(April 15, 2010) Matt Horne of the Pembina Institute suggests that “careful design” will address the many real issues associated with the carbon tax about which Harvey Enchin deftly wrote a week earlier on the OpEd page of the Vancouver Sun.  Matt says: “Sweden provides and example of how governments can make carbon taxes work.”

Sweden was among the first nations to experience the serious phenomenon of the carbon tax-generated hole in government revenues. Sweden’s carbon tax shift translated directly into industrial job losses and capital investment flight. In the early years, carbon tax revenues consistently fell short of budget targets due to industrial business flight.

Between 1990 and 2008 (pre-global recession), jobs in Sweden’s goods producing sectors-agriculture, forestry, manufacturing, energy industries and construction-fell over 25%, compared to a 10.5% increase in Canada. Over that 18-year period, total employment across all sectors in Sweden grew only 2.4%, compared to 30.5% in Canada.  100% of the new jobs created in Sweden since the implementation of its carbon tax have been in the public sector.

De-industrialization explains 100% of the reduction in greenhouse gas emissions (GHGs) realized by Sweden since 1990.  In fact, given the reduction in industrial output and jobs, the national GHG reductions realized by Sweden is surprisingly small.

Sweden’s electricity and petroleum industries currently discharge 8% more GHGs within Sweden’s boundaries and 30% more globally than they did in 1990. This partly reflects that fact that in the mid-1990s, in an attempt to stem industrial job losses, Sweden ruled that all energy consumed “for the production of mineral oils, carbon fuels and petroleum coke”; in the production, transmission and distribution of electricity; by airplanes, ships and trains; and by “energy intensive business” (defined as a business for which energy costs account for 3% or more of total operating costs) is up to 100% exempt from all Swedish energy taxes not just carbon taxes.

Of course, while introducing these energy tax exemptions might have stemmed job losses in the targeted sectors, it just deepened the carbon tax hole in Sweden’s government revenue forecasts. And Sweden-home to 20% more petroleum product refining capacity than Alberta-now depends more on petroleum product exports to shore up its national economy than ever before.

When Matt Horne points us to Sweden’s careful carbon tax design as a model, is he advocating for exemptions for all of the large BC industrial consumers who would be energy tax exempt under Swedish law?

Sweden has tried to make up the carbon tax-related government revenue shortfall by disproportionately loading the new tax burden on small households and increasing payroll taxes, mandatory health and social insurance premiums, a path BC Premier Campbell has already started down.

Today, a small Swedish home that consumes less than1,000 kilowatt-hours (kWh) of electricity per year pays CAD$0.347/kWh, including taxes. But the large home that consumes over 15,000 kWh per year pays only CAD$0.176/kWh.  In other words, the large residential consumer gets almost 2,000 kWhs of service for the same price the small household pays for 1,000 kWhs. Large Swedish industrial customers who do not qualify for the tax exemption pay only CAD$0.097/kWh.

In presenting the Swedish carbon tax design as a model to British Columbians, is Matt recommending that our government disproportionately load the new tax burden on the smallest and lowest income-earning households, as Sweden has done?

Since hospitals pay carbon, excise and sales taxes on their energy consumption while power producers, oil refineries, airlines and other energy intensive Swedish businesses do not, the direct relationship between the carbon tax shift and increasing health care premiums is obvious.

Other labour tax increases are not directly related to carbon tax impacts.

But the Swedes—like many other governments—have found the only place they can mine for new government revenues, of late, has been the payroll tax accounts. Taxes on labour now combine to account for 33% of all Swedish government revenues (compared to 15% of all Canadian government revenues). Sweden’s carbon tax accounts for less than 3% of total Swedish government revenues.

Sweden’s very high payroll taxes discourage workers and dampen companies’ willingness to hire. Today, Sweden’s unemployment rate is 9.0%. This does not include the 5 – 8% of working age Swedes who are officially listed as “employed” but who do not work and collect permanent “sick leave”. In 2006, according to McKinsey and Co.,  “sick leave” payments to Swedes staying home from work accounted for 16% of all Swedish federal government expenditures.

Government spending accounts for 55.5% of Sweden’s GDP.

And this is what Matt and the Pembina Institute describes as “careful” tax system design?

Aldyen Donnelly, April 15, 2010