Where Carbon Is Taxed

This page reports on carbon taxes that have been enacted or proposed around the world.

Before we get started with “Exhibit A,” British Columbia, we note that in June 2014 the World Bank posted several concise summaries of carbon pricing around the world:

plus this excellent map that shows much of the data in the three tabular summaries in a quick glance.

With the caveats that these materials may be somewhat over-optimistic, and that emissions trading schemes are at best a pale and opaque imitation of genuine carbon pricing via an emissions fee or tax, the World Bank data are highly recommended.

British Columbia

We start this page with British Columbia (“BC”), Canada’s third largest province (2011 population of 4.4 million), because its carbon tax qualifies as the most significant carbon tax in the Western Hemisphere by far. The tax is also extremely straightforward and transparent in both administration and revenue treatment.

BC inaugurated its carbon tax on July 1, 2008 at a rate of $10 (Canadian) per metric ton of carbon dioxide. The tax was incremented by $5/tonne annually and reached its current level of $30 per tonne of CO2 in July 2012. At the U.S.-Canadian dollar exchange rate (1.00/0.93) in July 2014, and converting from metric to short tons, the B.C. tax now equates to around $25 (U.S.) per ton of CO2. The carbon tax revenues are being returned to taxpayers through personal income and business income tax cuts, fulfilling the 2008 promise of revenue-neutrality by Carole Taylor, who as BC finance minister shepherded the tax to implementation.

In unveiling the tax in February 2008. Taylor estimated that it would equate to an additional 2.4 cents on a liter of gasoline, or 9.1 cents Canadian per gallon — triple the level of the Quebec carbon tax discussed below. As of 2012, when the BC tax ramped up to $30/tonne, it equated to 7.24 cents per liter of gasoline and 8.29 cents per liter of diesel, making it roughly eight times as large as Quebec’s carbon tax.

The Feb. 2008 BC Budget and Fiscal Plan spelled out the rationale, impacts and mechanics of the tax, including the revenue return provisions. The first 40 pages in particular make essential reading for any carbon tax advocate seeking to master not only the details of carbon taxing but communication tools for making a carbon tax palatable to the public. We also recommend Alan Durning’s March 13, 2008 Grist post, which usefully parsed the four principles embodied in BC’s carbon tax: revenue neutrality, phased implementation, protection for families, and broad coverage.

In May 2009, British Columbia voters re-elected Liberal Party Premier Gordon Campbell, under whose aegis the province’s carbon tax was proposed, devised and instituted, to a third four-year term. Our post, BC Voters Stand By Carbon Tax, reported on the election’s significance for carbon tax campaigners. See also Macleans magazine’s detailed take, Did Gordon Campbell Win Because of His Carbon Tax?

In the same vein, the Vancouver Sun reported in November 2009 on the cost to the opposition New Democratic Party of its strident opposition to the BC carbon tax during the May provincial election:

Many party activists believe the NDP’s fierce attack on the B.C. Liberals’ carbon tax during the last election overwhelmed the party’s own environmental platform.

“I think the NDP lost the point in terms of its green credibility,” said David Black, a communications theory professor at Royal Roads University in Victoria.

The Economist published a useful July 2011 update on BC’s carbon tax. Excerpts follow:

Despite the levy, its economy is doing well. What is more, the tax is popular: it is backed by 54%, says a survey in the province by Environics, a pollster.

Since 2008 fuel consumption per head in the province has dropped by 4.5%, more than elsewhere in Canada. British Columbians use less fuel than any other Canadians. And British Columbians pay lower income taxes too.

The new tax has not weakened the province’s economy, which has been boosted by high world prices for its commodity exports. Unemployment is slightly below the national average, and growth slightly higher. Because the tax started low and its rises were set out in advance, businesses had plenty of time to make plans to cut their carbon use.

The Economist summed it up:

At C$25 per tonne, British Columbia’s tax already exceeds the price of carbon in Europe’s emissions-trading scheme. But it is still too low to prompt radical changes in behaviour: it adds just five cents to the price of a litre of petrol. Getting the most energy-intensive industries to make big cuts might take a tax four times as high. Even so, British Columbia has shown the rest of Canada, a country with high carbon emissions per head, that a carbon tax can achieve multiple benefits at minimal cost.

In July 2012, on the occasion of the fourth (and final) annual increase in the BC carbon tax, the Toronto-based Financial Post newspaper chimed in with 4 key reasons why BC’s carbon tax is working. (The Post drew its text from the June, 2012 report by Sustainable Prosperity, British Columbia’s Carbon Tax Shift: The First Four Years.)

  1. DROP IN FUEL CONSUMPTION: “The carbon tax has contributed substantial environmental benefits to British Columbia (BC). Since the tax took effect in 2008, British Columbians’ use of petroleum fuels (subject to the tax) has dropped by 15.1% — and by 16.4% compared to the rest of Canada. BC’s greenhouse gas emissions have shown a similarly substantial decline (although that analysis is based on one year’s less data).”
  2. GROWTH UNAFFECTED: “BC’s GDP growth has outpaced the rest of Canada’s (by a small amount) since the carbon tax came into effect – suggesting that it has not adversely affected the province’s economy, as some had predicted. This finding fits with evidence from seven other countries that have had similar carbon tax shifts in place for over a decade, resulting in neutral or slightly positive effects on GDP.”
  3. REVENUE NEUTRAL: “The BC government has kept its promise to make the tax shift ‘revenue neutral’, meaning no net increase in taxes. In fact, to date it has returned far more in tax cuts (by over $300 million) than it has received in carbon tax revenue – resulting in a net benefit for taxpayers. BC’s personal and corporate income tax rates are now the lowest in Canada, due to the carbon tax shift.”
  4. GREENHOUSE GAS EMISSIONS DECLINING: “From 2008 to 2010, BC’s per capita GHG emissions declined by 9.9% — a substantial reduction. During this period, BC’s reductions outpaced those in the rest of Canada by more than 5%.”

A similar tack was taken in a July, 2012 NY Times op-ed, The Most Sensible Tax of All, by Yoram Bauman, an environmental economist and fellow at the Sightline Institute in Seattle, and Shi-Ling Hsu, law professor at Florida State University and former law professor at the University of British Columbia, and author of “The Case for a Carbon Tax (Island Press, 2011).” We reprinted their op-ed as a Carbon Tax Center blog, here.

A more recent summation is a July, 2014 op-ed in the Toronto Globe & Mail, The shocking truth about B.C.’s carbon tax: it works. Also useful is a July, 2014 op-ed in the Guardian, A carbon tax that’s good for business?, that cogently compares B.C.’s successful revenue-neutral carbon tax with Australia’s short-lived revenue-raising one.

Australia

Australia instituted a carbon tax on July 1, 2012 and repealed it two years later, on July 17, 2014. Both events were milestones. Though some countries, notably Sweden, have had longer-standing and stronger national carbon levies, Australia’s was the first explicit national tax on carbon emissions. The repeal was also precedent-setting, and predictably it has garnered far more global attention (and hand-wringing) than did the tax itself.

The tax level, $23 per tonne (metric ton), equated to $19.60 per U.S. ton of CO2, at the U.S.-Australian dollar exchange rate (1.00/0.94) in July 2014.

As recounted by Australian journalist Julia Baird in a NY Times op-ed, A Carbon Tax’s Ignoble End: Why Tony Abbott Axed Australia’s Carbon Tax, published a week after Australia’s Senate voted for repeal, the tax was a political stepchild, opposed by the country’s two major political parties, left-leaning Labor and center-right Liberal, and brokered by the Greens during a period of governmental stalemate in 2011-2012:

In 2010, the Labor prime minister, Julia Gillard, said she would look at carbon-pricing proposals, but also promised, “There will be no carbon tax under the government I lead.” Then, under pressure to form a minority government, she made a deal with the Greens and agreed to legislate a carbon price: a tax by any other name.

The heat, anger and vitriol directed at her as a leader — and as Australia’s first woman to be prime minister — coalesced around the promise and the tax. It grew strangely nasty: She was branded by a right-wing shockjock as “Ju-Liar,” a moniker she struggled to shake. The political cynicism surrounding the carbon tax certainly reduced Ms. Gillard’s political capital, but it was a perceived lack of conviction in the policy itself that damaged the pricing scheme’s credibility.

See also Australian ABC News’ superb Timeline of the tax’s torturous political path, posted in July 2014.

Predictably, the Times’ news dispatch, Environmentalists Decry Repeal of Australia’s Carbon Tax, cast the repeal as greens vs. economy, ignoring the reductions in carbon intensity in the power sector (which helped blunt the tax’s cost) as well as provisions to direct revenues to mitigate impacts on households (see below).

The Australia carbon tax also imposed climate-equivalent fees on methane, nitrous oxide and perfluorocarbons from aluminium smelting, and was collected from roughly 500 of the nation’s biggest emitters, according to the Big Pond Money blog. These included electricity generation, stationary energy producers, mining, business transport, waste and industrial processes, with some of the (non-electric) industries eligible to receive trade-exposure based assistance, according to the same source. Most if not all road transport fuel (i.e., petrol) was exempt. The tax level was indexed to inflation and rose from the initial $23.00 (Australian) per tonne to $24.15 per tonne in 2013 and $25.40 in 2014. Beginning July 1, 2015 the price was to be set by a cap-and-trade system linked to the EU ETS (whose price has fallen below $10/T CO2).  PolitiFact Australia compared the size and breadth of its carbon tax with others around the world, neatly refuting the Liberal Party’s characterization of the tax as “the world’s largest.”

In May 2013, one of Australia’s major papers, the Age, reported that national electricity generation with highly polluting lignite coal had fallen 14% vs. the same year-earlier period in the tax’s inaugural nine months, with conventional coal-fired generation also falling, by nearly 5%. During the same period, renewable electric generation “soared” by 28% and electricity output from lower-carbon methane increased by 9.5%. Other factors such as greater hydro-electricity availability, flooding of a major coal mine, and implementation of a 20% renewable-energy target probably contributed to the declines in coal use, but the 2.4% reported drop in overall electricity generation suggests that the carbon tax played a part.

Overall, reported the Age, “the emissions intensity of the national electricity market has fallen 5.4 per cent since the carbon price was introduced [presumably over the nine months extending from July 2012 through March 2013], meaning carbon emissions from power generation is [sic] down 7.7 per cent, or 10 million tonnes, from the previous nine months.”

Similar statistics were reported earlier, in Jan. 2013, by “The Australian” newspaper. The “big change in the mix of power” was attributed to “much greater use of renewable energy from hydroelectricity from the Snowy Mountains and Tasmania, and also wind farms.” The same source also said that “The retreat of manufacturing has been a factor, with the closure of the Kurri Kurri aluminium smelter last year and cutbacks in other metals plants affecting industrial demand.” A consultant cited by The Australian added that “the spread of roof-top solar panels and of appliances that used less energy were reducing growth in household consumption” of electricity, while another consultant, pointing to reduced electricity generation and emissions, said that “changes of this scale are without precedent in the 120-year history of the electricity supply industry.”

According to “The Australian,” the power sector accounted for about half of Australia’s emissions and a larger share of the carbon tax, because some of the largest emitters have free permits.”

Use of the carbon tax revenues was complex. Some went to the Australian Renewable Energy Agency for project funding and other monies providing “a raft of other compensation and development funds focused on biodiversity, low carbon agriculture, small business grants and support for indigenous communities,” according to Big Pond Money. More than half of the revenue was said to be earmarked to support low and middle income households to cover the increase in prices that business will pass on to consumers. The government also acknowledged, according to Big Pond Money, that the carbon tax would take more from 3 million households than it would return, while 2 million households would be no worse off and 4 million households better off. A Household Assistance Estimator developed by the authorities was said to provide a means for families to estimate how they would fare financially under the carbon tax.

A later AP story hammered Australia’s carbon tax, asserting that “Voters have never stopped hating the tax and its effect on their electric bills” and predicting that it would doom the ruling Labor Party in the Sept. 8 elections. “Longtime Labor Party supporters — even people who have helped cut pollution by installing solar panels at home — have flocked to the opposition,” AP reported, in Australian Gov’t Faces Carbon Tax Backlash at Poll (Sept. 6, 2013). “The government estimated the tax would cost the average person less than AU$10 per week,” said AP, “but three months after it took effect, most Australians surveyed by policy think-tank Per Capita said it was costing them more than twice that much. But they also expressed confusion, with most blaming the tax for higher gas prices even though it is not levied on motor fuel purchases.” In an e-mail, cap-and-dividend proponent Peter Barnes blamed the tax’s unpopularity on the absence of “100% dividends, fully transparent and highly visible.” We don’t disagree.

Chile

In October 2014, Chile enacted the first climate pollution tax in South America. It’s a modest levy — a mere $5 per metric ton of CO2 — that applies to only 55% of emissions. Moreover, it doesn’t take effect until 2018. Still, it’s a positive first step. The NY Times reported these details:

Chile’s tax, which targets large factories and the electricity sector, will cover about 55 percent of the nation’s carbon emissions, according to Juan-Pablo Montero, a professor of economics at the Pontifical Catholic University of Chile, who informally advised the government in favor of the tax. At $5 per metric ton of carbon dioxide emitted, Chile’s tax is lower than the $8-per-metric-ton carbon price in the European Union’s carbon-trading system, which has often been criticized as too lax. But it is higher than a carbon tax introduced in Mexico in January.

“We all understand we need to go way beyond the $5 mark” in order to really reduce carbon emissions, Dr. Montero said. However, he added, “I think this still allows you to start building the institutions that you need in the future, when you start moving forward toward more ambitious goals.”

Chile’s tax was enacted as part of a broader tax reform and revenue measure, according to the Times:

Chile’s approval of a carbon tax owes much to its positioning inside a broader tax package, experts said. At the same time that it passed the carbon tax, the Chilean government raised corporate taxes substantially, in a bid to increase revenues for education and other projects. As a result, the carbon tax raised less debate within Chile than it might have otherwise, though electricity companies have objected.

Ireland

Ireland enacted a carbon tax in 2010. In Dec. 2012, New York Times environmental correspondent Elisabeth Rosenthal published an in-depth story on Ireland’s carbon tax, Carbon Taxes Make Ireland Even Greener, which led with these upbeat paragraphs:

Over the last three years, with its economy in tatters, Ireland embraced a novel strategy to help reduce its staggering deficit: charging households and businesses for the environmental damage they cause.

The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions, a move that immediately drove up prices for oil, natural gas and kerosene. Household trash is weighed at the curb, and residents are billed for anything that is not being recycled.

The Irish now pay purchase taxes on new cars and yearly registration fees that rise steeply in proportion to the vehicle’s emissions.

Environmentally and economically, the new taxes have delivered results. Long one of Europe’s highest per-capita producers of greenhouse gases, with levels nearing those of the United States, Ireland has seen its emissions drop more than 15 percent since 2008.

Although much of that decline can be attributed to a recession, changes in behavior also played a major role, experts say, noting that the country’s emissions dropped 6.7 percent in 2011 even as the economy grew slightly.

The elements of Ireland’s carbon tax introduced in 2010 are specified in the Finance Act of 2010. (See Part 3 (Customs and Excise), Chapters 1 (Oil), 2 (Natural Gas), and 3 (Solid Fuels) for tax rates and other provisions.

Ireland’s Vehicle Registration Tax is also partly emissions-based. A VRT Calculator on the Irish Tax & Customs website provides a means to estimate the amount of tax on a vehicle based on Make/Model/CO2 Emissions. Changes to the tax rate in Budget 2013 are detailed here.

Finally, the law firm Arthur Cox offers these useful guides ([1] & [2]) to Ireland’s carbon tax.

Sweden

Sweden enacted a tax on carbon emissions in 1991. Currently, the tax is $150/T CO2, but no tax is applied to fuels used for electricity generation, and industries are required to pay only 50% of the tax (Johansson 2000). However, non-industrial consumers pay a separate tax on electricity. Fuels from renewable sources such as ethanol, methane, biofuels, peat, and waste are exempted (Osborn). As a result the tax led to heavy expansion of the use of biomass for heating and industry. The Swedish Ministry of Environment forecasted in 1997 that by 2000 the tax policy would have reduced CO2emissions in 2000 by 20 to 25% more than a conventional, regulatory-based policy package (Johansson 2000). On September 17, 2007, Sweden’s government announced that it will increase its carbon taxes to address climate change. Petrol prices will go up 17 öre per litre, with the increase in fuel tax calculated on the basis of a 6 öre tax increase per kilo of CO2 emitted. (The Local)

A new (July 2014) major report by the International Monetary Fund, “Getting Energy Prices Right,” briefly summarized Sweden’s carbon-fuels tax regime as follows:

In the early 1990s, Sweden introduced taxes on oil and natural gas to charge for carbon and (for oil) sulfur dioxide and on coal-related sulfur dioxide and industrial nitrogen oxide emissions. These reforms were part of a broader tax-shifting operation that also strengthened the value-added taxes while reducing taxes on labor and traditional energy taxes (on motor fuels and other oil products). (See Box 3.5, “Environmental Tax Shifting in Practice,” p. 41. The full report is behind a paywall and may be ordered via this link; Chapter 1 of the report, a summary, may be downloaded at no charge via this link.)

Sweden’s carbon tax history and current status were summarized intelligently in a 2013 blog post by “realmelo,” who appears to be a graduate student in economics in British Columbia. Click here for her/his useful, brief report.

Other Nations

The Reality Of Carbon Taxes In The 21st Century is the name of a 2009 book by a team at Vermont Law School’s Environmental Tax Policy Institute headed by environmental-taxation scholar Janet E. Milne. The book’s four detailed chapters,

  • Carbon Taxes in the United States: The Context for the Future
  • The Design of Carbon and Broad-based Energy Taxes in European Countries
  • Environmental and Economic Implications of Taxing and Trading Carbon: Some European Experiences, and
  • Carbon Taxation in British Columbia,

indicate its depth and scope. The entire 114-page book may be downloaded here.

In 2007, Trisha Shrum, a research fellow for the Kansas Energy Council, produced an excellent report on climate policy issues that included a survey of carbon taxes in place around the world. We recommendTrisha’s report highly. Below, we have vetted and digested Trisha’s material for Finland, Sweden, Great Britain and New Zealand.

Country-by-Country Review

(Note: See comment at top of page on the UVm Law School book, The Reality Of Carbon Taxes In The 21st Century.)

Finland enacted a carbon tax in 1990, the first country to do so. While originally based only on carbon content, it was subsequently changed to a combination carbon/energy tax (U.S. EPA National Center for Environmental Economics). The current tax is €18.05 per tonne of CO2 (€66.2 per tonne of carbon) or $24.39 per tonne of CO2 ($89.39 per tonne of carbon) in U.S. dollars (using the August 17, 2007 exchange rate of USD 1.00= Euro 0.7405). Current taxes are summarized in a Ministry of the Environment fact sheet Environmentally Related Energy Taxation in Finland.

Great Britain introduced a “climate change levy” in 2001 on the use of energy in the industry, commerce and public sectors. Revenues are used to provide offsetting cuts in employers’ National Insurance Contributions and to provide support for energy efficiency and renewable energy; the Department of Environment, Food and Rural Affairs (DEFRA) states that the levy “entails on increase in the tax burden on industry as a whole and no net gain for the public finances.” Rates are 0.15p/kWh for gas ($0.003) , 0.07p/kWh for liquid petroleum gas ($0.0014), 0.44/kWh ($0.0087) for electricity and 0.12p ($0.0024) for any other taxable commodity (using the August 17, 2007 exchange rate of USD 1.00= GBP 0.503). There are various exemptions including for electricity generated from new renewable energy and fuel used for “good quality” combined heat and power. All of the above information, as well as additional information, is available on the DEFRA web site. The Conservative Party leader has called for a “carbon levy” and the abandonment of the climate change levy; the carbon levy would make a distinction based on the carbon content of fuels. (Energy Saving Trust – About EST).

New Zealand made plans in 2005 to enact a carbon tax equivalent to $10.67 (of U.S.) per ton of carbon (based on conversion rate of USD 1.00 = NZD 0.71). The tax would have been revenue-neutral, with proceeds used to reduce other taxes (Hodgson 2005). However, a new government determined that the carbon tax would not cut emissions enough to justify the costs, and the tax was abandoned (Myer 2005). [CTC addendum: In Sept. 2007 the government unveiled a proposed emissions cap-and-trade scheme intended to cover all carbon emissions. The NZ Green Party’s preliminary assessment provides some details.]

The remaining material on this page was developed by CTC.

Boulder (Colorado) implemented the United States’ first tax on carbon emissions from electricity, on April 1, 2007, at a level of approximately $7 per ton of carbon. According to the City of Boulder, the tax is costing the average household about $1.33 per month, with households that use renewable energy receiving an offsetting discount. The city expected the tax to generate about $1 million annually until its expiration in 2012, with the revenues used to fund Boulder’s climate action plan to further reduce energy use and to comply with the Kyoto Protocol (Kelley 2006). In June 2009, the City Council voted unanimously to raise the tax level, effective Aug. 6, 2009. Although press reports did not specify the new rate, the expected increase in revenues, some $810,000 annually,  suggests that the increase is on the order of 80%, or perhaps $5-$6 per ton of carbon (on top of the original $7/ton).

Quebec

Canada’s second largest province began collecting a carbon tax on “hydrocarbons” (petroleum, natural gas and coal) on Oct. 1, 2007. Though the tax rate is quite small, the tax nevertheless made Quebec the first North American state or province to charge a carbon tax.

Here are details from the Toronto Globe & Mail last June (pay required):

Quebec will introduce Canada’s first carbon tax this fall, forcing energy producers, distributors and refiners to pay about $200-million a year in taxes as one part of an ambitious plan to fight global warming.

About 50 energy companies will be required to pay the new tax, including Ultramar Ltd., Petro-Canada and Shell Canada Ltd., which operate refineries in the province as well as distributors Imperial Oil Ltd., Irving Oil Ltd. and independent retailers.

Oil companies will be required to pay 0.8 cents for each litre of gasoline distributed in Quebec and 0.938 cents for each litre of diesel fuel. The tax is expected to generate $69-million a year from gasoline sales, $36-million from diesel fuel and $43-million from heating oil.

At March 2008 exchange rates, the petroleum tax rate equated to just 3.1 cents (U.S.) per gallon of gasoline and 3.6 cents for diesel. Moreover, because only a tiny fraction of electricity in Quebec is generated from fossil fuels (virtually all is from hydroelectricity), power prices are essentially unaffected.

Spread across Quebec’s population of 7,546.000 million (2006), the anticipated annual carbon tax revenue of $200 million is only $26.50 per person per year ($26.75 U.S.). For the U.S. to generate the same per capita revenue through a carbon tax would entail a rate of just $4.26 per ton of carbon (equivalent to $1.16 per ton of carbon dioxide), which equates to 1.1 cent (U.S.) per gallon of gas.

Readers interested in calculating carbon contents of key energy forms (electricity, major petroleum products) may want to download this spreadsheet created by CTC in Sept. 2007. Though not comprehensive, it contains useful data and conversions and is fully sourced.

Last, we note two other works that address impacts of in-place carbon taxes. A 2004 paper by Berkeley Prof. David Rich, Climate Change, Carbon Taxes, and International Trade, is focused on reconciling national carbon taxes with international trade agreements and summarizes, but it briefly reports on CO2 reductions from carbon taxes in Sweden, Finland and Denmark. Rich’s paper cites International Trade and Climate Change Policies (preview only), a volume in the Royal Institute of International Affairs series and a possible rich source of data. We invite visitors to this site to read these works and share their observations with us.

Last modified: October 31, 2014