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BC’s Carbon Tax: Coming to Terms with the “T” Word

This post originally appeared on the Carbon Talks blog.

British Columbia’s Carbon Tax has been getting a lot of media attention in the last few days, and rightly so. While it is not without its skeptics, much of the opposition seems to grow out of a misunderstanding of how the tax works. This stems from an unfortunate reality when it comes to taxes: the public always wants less. What may be an easy talking point for a government – a promise to lower taxes – can end up being a very complicated policy action, resulting in shifting tax burdens, complex tax codes, and regressive taxation schemes.

Put very simply, the BC Carbon Tax adds a tax of $30 for each tonne of C02 emitted. This is collected at the source – those businesses who are vendors of fossil fuels – and those costs will get passed on to whomever is buying the fuel. But it’s not just about rising fuel costs. The next three examples show how the Carbon Tax is currently working in BC, for better or for worse, and serve to illustrate the possible benefits of “tax”, something often considered a dirty word.

A carbon tax means more wood-oven pizza?
A carbon tax means more wood-oven pizza?

LJ’s Pizza

Laura Jane is a young entrepreneur who owns and runs LJ’s Brick-Oven Pizza and deliveries make up a significant part of her business. With the carbon tax, Laura will be forced to pay higher prices for gasoline. This doesn’t sit well with Laura. LJ’s Pizza has very small profit margins; with staff to pay and rising costs for ingredients, a small increase in gas prices means a significant reduction in profits. Laura gets upset, blames the government for gouging her with taxes, reads an op-ed in the local newspaper that suggests the carbon tax is hurting the economy, and votes accordingly.

Jenny’s Farm

Jenny considers herself an environmentalist. After settling down in the interior a number of years back, she and her family have had quite a lot of success growing and selling organic produce. Jenny tries her best to be energy efficient and use environmentally friendly products. What Jenny has no control over however is shipping costs. Jenny pays for a private trucking firm to pick up her produce and deliver it to market a few times per week. Faced with increasing fuel costs due to the carbon tax, the trucking company inevitably has to raise its rates, and this gets passed on to Jenny’s Farm. Although she doesn’t like it, Jenny understands that paying this little bit extra is the price she has to pay for her province to go green. She doesn’t really understand what happens to that money, but she has faith in her government.

Gord’s Trucking

Gordon has been operating a trucking business in the lower mainland for over thirty years. He knows the ins and outs of the industry and runs a tight ship. He keeps his nose buried in newspapers, market reports, and the goings-on of the provincial government. When Gord hears that the BC Carbon Tax will increase his fuel costs substantially, he heads to his financial advisor. With the right advice, Gord makes a plan to retrofit his fleet to run on liquid natural gas (LNG), resulting in an estimated annual tax savings of $300,000. At a retrofit cost of $10,000 per truck, Gord realizes he can quickly turn those savings into profits.

Each of these three scenarios, and countless other variations, are playing out in BC right now. What could LJ do differently? She could start by changing her delivery schedule and routing to be more efficient, perhaps through a small investment in GPS technology. She could also stop using automobiles for delivery, and instead invest in a small fleet of LJ’s Pizza scooters. How about Jenny? Perhaps she could look for more affordable shipping options, like starting a shipping co-op with other farmers in the area. Gord has clearly done well for himself, and can either pocket the profits, or invest in even more efficient equipment, leading to additional savings.

Now what if all these three actors worked together? Jenny decides to switch to Gord’s Trucking in order to take advantage of his recently reduced rates, and be able to market her produce as being shipped by LNG. Thanks to these savings, Jenny is able to expand her business and starts focusing on new customers. She gets in touch with LJ, and becomes the main supplier of LJ’s Brick-Oven Pizza. LJ is now able to advertise local, organic produce, enabling her to slightly raise her prices; she now has room in her budget to buy that fleet of scooters. Her gasoline bills plummet, and that cash gets funnelled back into her business.

This very simplistic example just shows how a carbon tax can encourage efficiencies and eventually contribute to economic growth; it has also deliberately ignored the fact that a carbon tax has helped to keep income taxes and corporate income taxes to national lows. LJ, Jenny, and Gord’s employees will all be paying less in taxes – which means more money to spend on delicious brick-oven pizza.

This revenue-neutral tax is a model for other jurisdictions around the world. While the three-letter T word conjures up nightmares for most of us, we must step back from such reactions and see the tax for what it is: a way of decreasing our impact on the environment, while encouraging innovation and efficiencies, and overall tax savings to every resident of British Columbia.

(Feature photo courtesy of Stephen Petit/Flickr, pizza photo courtesy of Basheer Tome/Flickr)

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The Enbridge Northern Gateway Pipeline: What We Don’t Know

This post originally appeared on the Carbon Talks blog

Debate over the approval of the Enbridge Northern Gateway pipeline is continuing to polarize Canadians. However the list of unresolved issues and conflicting information means that I’m not even sure what to believe. Will this project benefit the economy as Enbridge and the Federal Government suggest? Will First Nations groups ever approve the plan? Are oil tankers even legally allowed to sail off the BC coast? The more I read, the more I realize what we don’t know about the pipeline far outweighs what we do.

In a January 2012 poll by Abacus Data, Canadians almost equally supported or opposed the project at 38% and 29% respectively. Quebec led the charge in lack of support at only 23%, while BC is the province most opposed to the project at 36%. Unsurprisingly, the project has clear support from residents of Alberta.

Chris-Pipeline1
Canadian support and opposition to the Northern Gateway Pipeline

In sifting through the details of the poll, we can see that those who support the pipeline do so for the potential economic benefits, while those who oppose it do so on environmental grounds. But for me, it’s the grey area in between that betrays this issue – what about those people who simply have no opinion at all?

It is this not-insignificant proportion of Canadians who are undecided that define the pipeline project. With so much conflicting information, how can I know whether to support, oppose, or even care?

For her own part, Canadian economist, and former Executive Director of VanCity Community Foundation, Robyn Allan has argued that the economic assumptions underlying support for the pipeline are fatally flawed. In her January 2012 report “An Economic Assessment of the Northern Gateway”, Allan states that “Northern Gateway represents an inflationary price shock which will have a negative and prolonged impact on the Canadian economy …” Essentially, she says that what economic benefit that will be seen will be limited to the oil companies themselves. The following graph, prepared by Natural Resources Canada, clearly show that oil prices have a direct effect on gasoline – and that affects all of us, regardless of whether we drive a car or not.

Comparison of crude oil and gasoline prices 2001-2009
Comparison of crude oil and gasoline prices 2001-2009

Ms. Allan’s views were presumably unwelcome in the energy sector; I can only assume it affected the National Energy Board’s refusal to grant her status to intervene at a hearing on Enbridge’s application. But then who to believe? Will the pipeline be an economic boom for Canada, or only benefit oil companies?

Then there’s the continuing issue of First Nation land rights. The fact is, virtually none of the 50 First Nations groups who have been offered equity in the project have agreed – though a deal was made between Gitxsan Chief Elmer Derrick and Enbridge, the decision seems to have been made unilaterally, and opposition among his community is incredibly strong. Though nobody can say with certainty what will happen in the coming year, it seems likely to me at least that negotiations will reach a stalemate. While some First Nations will perhaps yield to pressure and financial rewards, others will not. At the end of the day, there are only so many routes the pipeline can take, and avoiding traditional lands may be simply impossible. What are the realistic chances of ever reaching an agreement with all parties?

BC tanker routes
BC tanker routes

A final issue that is causing confusion among Canadians is the status of a moratorium on oil tanker traffic off British Columbia’s coast. For almost forty years, some Canadians believe there has been a de facto ban on tanker traffic sailing through Dixon Entrance, the Hecate Strait, and Queen Charlotte Sound. Yet in December 2009, the Canadian government stated their position, supported by the BC Chamber of Commerce, that “there is presently no moratorium on tanker traffic in the coast waters of British Columbia.” While the Prime Minister has compared coastal BC to Newfoundland where tanker traffic is allowed, Elizabeth May of the Green Party strongly disagrees, describing the BC coastline as “extremely sensitive to oil spills because of its physical features.” Again, who to believe? Do we have a moratorium, based on provincial-federal agreement, or do we not, due to lack of legislation? Is it safe for tankers to transit the BC coast?

With so much uncertainty over such a large scale project, perhaps it’s best to shift our focus elsewhere. Reducing energy usage, retrofitting our buildings, expanding public transportation, and stimulating a green economy – these are things that are already underway, things we can overwhelmingly agree upon. The oil can wait, until we know where everybody stands.

(Pipeline photo courtesy Bill & Vicky Tracey/Flickr, polling data courtesy of Abacus Data, oil and gas prices courtesy of Natural Resources Canada, tanker map courtesy of Living Ocean Society)