Introduction
Although technological revolutions continue to transform the industrialized world, the development of industry has not been without its negative consequences, such as Global Warming. The scientific community has come to view carbon dioxide as one of the main contributors to the phenomenon of global warming. Showing great concern and initiative to tackle this problem head on, the Canadian government has proposed several solutions, including the imposition of the Carbon tax. By taxing companies based on the greenhouse gas emissions generated from the fossil fuels they burn, the government and environmental groups believe this policy can help to control the problem of pollution more efficiently.
Approaches and Results
The Carbon tax is in fact an indirect tax, imposed on goods, which was designed to more accurately reflect the cost of carbon emission products on society. Those behind this tax also believe this policy can internalize the costs associated with the production of goods as well. In Canada, the idea of the carbon tax was first proposed in during the 2008 Canadian federal elections. Although federal government eventually defeated this policy, several Canadian provinces followed through on imposing such taxes, including Quebec, British Columbia and Alberta .
In fact, Quebec was the first province to introduce its own carbon tax in a bid to do its part to help fight global warming. According to the Natural Resources Minister Claude Bechard, the tax was to be based on the "polluter pays" principle; and as such, all hydrocarbons in the province - from coal to heating oil - would be therefore subject to it What this effectively did was to place the burden of the tax on energy producers and not consumers. According to provincial government officials, the carbon tax was expected to raise approximately $200 million a year over six years to finance Quebec’s plan. Ultimately, that $1.2 billion Green Fund would go toward reducing greenhouse gas emissions by favoring public transit as a more viable long-term alternative. The efficiencies from the imposition of this Carbon tax are rather obvious: Table 2 demonstrates that Quebec’s 2013 emissions came in 8.4 percent below 2005 levels.
Similarly, British Columbia implemented its own Carbon tax on July 1, 2008. Using a revenue-neutral tax model, the government went out of its way to ensure that all revenue generated by the tax would be returned to B.C. citizens by dollar-for-dollar reductions in other taxes. As such, this revenue-neutral carbon tax effectively reduced taxes for individuals, families and business.
Based on five basic principles, the carbon tax in British Columbia works slightly different than its Quebec counterpart. The first demands that all carbon tax revenue be recycled back to citizens in the form of tax reductions. As mentioned above, the fact that the carbon tax is revenue-neutral means the B.C. government needs to present an annual plan to illustrate how the extra tax revenue will be returned to taxpayers, effectively forbidding any of those proceeds to be funnelled back into funding other government programs. The IPCC 4th Assessment Synthesis Report clearly states that: "An effective carbon price signal can realize significant mitigation potential in all sectors" .
The second principle of the carbon tax concerns the tax rate. By keeping the initial tax rate relatively low and increasing it gradually over time, individuals and businesses are given more than adequate time to make fiscal and budgetary adjustments to ensure they spend efficiently. The third principle addresses the specific concerns of low-income level groups. As such, it provides a refundable Low Income Climate Action Tax Credit designed to allow low-income groups to help offset the carbon tax they pay.
The fourth principle ensures the scope for tax collection is sufficiently broad by mandating that almost all emissions from fuel combustion be taxed. And finally, the last principle demands that the carbon tax be integrated with other measures, including a complimentary "cap and trade” system .
Under these five guiding principles, the Carbon tax has evidently worked well in British Columbia. Following its imposition in 2008, fuel consumption in B.C. had dropped 17.4% per capita and has actually fallen 18.8% relative to the rest of Canada. From Table 2, we can see that CO2 emissions in British Columbia in 2013 are 2.5% lower than they were back in 2005. Moreover, the fact that the carbon tax was introduced as revenue-neutral has led B.C. to become the province with the lowest personal income tax rate in Canada, promoting far greater economic growth. Thus, British Columbia's experience with a carbon tax has proven that the goals of promoting a healthier environment and a strong economy are not mutually exclusive.
Alberta, by contrast, introduced its Carbon tax in July 2007. Since that time, all companies in the province emitting more than 100,000 tons of greenhouse gas annually were either required to reduce their per-barrel emissions by 12 percent or pay a $15-per-ton tax contribution to the “Climate Change and Emissions Management Fund,” which was designed to helps towns and cities to retrofit their public facilities to become greener. Following this announcement, it was clear the tax would fall most heavily on Alberta's energy companies, particularly those involved in the oil sands and coal-fired electricity plants.
Naturally, many of these companies protested this policy, insisting it effectively forced companies to reduce emissions while imposing higher costs of doing business. The carbon tax was see as being particularly unfair for the largest energy-producing. For the smallest companies, reaching 100,000 tons per year in CO2 emissions was all but impossible; effectively letting them off scot free despite their almost casual disregard for emissions and pollution. Moreover, the largest companies were seen to be the biggest engines of growth behind Alberta’s economy. As such, any reduction to their production would cause the province's economy to suffer.
In effect, the imposition of the Carbon tax in Alberta seems to have had a relatively small effect when compared to Quebec and British Columbia. Table 2 shows that CO2 emissions in Alberta actually increased by 12.5% in 2013 when compared with similar data from 2005. However, it should also be noted that the carbon tax did manage to slow the overall rate of pollution from the 1990 to 2005 time period, when emissions increased by 25.3%.
Faced with these rather lukewarm results, the Alberta government introduced a revamped carbon tax plan in 2015. The strategy of this new tax plan was to place a cap on emissions from those oil sands developments at 100 megatons while phasing out coal- fired power plants by 2030. The new policy also implicated all Albertans, resulting in higher prices for heating, electricity and transportation. It was estimated that the new carbon tax would actually cost Albertans about $3 billion per year. Faced with the prospect of over burdening low-income households, the government decided to solve this problem by providing special bi-annual rebates of about 5 % to low- income households. In an effort to offset the costs to the rest of its citizens, the government took a page from its B.C. counterparts and promised to recycle revenues from the carbon tax back into the Alberta economy as well. Government would reinvest this money into developing more environmentally friendly technology, including green infrastructure and other programs designed to reduce pollution. Despite the fact that it is relatively new, past implementation makes it more likely that such programs will prove more efficient and lead to greater reductions of overall emissions over time.
Conclusion
In economic theory, pollution can be considered as a negative externality. This paper has proven that the introduction of a Carbon tax can help to address the problem of greenhouse gas emissions without bringing a nation's economy - even one as dependent on seemingly dirt energy technologies as Canada is - to its knees. Although different provinces have figured out different ways to implement their carbon tax policies, the overarching benefits of such initiatives on overall emissions and even on long-term economic growth can not be ignored; particularly when combines with revenue-neutral initiatives that use tax proceeds to reinvest into further green technologies.
Implications and Recommendations
It is obvious that carbon taxes are far more efficient tools than direct regulation. From Appendix 1, Table1, we can see that Canada's overall CO2 emissions continue to decrease over time and specifically dropped significantly between 2007 and 2009, when these very carbon tax programs were first introduced. Imposing taxed on carbon emissions discourages the use of fossil fuels and lowers overall greenhouse gas emissions while raising funds for other environmental initiatives. Moreover, a carbon tax encourages companies’ technological development by providing an economic incentive for them to reduce emissions and become more efficient producers of energy.
Despite these benefits, there are some important recommendations to current carbon tax policy that should be considered. In Alberta, it's obvious that the new carbon tax is more efficient than the previous one. But research has also shown that the oil sands currently emit roughly 70 megatons per year; which effectively leaves too much wiggle room for companies looking to expand. Reducing the 100-megaton limit to 75 megatons would provide a much cleaner alternative.
The second suggestion is to apply the carbon tax to the entire country of Canada. The experiences of Quebec, British Columbia and Alberta prove that the advantages of implementing a carbon tax significantly outweigh the disadvantages. The increase in tax revenue will eventually lead to a decrease in energy consumption. Applying the carbon tax nationwide will incentive all Canadians to reduce their emission and contribute to a better living environment, while allowing governments to dedicate their increasing tax coffers to further greener public initiatives.
Appendix 1
(http://data.worldbank.org/indicator/EN.ATM.CO2E.KT/countries/CA-?display=graph)
https://www.ec.gc.ca/indicateurs-indicators/default.asp?lang=en&n=18F3BB9C-1
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