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)

The Danger of Monologues

This post originally appeared on the Carbon Talks blog, and in an edited form in The Mark.

These days, Canada seems to be a country of monologues. On complex and multifaceted issues like the environment, or the economy, we are increasingly dividing ourselves along partisan lines, pushing our own agendas, and entirely dismissing any counterarguments, debate, discussion, or dialogue. This week’s federal budget is a dangerously subtle example of this trend.

On the subject of environmental reviews – notably the Northern Gateway Pipeline – when the government proposed dialogue and consultation, there was an expectation that it would have more than one side. The groan-worthy cliché applicable here is that it takes two to tango. Or, I suppose since this inevitably revolves around Alberta, it takes a whole room of folks to line dance. But if you lock your date out of the hall the night of the big dance, then why bother advertising the event in the first place?

The Canadian federal government seems to be a bit nervous about its dance partners. The 2012 budget is earmarking an additional $8 million for the Canada Revenue Agency (CRA) for “education and compliance” with the goal of ensuring that charities “provide more information on their political activities, including the extent to which these are funded by foreign sources.” For those who have been living under a rock (or a pile of sticky, toxic, bitumen sludge) this is in response to allegations that certain Canadian charities are accepting foreign funds to finance their opposition to the oil sands.

To be clear, there is absolutely no law, policy, or regulation preventing non-profit groups from accepting foreign funding. But by even suggesting that there is some impropriety in accepting such funds, the government is stifling these groups.

The issue of how much charities can engage in political activities is a bit trickier. Under the existing regulations, whereby the CRA interprets the Income Tax Act, charities can utilize up to 10% of their human and financial resources engaging in non-partisan political activity. What exactly contributes to that 10% is not entirely clear to many, including myself, and that lack of clarity is likely to discourage charities from engaging in any public advocacy at all.

My own experienced contact tells me that with appropriate and accurate accounting and reporting, most charities will likely find that their allowable political activities account for far, far less than 10%. But that requires taking the time to understand the rules and document all activities; this is something many smaller, cash-strapped charities may not feel they’re in a position to do. To put things in perspective, the CRA page that defines political activities has 14 sections and 2 appendices, clocking in at just under 10,000 words.

Protesters in Bella Bella this week, making their voices heard
Protesters in Bella Bella this week, making their voices heard

The size of the charitable sector in Canada is likely grossly underestimated by many of us. According to the CRA’s own numbers, in 2007 there were a staggering 2.4 million Canadians employed by charities, accounting for about 7% of our GDP. This compares with the oil and gas industry, which employs about 800,000 Canadians and accounts for about 4.8% of our GDP. By hampering the ability of charitable organizations to do their work through forcing them to devote more resources to accounting, the government may very well be harming the Canadian economy. Given that this is the justification given for monitoring these organizations in the first place – to ensure the oil and gas industry can move forward reasonably unhindered for the sake of economic growth – forgive me for being a tad confused.

Again and again, we are told that advocacy against the oil sands is threatening the stability of the Canadian economy, but that’s only true if you subscribe to an absolutist definition of what our economy is based on. Just because my version of Canada differs from someone else’s, doesn’t mean that they are necessarily wrong, it just means that we’re approaching a word, and the notion of our nation, from a different perspective; that’s a wonderful thing, and it’s shameful that our government is trying to avoid it. Monologues on either side of the debate, whether they are by extremist back-to-nature environmentalists, or free-reign deregulation capitalists, are both dangerous and unproductive for our country.

I’ll leave you with a thought upon one more small part of the budget for your own moment of Zen reflection. The National Round Table on the Environment and the Economy, a government initiative meant to report on Canada’s efforts on greenhouse gas reduction, is being abandoned. According to the budget, this is because there is now a “mature and expanded community of environmental policy stakeholders” who are demonstrating “the capacity to provide analysis and policy advice for the Government of Canada.” And who might these stakeholders be? Those are the environmental charities, of course. Joseph Heller would be proud.

Following comments sent along to me, this post has been edited to reflect the distinction between public advocacy and political activity; my confusion over that distinction, at least as far as it applies to the CRA regulations, is undoubtedly shared by many others – CG

(Feature photo courtesy of Financial Post, Bella Bella photo courtesy of Janet Sawatsky)