C.'s platform claims killing the carbon tax would save the average family $1,200.

But if a B.C. government were to eliminate its carbon tax, the province would immediately revert to the federal backstop. Under that scenario, how much money British Columbians receive in rebates would depend on how Ottawa calculates the carbon intensity of the province’s economy.  

Kathryn Harrison, a political science professor researching climate policy at the University of British Columbia, said B.C.’s per capita carbon emissions are closest to Ontario’s, if not slightly less. 

The latest provincial budget breaks down the “net carbon tax” — an estimate of carbon tax paid minus rebates — paid by people in B.C. versus other provinces. 

The numbers show higher income B.C. residents tended to have a higher carbon tax burden than an equivalent Ontario family under the federal backstop.

A two-income family of four with a net income of $120,000, for example, would have their tax burden eased by roughly $700 were they in Ontario. 

But if an unattached individual making $30,000 were transplanted from B.C. to Ontario, they would go from receiving a $112 rebate to paying $178 a year — a $290 net loss under the federal backstop. 

A senior couple pulling in $40,000 a year through pensions, meanwhile, would go from receiving a $592 benefit in B.C. to a $143 benefit under the federal carbon tax.  

Nancy Olewiler, an economist at Simon Fraser University’s School of Public Policy, criticized the NDP government over a lack of government transparency when it comes to reporting out how much money the carbon tax is taking in and where it's being spent. 

But from what's publicly available, she said it's clear that richer people would see a carbon dividend moving from a B.C. to a federal system.

“Would people above $120,000 or $150,000 have a higher amount of tax credit under the federal system? The answer is yes,” she said.  

Poorer people, Olewiler added, would see less money in their banks.  

“Nobody's talking about that,” she said. 

What happens to the carbon tax money the B.C. government keeps? 

In B.C., money collected through the carbon tax and not returned through rebates ends up in general revenue. 

From there, the leftover money — about $500 million in 2023 — supports programs meant to protect communities from climate change, while funding transit projects and accelerating a move toward cheaper, less carbon-intensive forms of energy. 

A ruling B.C. Conservative Party says it would review and eliminate CleanBC, which administers those funds and helps steer climate policies for the entire province. 

At the least, getting rid of CleanBC would put at risk heat pump and electric vehicle incentives. It could also undermine industrial carbon pricing and methane regulations, and threaten the province’s mandate requiring all new vehicles sold in B.C. to be low-emission by 2035, said Olewiler. 

“If that is what their intention is, then all of those programs would disappear,” she said.  

Losing control of carbon tax revenue to the federal government would also blow a serious hole in the B.C. budget — a significant part of an $11-billion deficit the B.C. Conservatives say they would run in their first year in power.

“It's a big chunk of change,” said Olewiler. “I don't think any party wants to tell you that because there are significant implications on the budget and on who gets a tax rebate or credit from it.” 

To complicate things, B.C.’s carbon tax was originally revenue-neutral and was paid for through sales tax credits and income tax cuts applied to corporations and individual taxpayers up and down the income spectrum. 

Small business and personal tax cuts remain on the books, and it’s not clear what would happen to them if the carbon tax were eliminated, said Werner Antweiler, an economist at UBC’s Sauder School of Business. 

“Would they disappear? Mr. Rustad is not saying,” he said. 

How would eliminating the carbon tax impact the wider economy? 

There is evidence that B.C.’s carbon tax has helped to drop gasoline consumption and foster one of the highest rates of electric vehicle adoption in North America.  

Despite the dampening effect of the carbon tax and other policies, B.C.'s growing population has meant the province has seen only 2.5 per cent drop in emissions between 2005 and 2022. 

And while the province remains off track from meeting its target to reduce emissions 40 per cent below 2007 levels by 2030, Antweiler said a government could eliminate the consumer carbon tax without completely jettisoning other programs to lower planet-warming gases. 

According to the economist, B.C.’s biofuels mandate and low-carbon fuel laws are two meaningful climate policies that would continue to drive down emissions if left intact. Eliminate those measures and “there is not much left of climate policy in B.C. after that,” he said.

Some business leaders have raised concerns about the chilling effect the carbon tax has on the wider economy. 

Last week, the Parliamentary Budget Office (PBO) re-ran numbers on the impact the federal carbon tax had on households after it admitted to making an “inadvertent error” by including the industrial carbon pricing in its calculations. 

In its updated analysis, the independent budget watchdog said the carbon tax will provide the average household with a net gain by 2030-31. However, the report also found that when the economic impact of gross domestic product (GDP) and investment income is factored in, households would be worse off. The PBO said its report was not advocating for the counterfactual world where Canada “does nothing.”

Critics of the report came out challenging the PBO's assumptions on GDP growth. Olewiler said forecasting the economic indicator risks significant uncertainty because you never know when war or some other crisis will upend your predictions. Another problem, the PBO models never account for economic activity spurred by carbon taxes or the damages from climate change. 

“These are problematic even with that correction,” she said. 

Others worry eliminating the carbon tax across the country would impact Canada’s ability to compete on the world stage. 

A report from Scotiabank last week warned that if Canada were to repeal its carbon tax, it could put trade at risk by exposing itself to carbon border adjustments — a novel tariff meant to punish countries that produce goods with higher carbon costs than domestic producers.  

About 80 per cent of the countries that buy Canadian goods are considering such carbon border adjustments. Emission-intensive goods — which make up 72 per cent of Canadian exports over the past three years and include industries like oil and gas, mining and forestry products, among others — are especially exposed to the carbon tariffs, the report says.  

Evan Pivnick, a project manager at the Simon Fraser University research group Clean Energy Canada, said if Canada exposed itself to such tariffs by eliminating the carbon tax, it could easily impact jobs in communities across the country.  

“It's a good soundbite to say ‘axe the tax,’” he said. “But for most families, that actually leaves them paying more, not less.” 

Would eliminating the carbon tax lower the cost of food? 

Beyond the cost of gas, the carbon tax is passed on to consumers and businesses through the price of goods, whether through increases to the price of manufacturing or transportation.   

The Conservative Party of B.C.'s platform claims eliminating the carbon tax will reduce the cost of goods for British Columbians and help the agricultural supply chain.

However, according to an analysis by University of Calgary economists Trevor Tombs and Jennifer Winter, the impact B.C.’s carbon tax has had on the price of goods and services in the province has often proved negligible.  

At the high end, they found the carbon tax increased the cost of air transportation by 0.9 per cent. And when it came to food, the carbon tax was found to have raised prices 0.3 per cent. That's a fraction of the inflation felt around the world since energy prices surged in the wake of Russia's full-scale invasion of Ukraine in 2022. 

Studies in 2015 looking at the carbon tax in B.C. found the carbon tax increases the real income of lower-income families, while reducing greenhouse gases from five to 15 per cent. 

A 2023 study published in the Journal of the European Economic Association looked at how 18 carbon taxes across Europe and Canada impacted a wave of post-pandemic inflation — asking the question, did putting a price on carbon lead to “greenflation”?    

On average, they found there was “no robust evidence of any inflationary response” from a carbon tax. Such policies, they found, did not lead to a broad increase in prices.  

And earlier this year, a study published to the arXiv pre-print server by University of Calgary graduate student Jiansong Xu found carbon pricing actually has a deflationary effect on food prices.  

Xu’s analysis, which has yet to be peer-reviewed, found carbon pricing dropped food inflation in B.C. by three per cent, the most of any province.  

The data, Xu concludes, offers “no support to the growing voices against carbon pricing policies.” 

Is the carbon tax hurting me as much as I think?

There appears to be a growing gap between what impact people believe the carbon tax is having on them and what the available evidence says.  

Many Canadians appear to be misinterpreting how much money the carbon tax is adding to what they pay at the pump and in home heating bills, one 2022 study found.  

“What we found is that a lot of people overestimate how much they're paying in carbon tax, but that was particularly the case for conservative voters,” said UBC's Harrison, who co-authored the research.

Harrison suspects that people often don’t notice carbon tax rebates automatically deposited in their bank every three months, but find climbing fuel prices hard to ignore.  

People's opinion of the carbon tax is also being shaped by advertisements and political messaging, which Harrison says mischaracterizes its impact on inflation.  

“Political leaders they trust have told them again and again what a big impact this is having on inflation,” she said.

Of course, she added, most people don't have time to weed through budget estimates or calculate what goes into the price of gas. All they see are their bills going up and their bank accounts going down. 

“I spend my life living and breathing climate policy. And, of course, normal people don't do that. They are trying to get their kids to school and put food on the table and get to daycare in time for pickup. They're struggling to make ends meet, and they're just busy as hell,” she said.

“What they're doing is trusting people who are giving them messages about this, and in many cases, the messages they're being given are at best, misleading, and at worst, just false.”