Fair and Effective Carbon Pricing: Lessons from BC

Author

Marc Lee

Organization

Canadian Centre for Policy Alternatives - BC Office

Published

2011

Summary

Carbon pricing refers to policy measures that make it more expensive to burn fossil fuels or purchase goods and services that emit greenhouse gas emissions in their production. This includes carbon taxes that directly put a price on emissions as well as cap-and-trade programs that set a cap on emissions and allow the price to be determined by the trading of emission permits.
In tandem with regulations, standards and public investments, carbon pricing can create incentives to reduce environmentally harmful activities and induce shifts to cleaner technologies. Carbon pricing can also deliver to governments the revenues needed for aggressive climate action.

This study uses Statistics Canada’s Social Policy Simulation Database and Model to analyze carbon taxes paid and tax cuts and credits received for households by income group, and finds that: In 2010, carbon taxes paid averaged about $200 per household, with a range of $113 per household in the lowest-income 10% rising to $300 in the top 10%, and $617 in the top 1% of households. The carbon tax as a share of income shows a regressive pattern. In 2010, households in the bottom 10% would pay 1.3% of their income in carbon tax, whereas the top 10% would pay only 0.3%, and the top 1% would pay 0.2%. This regressive pattern gets worse between 2010 and 2012 as the carbon tax rises. Considering tax cuts and credits returned to households, the top 10%, on average, receive more in tax cuts and credits than paid in carbon tax. The top 1% receive a net benefit of 1% of income in 2010, growing to just over 2% in 2012.

Carbon pricing has the potential to play a strong, transformative role in moving BC to a low-carbon society with economic, equity and ecological benefits. We recommend the BC government:

• Establish an updated carbon tax framework
• Aim for $200 per tonne in 2020
• Expand sectoral coverage
• Count carbon emissions from trade
• Compensate low- to middle-income households
• Use carbon tax revenues to reinforce climate action
• Phase out offsets and re-evaluate the Pacific Carbon Trust
• Develop complementary regulations and standards
• Consider the interaction between carbon and clean energy prices
• Investigate alternative models

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.

Contact information

Source: Consumer Policy Research Database