Canada has long led North America in putting a price on carbon dioxide emissions. British Columbia introduced a carbon tax back in 2008, and three other provinces—Alberta, Ontario, and Quebec—have some version of carbon pricing. Eighty percent of Canada is covered already, and now Prime Minister Justin Trudeau's government plans to extend the idea to the rest of the country. This week, it said the remaining provinces will have two years to adopt either a tax or a carbon trading program or else face Ottawa imposing a structure from above.
"It’s mandatory that everyone will have to have a price on carbon," said federal environment minister Catherine McKenna recently. "If provinces don’t do that, the federal government will provide a backstop."
British Columbia's program is often held up as a success story among carbon tax advocates. By making fossil fuels more expensive—a gallon of gasoline costs about 24 cents more than if there was no tax—people have started to use less energy to drive around and warm their homes. Emissions in B.C. have fallen compared to the rest of Canada. And, crucially, the province has seen no negative economic consequences. Between 2008 and 2012, the economy grew faster than Canada as a whole.
The Trudeau government's plan calls for revenue raised to stay within provinces and leaves it to local leaders to decide what to do with the money. In B.C., every dollar raised is used to fund cuts to other taxes (which may explain why majorities of individuals and businesses support the measure). Trudeau's plan sets a minimum price of $10 per ton of CO2—below B.C.'s current $30 a ton. But it calls for provinces to raise that to at least $50 per ton by 2022.
Researchers say carbon taxes are key to fighting climate change, as there's no inherent reason why fossil fuels should be more expensive than renewables, and, therefore, little reason for people to stop using them. Due to new extraction techniques, there's plenty of cheap oil and gas in the ground. We're not likely to run out before passing dangerous climate change thresholds.
By introducing a carbon tax, the U.S. could reduce pollution and not seriously harm economic growth, a study by the think-tank Resources for the Future found recently. A $45 per ton levy, rising at 2% per year, would reduce household incomes by only 0.5% to 0.8% by 2030; GDP would fall by 0.06% per year. That's not much of a sacrifice if we get serious climate policy in return.
A carbon tax here is maybe more likely than it was a year or two ago. Bernie Sanders called for one in his platform. Hillary Clinton, while not endorsing a tax, has said we need to price carbon and methane for their "negative externalities." And, most importantly, Exxon Mobil has apparently been lobbying for a carbon tax within the oil and gas industry. House Republicans rejected the idea this summer, but perhaps that stance might change if the fossil fuel lobby is behind the measure.
The bigger question is what happens to revenue raised from a carbon tax and what the likes of Exxon Mobil might want in return for their support. Should the tax be "neutral"—funding other tax cuts as in British Columbia? Would it be worth giving up federal support for renewable energy, and perhaps some environmental regulations, in return for a carbon tax? It might be worth it, if B.C.'s example is any guide.
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