Discussion: Should Canada adopt a carbon tax? If so, how should it be levied and what should we do with the revenue?

The idea of a national carbon tax has been near the front of many Canadian news cycles since the Liberals included it in their federal election platform in 2008. The Liberals, under Stéphane Dion, proposed a carbon price of 10$/tonne initially, rising to 40$/tonne in the fourth year, levied on electricity and fuel consumption, with the exception of gasoline for cars; which would have generated roughly $15 billion annually. In order to be revenue neutral, this money would have been used to cut personal income taxes, especially in the lower tax brackets, and to increase child tax benefits and senior income supplements.

The Conservatives have consistently denounced the idea of a national carbon tax as ‘job killing’ and one that would ‘raise the price of everything’, though a December (2014) CBC interview with Prime Minister Stephen Harper suggested they might be softening their position. The NDP also opposed the carbon tax in 2008, and proposed a cap-and-trade system as an alternative. Following the 2008 election, the Liberals, too, backed off the idea of a carbon tax, which they saw as one of the main reasons for their defeat.

Recently however, the idea of a federal carbon tax in Canada has had a political resurgence. Prominent conservatives, including Preston Manning (founder and former leader of the Reform Party), have  joined in calling for one. British Columbia adopted a revenue-neutral carbon tax in 2008, levied on fuels and offset by reductions in other taxes, mainly income taxes and corporate taxes. Despite some initial controversy, a recent review by Sustainable Prosperity suggested that the carbon tax has been successful in reducing BC’s emissions relative to the rest of Canada, with no discernible negative impact on economic growth.

The economic rationale of a carbon tax is that carbon emissions, like other forms of pollution, impose a cost (via climate change) on other members of society that is not accounted for in emitters’ decisions to emit. The carbon tax forces emitters to compensate society for this cost, which in turn forces them to factor the cost into their emissions decisions – presumably choosing to emit only when the economic benefit of doing so outweighs the cost.

The economic concerns raised by those opposed to a carbon tax include that it would be costly to consumers by raising the price of fuels (gasoline, heating, electricity, etc.) and other goods whose production costs are affected by higher fuel prices, and that it would negatively impact Canada’s oil and gas industry, which is responsible for a significant fraction of Canada’s recent economic growth. In light of the recent collapse in oil prices, Stephen Harper recently remarked that imposing any new regulations on the oil and gas industry would be ‘crazy’.

In contrast, some of those in favour of a carbon tax have argued that low oil prices make for an ideal economic climate for a carbon tax levied on consumers, who are benefitting from low energy prices; and that a carbon tax could help some of the provinces currently struggling with deficits. If the tax is revenue neutral, then investments of the revenues in other areas of the economy could offset any economic damage done by higher fuel prices. Others have taken the more agnostic view that a carbon tax could be either bad or good for the economy depending on how it was implemented and what is done with the revenues. An additional suggestion, which that has emerged in academic circles, but has yet to reach the mainstream, is that carbon taxes should be levied on indirect land-use and other non-energy related emissions in agriculture and other food sources, in addition to fuel consumption or production.

What do you think about the idea of a carbon tax in Canada? Should there be one? If not, why not? If so, which level of government (federal, provincial, municipal) should administer it? Who should pay it? Producers? Consumers? What should it be levied on? Fuels (If so, which ones)? Should non-energy-related agricultural emissions be included? What should be done with the revenues? Tax cuts (if so, which taxes)? Investments in clean technology? Deficit reduction? Something else?

Tell us your thoughts in the comments, or in an Article or Personal Essay.

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