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British Columbia to double carbon tax in four years

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A federal carbon tax that set off a constitutional challenge by the provinces of Saskatchewan and Ontario and widened the rift between Alberta and Ottawa has, so far, been a non-story in B.C., which has had a carbon tax since 2008.

But starting in 2023, it could start to be become an issue in B.C. as well, when annual carbon tax increases will have to spike well above what British Columbians have been accustomed to.

Also, the federal government’s new clean fuel standard may exceed B.C.’s own low carbon fuel standard, according to an analysis by Canadians for Affordable Energy, which estimates the federal standard alone would additionally increase gasoline costs in B.C. by 6.5%. It estimates the federal clean fuel standard would also increase natural gas prices for home heating by 7.9%.

At $40 per tonne, B.C.’s carbon tax is currently higher than the federal tax ($30 per tonne) that the Trudeau government implemented in 2018. It therefore hasn’t been much of a story in B.C.

But B.C.’s carbon tax is rising at a lower rate than the schedule the Trudeau government has just set, so starting in 2023, British Columbians may start feeling its pinch.

On Friday, as part of its aggressive climate change plan, the Trudeau government announced that the federal carbon tax will begin rising by $15 per tonne in 2023, and every year afterwards until it hits $170 per tonne in 2030. 

In B.C., the carbon tax has been rising at $5 per tonne annually, except this year. This year’s annual increase was frozen at the 2019 level — $40 per tonne – as part of pandemic relief policies.

In 2022, B.C.’s and Ottawa’s carbon tax will match at $50 per tonne.

But starting in 2023, the B.C. government will be forced to double the annual increase in order to harmonize with the federal rate of $65 per tonne, and then triple it in 2024 to a total of $80 per tonne.

At $40 per tonne, B.C.’s carbon tax adds $0.09 to the price of a litre of gasoline, $0.10 to a litre of diesel and $0.08 to a cubic metre of natural gas. A $170 per tonne carbon tax would add about $0.40 to a litre of gasoline.

Many economists say a simple revenue-neutral carbon tax is the single most effective, and cost-effective tool for reducing greenhouse gas emissions, since it incentivizes consumers and industry to reduce their fossil fuel consumption or eliminate it entirely by switching a zero emission energy source – like electric vehicles.

Preston Manning, founder of the Reform Party, supports carbon taxes. But in his book, Do Something!, he criticizes the Trudeau carbon tax because, though it does return carbon tax revenue to provinces, he writes “it is not, nor has it ever been despite assertions to the contrary, ‘revenue neutral.’ It thus represents yet another tax increase at a time the economy is reeling and capital, jobs, and companies in the energy business are fleeing the country.”

Energy intensive trade exposed industries, like mines, pulp mills, smelters and cement producers – have been ringing alarm bells over B.C.’s carbon tax and warn of carbon leakage

New taxes can be political suicide, so some governments may opt instead for regulations, like low carbon fuel standards, which requires the carbon content of gasoline to be reduced by adding a blend of carbon-neutral fuels, like biodiesel.

But the Trudeau government is doing both – implementing both high carbon taxes and a clean fuel standard. While some consumers will get a carbon tax rebate, the combination of high carbon taxes and a low carbon fuel standard could be onerous for some industries – farming being the one that could be hard hit.

B.C. already has some of the highest gasoline prices in Canada, and Vancouver has some of the highest prices in North America. Taxes are partly responsible for the higher costs of gasoline here, though there are other factors at play, including a lack of local refining and pipeline capacity.

The additional price that carbon taxes add to the cost of a litre of gasoline or diesel is easy to calculate. At $40 per tonne, it adds about $0.09 to a litre of gasoline.

The low carbon fuel standard also adds costs, but is harder to calculate. In a new case study, the Canadians for Affordable Energy estimated the impact of the federal government’s clean fuel standard, which is to come into effect in 2022.

The study estimated the compliance costs of the new federal clean fuel standard in B.C. would be $600 million and would increase gasoline prices in B.C. by 6.5% and natural gas prices by 7.9%.

Canadian farmers will be particularly hard hit by a combination of higher carbon taxes and low carbon fuel standard, McTeague said. That could push up food prices. Not only do grain farmers burn a lot of petroleum fuels, they also burn a lot of natural gas to dry their grain.

“At $30 a tonne, the carbon tax represents 10% of the entire cost (of fuel),” McTeague said. “And at $170 a tonne, that is a five and half-fold increase. So now you’re looking at a pretty substantial, devastating impact for farmers.”

There are some sectors that have no real alternative to gasoline, diesel and natural gas, and farming is one of them.

The Western Canadian Wheat Growers (WCWG), which represents grain growers in B.C., Alberta and Saskatchewan, warns that the new federal carbon tax is already increasing food prices in Canada.

Farmers not only burn a lot of gasoline in their tractors, combines, trucks and other machinery to produce crops, they also pay carbon taxes indirectly on their inputs, like fertilizer and seed, said Jeff Bennett, a grain farmer and director for the WCWG.Grain farmers have few options when it comes to reducing the amount of fuel they burn.

“Elon Musk hasn’t made a combine yet, and if he did, I don’t think it would be cheap,” Bennett said. “So I don’t have an option.”

Other industries – notably energy intensive trade exposed industries, like mines, pulp mills, smelters and cement producers – have also been ringing alarm bells over B.C.’s carbon tax and warn of carbon leakage.

So increased stringency from the federal government will only exacerbate the problem, unless it can address a carbon leakage problem with some mechanism that protects those industries.

The provincial government has, to date, not come up with a mechanism to protect the mining sector in B.C., according to Michael Goehring, president of the Mining Association of BC (MABC).

“B.C. is the only jurisdiction in the world with comprehensive carbon pricing that does not provide its mining industry and workers with meaningful protection from carbon pricing,” he said. “We’ve asked the B.C. government to level the playing field and provide our mines with the same support other Canadian mines receive under the federal carbon tax.

“The federal climate plan continues to protect mines and other trade exposed industries from global competition. In the absence of this protection in British Columbia, mining and other trade exposed industries are vulnerable to carbon leakage where economic activity shifts to jurisdictions with lower carbon costs but higher GHG emissions.”

The new federal plan says it will “explore the potential of border carbon adjustments” to protect some Canadian industries.

While carbon tariffs on imported goods might work for things like cement, McTeague isn’t sure how it would work for food, apart from the fact that it would increase the price of imported food products.

It’s also not clear whether a carbon border adjustment tariff on food imports from the U.S. or Mexico would be permitted under the new Canada-United States-Mexico Agreement (CUSMA).

B.C.’s Ministry of Environment and Climate Change had little to say about the new federal tax and fuel standard schedule announced Friday, except to say that there appear to be some “significant changes” to the federal fuel standard.

“We will know more about how B.C.’s Low Carbon Fuel Standard and Canada’s Clean Fuel Standard will align when more details are available from the federal government in the coming weeks and months,” the ministry said in an emailed statement.

(This article first appeared in Business in Vancouver)