Carbon tax: cash cow?


What’s a carbon tax?

Elon Musk stated that a carbon tax is critical for a solution to climate change. A carbon tax is a form of carbon pricing that is levied on the carbon content of fuels and other carbon materials. This tax is accompanied by a corresponding decrease in other taxes such as income. The decrease is necessary to make the tax revenue-neutral.

In 2008, the U.S. Climate Task Force in the paper, Addressing Climate Change Without Impairing the U.S. Economy examined the economics and environmental science of combining a carbon-based tax and tax relief. This study used the National Energy Modeling Systems (NEMS) to simulate what might happen to the U.S. and the world, with and without a carbon tax over the period of 2004 to 2030. Here’s the results.

Without the carbon tax
  • Consumption of coal and liquid petroleum increase by as much as 40 percent.
  • Increase in CO2 emissions by 40 percent in U.S., 80 percent in Latin America, Africa and the Middle East, and more than 120 percent in developing areas of Asia.
  • Atmospheric concentrations of CO2 predicted to rise along a projected path that would double by 2100.
With the carbon tax
  • Seven percent less energy use.
  • Least carbon intensive fuel use rises by 220 percent and the most intensive fuels (mainly coal) fall by 50 percent.
  • Annual CO2 emissions down by 30 percent.
  • Atmospheric CO2 concentrations stabilized at the level required to sustain world’s current climatic conditions (450-550 parts per million by volume [ppmv]).

Remember this is only a simulation, which depends on the accuracy of the current data plus projections into the future. Projections are hard to get right.

Is this prediction realistic?

Compare this to a real occurrence after this simulation was run. In 2008, B.C. introduced a carbon tax. According to the Globe and Mail, former Prime Minister, Stephen Harper, repeatedly insisted that a carbon tax, would “destroy jobs and growth.” Canada’s national paper headlined, “The shocking truth about B.C.’s carbon tax: It works.”

Here’s some of the things that actually happened since B.C. introduced its carbon tax:

  • Fossil fuel use in B.C. has dropped by 16 percent (It rose by 3 percent in the rest of Canada.)
  • B.C. has the lowest personal income tax rate in Canada.
  • B.C. has one of the lowest corporate tax rates in Canada
  • B.C.’s GDP has slightly outperformed the rest of Canada’s since 2008.
How does it work?
  • The tax covers most types of fuel use and carbon emissions.
  • The tax started low at $10 per tonne of CO2 and rose gradually to the current $30 per tonne.
  • A revenue-neutral policy resulted in an equivalent reduction of other taxes. This produced a tax cut that was $760 million (income and other taxes) more than what was needed to offset the carbon tax revenue.

There’s no proof that these impressive results were solely due to the carbon tax, but they certainly don’t indicate the destruction of jobs and growth.