(February 18, 2011) British Columbia is now more reliant on carbon tax revenues than any other jurisdiction on earth. Aldyen Donnelly discusses the challenges this poses for the provincial government.
The new BC budget makes it clear that BC’s carbon tax is all about new tax revenues and that the Campbell government’s commitment to cut GHGs is insincere. The revenue forecast in the new BC budget relies on an increase in taxable CO2 emissions from 37 million TCO2e (tonnes of CO2 equivalent) in the current fiscal year to over 41 million TCO2e in 2013/14. I wonder where the new Liberal leader will take this story.
The following is an excerpt from Table A6 of the Budget 2011 Fiscal Plan, published last Tuesday. It shows carbon tax revenue forecasts and rates, allowing us to calculate the BC Ministry of Finance’s CO2 emissions tax base forecast. This budget assumes significant increases in BC taxable CO2 emission base, without any planned change to the carbon tax law to expand the range of CO2 sources covered by the tax. The table shows the assumption that all of gasoline, diesel and natural gas sales are projected to increase every year from now through 2013/14, notwithstanding government’s assertion that BC province-wide GHG emissions will be on track to a 33% reduction from 2007 levels by 2020. Diesel consuming commercial freight businesses will bear the largest share of the increased CO2 tax burden under this forecast. I, for one, cannot figure out how to cut Province-wide GHGs to 10% below 2007 levels by 2020–let alone 33% below–if taxable CO2 emissions are permitted to grow through 2013/14 as forecast.
So what will our new government give up: the CO2 tax revenue stream or the commitment to cut GHGs?
If this Budget is to be realized, by 2012/13, the government of BC will rely more heavily on carbon tax revenues, as a % of total government revenues, than any other nation/state that currently administers a carbon tax, including Sweden, Denmark, Norway, Finland and the Netherlands. (Germany does not nor has that nation ever had a carbon tax. The UK cancelled that nation’s “fuel tax escalator”–which was introduced by Maggie Thatcher as a GHG measure in 1993–in 2000.) That is because though the posted carbon tax rates in all of the European carbon-taxing nations appear to be higher than the official BC carbon tax rates, all EU carbon taxing nations do and have always 100% exempted the following fuel use from their carbon taxes: all fuel used to generate power and in industrial plants that co-generate any heat or power; all fuel used in oil refineries and gas processing plants; fuel used by commercial airlines and marine businesses; and all energy consumed by “energy intensive businesses” where “energy intensive” is defined (by EU law) to be a business for which the costs of energy (electricity and all fuels) exceeds 3% of operating/production costs. To put this threshold in context, energy costs account for 5% of operating/production costs for most medium and large hotels. The EU Energy Tax Directive–passed into law in 2003–allows all member states to provide up to 100% exemptions from all energy taxes–carbon, SO2, NOx, excise, duties, etc.–to energy intensive businesses. At this time, most large industrial operations in Europe–aluminium smelters, steel mills, etc.–pay less for energy (taxes included) than their Canadian competitors do, while 100% of the cost European high energy tax policies has been laid off on the residential tax base.
After exempting fuel consumed by power generation companies from carbon taxes, some nations add a carbon tax to residential (but not industrial) electricity bills. But in most cases this point-of-sale carbon tax is insignificant. For example, the average Danish household currently pays over CAD$0.45/kWh (including all taxes and fees) for electricity, and more than 50% of the electricity produced in Denmark still comes from burning coal in older coal-fired power generation facilities. The CO2 tax component of that CAD$0.45/kWh billing is CAD$0.012/kWh, or less than 2.7% of the bill.
The new BC budget shows the following:
For 2010/11 (the fiscal year ending on March 31, 2011): carbon tax rate = $20/TCO2e, revenues collected = $740 million, therefore CO2 tax base currently = 37 million TCO2e/year.
For 2011/12: carbon tax rate = $25/TCO2e, revenues collected = $950 million, therefore CO2 tax base forecast to grow to 39.2 million TCO2e/year.
For 2012/13: carbon tax rate = $30/TCO2e, revenues collected = $1,166 million, therefore CO2 tax base forecast to fall slightly to 38.9 million TCO2e/year.
For 2013/14: carbon tax rate = $30/TCO2e, revenues collected = $1,232 million, therefore CO2 tax base forecast to grow to 41.1 million TCO2e/year.
Of course, these are significant revenues. Having already committed this future revenue stream to finance the corporate and personal income tax rate cuts that the government put in place in 2008, BC can no longer afford for taxable CO2 emissions to fall.
The worst thing about the carbon tax is that all government agencies, hospitals, universities, schools and city governments pay the CO2 tax. These agencies never paid income taxes, of course. So when the Campbell government elected to finance corporate and personal income tax cuts with carbon tax revenues, it perversely shifted tax burden from the private to the public sector. Just as happened in Sweden, Denmark, Norway and Finland before it came to BC, the direct result of the income-to-carbon tax shift is a substantial series of increases in health care premiums and property taxes to cover the new carbon tax liabilities of the public sector.
Also, the income-to-carbon tax shift means that overall tax obligations have fallen for the largest, most profitable businesses, including resource extractors. But total tax liabilities have gone up for the small businesses that we previously relied on to create 80% of new jobs, because those businesses rarely paid income taxes in the past and now have to pay new carbon taxes. Most small businesses have to put off hiring decisions to raise the cash to pay their new carbon taxes and the property tax increases that municipalities have to pass through to them to cover the city governments’ new carbon tax liabilities.