BC’s revenue-neutral carbon tax experiment, four years on: It’s working

Originally published at Skeptical Science on June 27th, 2013

Carbon taxes get the market to tell the environmental truth. Stewart Elgie

British Columbia is the only jurisdiction in North America with a revenue-neutral carbon tax that taxes greenhouse gas emissions (GHGs) from individuals and businesses alike. The tax was announced in February 2008 and was implemented in July 2008 at a rate of $10 per tonne of CO2, rising in $5 annual increments to the current price of $30/tonne. It is designed as a revenue-neutral tax, meaning that all carbon-tax proceeds collected by the government are returned in the form of income tax cuts and rebates. The tax is now raising over C$1.2 Billion per year, about C$270 per person, and the proceeds are distributed roughly equally between personal and business tax reductions.

People on low incomes get a per-person payment of C$115 annually, and homeowners who live outside the SW of the province can get additional rebates of up to $200 annually. The personal income tax reductions are focussed on earnings below C$75,000. The allocation of carbon tax revenue has to be reported in the annual budget.

Note that the carbon tax was actually revenue-negative over its first few years. In part, this was due to the tax having a bigger effect on demand than anticipated by the government. (Rivers and Schaufele, 2012Source of graph.

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A Miss by Myles: Why Professor Allen is wrong to think carbon capture and storage will solve the climate crisis

Originally posted at Skeptical Science on 11 June 2013, written by Andy Skuce and rustneversleeps

A recent opinion piece in the British newspaper Mail on Sunday by University of Oxford climatescientist Myles Allen argues that the best way to combat climate change is to pass laws requiring fossil fuel producers to capture and sequester a rising proportion of the carbon dioxide emissions that the fuels produce. We argue here that such a policy, with its emphasis on carbonsequestration, would not be successful in achieving the carbon emission reductions that Allen himself advocates—for a variety of political, economic, technological and logistical reasons. A more recent article by Allen in The Guardian covers the same ground.

Nevertheless, Allen’s prescription does succeed in focussing the mind on the scale of the problem that we face in mitigating climate change.


This is a very long post, so here is a clickable summary.

A good starting framework, then… Allen’s diagnosis is clear and his framing of targets in terms of cumulative emissions is unabiguous. But his prescription is flawed.

Politics There is no reason to assume a fixed emissions cap schedule would be easier to sell to the public than a carbon tax. Caps would produce greater certainty of longer-term emission reductions at the cost of uncertain economic consequences.

Economics (i): Efficiency Imposing emissions caps without allowing trading through brokers would be very inefficient. It is not clear whether Allen supports or opposes trading.

Economics (ii) Innovation by fiat? Prescribing one form of technology as the principle solution is risky. Nobody can predict how technology will evolve and what problems may emerge in future.

Economics (iii): The information conveyed by prices The cost of one technology should not be used as a basis for carbon pricing. There is a wide range of mitigation options, with highly variable prices, all with variable and uncertain potential to contribute to solutions. Experience in British Columbia shows that even a modest carbon tax can reduce emissions significantly without harming the economy.

Scaling it up to climate relevance Even promoters of aggressive deployment of carbon capture and storage (CCS) do not envision it as more than a partial contribution to mitigating climate change by 2050.

Timing and feasibility The mass of the CO2 to be sequestered is about double the mass of the fossil fuels themselves. To develop a new industry, from scratch, to capture, transport and dispose of these quantities will involve vast amounts of capital and many decades, even if it were technically possible.

Hazards The magnitude of the CO2 to be sequestered in the subsurface is such that environmental risks from leakage, aquifer contamination and induced earthquakes are likely to be much larger than those from the already contentious shale gas industry. Getting  public licence for CCS projects in inhabited areas is likely to be very difficult and time consuming.

Summing up The climate crisis is so vast that we need to throw everything we have at it. Claiming that any single technology will solve the problem can lead to complacency that the fix is simple. It isn’t.

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