Canada’s Liberal Party Leader Stéphane Dion yesterday dramatically transformed the debate in Canada over how to reduce greenhouse gas emission by proposing a $15.4 billion “Green Shift” over a four-year period. The proposed revenue-neutral carbon tax shift puts a significant price on carbon and demonstrates the type of leadership that’s yet to emerge in the United States.

Introducing the carbon tax shift, Dion eloquently explained:

The Liberal Green Shift is as powerful as it is simple. We will cut taxes on those things we want more of such as income, investment and innovation. And we will shift taxes to what we all want less of: pollution, greenhouse gas emissions and waste. We need to make polluters pay an put every single penny back into the hands of Canadians.

The Green Shift Plan will be good for the environment and good for the economy. Good for the planet and good for your wallet. We need to make real progress in the fight against climate crisis, and at the same time make our economy more competitive. While energy prices continue to rise, we need to encourage energy efficiency.

            Some have said that nobody would have the courage or the political will to
            do what we believe is right. We need to do it. We will do it.

Dion’s message and a detailed description of the Green Shift can be found in the Green Shift Handbook, easily downloaded from the Green Shift web page. The Green Shift will begin with an immediate $10 per tonne tax on carbon and steadily rise by an additional $10 per tonne each year, reaching $40 per tonne within four years.

The tax will apply at the wholesale level to all fossil fuels based upon their respective carbon content. The tax will not apply to gasoline at the pump, since the existing excise tax on gasoline at the pump is already the equivalent of $42 per tonne of carbon.

Revenue-neutrality is a key element of the Green Shift, which clearly states that “For every dollar raised in taxes there will be a dollar returned to Canadians in tax cuts.” The Auditor General will ensure the Green Shift’s revenue-neutrality.

The Green Shift will return the “pollution dividend” to Canadians through:

• Significant, broad-based income tax reductions, increasing each year as the pollution tax revenue rises;

• Reforms to the tax system to make it fairer for low-income Canadians, including;

o Introducing a new, universal child tax benefit worth $350 per child, per year,
on top of all existing child benefits;

o Replacing the existing $1,000 employment credit with a $1,850 refundable
employment credit targeting those making less than $50,000 per year;

o Enriching the Working Income Tax Benefit, making it available on the first
dollar earned; and

o Making the Disability Tax Credit refundable;

• Additional support for rural and Northern Canadians, with every rural Canadian receiving, up front, an annual Green Rural Credit of $150;

• A boost in the Northern Residents Deduction for those living in Northern
  Canada;

• Broad-based corporate tax reductions;

• Small-business income tax reductions;

• Accelerated capital cost allowances for green technologies; and

• Better research and development incentives.

The Green Shift is already receiving massive press coverage in Canada, a small sample can be found in our “Latest News” column. And as the press coverage makes clear, the stakes are high for both the environment and for Dion and the Liberal Party’s political future. Dion Stakes His Future on Being Greenest of Them All, according to the Globe and Mail. The attacks by Dion’s political opponents have already begun. See, for example, the Vancouver Sun story Dion’s ‘Green Shift’ Debuts to Heavy Fire, “The Conservative government and the New Democratic Party assailed Liberal Leader Stephane Dion’s proposed national carbon tax Thursday as a crazy and irresponsible plan….”

Canadian environmentalists have been far more supportive. According to an article in today’s Montreal Gazette, Greenpeace offered qualified support for the Green Shift arguing the price should be even higher, Équiterre says it’s the type of policy it could support and the Sierra Club Canada’s executive director said, "The benefit of a carbon tax is that it can be applied quickly, thereby raising the price of carbon emissions sooner; cap-and-trade systems have their benefits but they do take longer to implement properly."

That’s CTC’s response, too. We applaud Dion’s political courage, but we prefer a higher carbon tax. We fully support the concept of revenue neutrality and like the “shift” and “dividend” language, although we would prefer more direct return of the revenues through a Green Shift/carbon tax dividend or offsetting tax reductions. We applaud Dion’s targeting of Green Shift/carbon tax revenues to low-income rural energy users, necessary for both equity and political reasons. Finally, we’re intrigued that the Green Shift does not tax gasoline at the pump, although we expect that some portion of the tax will be passed through to retail customers. As we noted in a post last week, gasoline prices have already increased as much in the last year as we proposed for the next ten years. A floor on gasoline prices maintained by a revenue-neutral carbon tax might be appropriate.

There will be plenty of time to carefully examine the details of the Green Shift and, we’re sure, plenty of lessons to be learned about both the substance of the Green Shift and the politics of promoting a carbon tax. Stay tuned!

Photo of Stéphane Dion: http://www.liberal.ca/glance_e.aspx

U.S. CO2 Emissions Rose 1.6% in 2007 (EIA "flash estimate")

Carbon taxes having been getting much more attention in the Canadian press than they have in the United States. And familiarity with the concept of a carbon tax appears to produce support.

A Canadian Press Harris/Decima poll released last week revealed strong support for "a carbon tax levied on people and businesses based on the carbon emissions they generate," with 61% supporting such a tax and 32% opposed.

The poll showed even greater support for "an environmental tax refund paid to those who succeed in reducing their use of fossil fuels, electricity, water and the amount of garbage they produce," with 80% support and only 16% opposition.

According to Harris/Decima President Bruce Anderson, the basic concept of a carbon tax becomes more popular:

when the focus is on the broader aspects of our environmental footprint, not just carbon, when it is clear that the money raised would be used to incent environmental improvement, when the idea is that those who are taxed are those who aren’t trying, and when there is a signal that environmentally thoughtful behaviour will be rewarded." (Emphasis added.)

Rewarding the "thoughtful behavior" may explain the greater support offered for the "environmental tax refund" compared to the "carbon tax" poll question. Anderson concludes:

The central concept, of taxing particularly harmful behavior, and rewarding the opposite, is a potential political winner for the party that can get it right and describe it clearly. The tag "carbon tax" and the term "revenue neutral", from a political communications standpoint, are not ideal starting points, as communications go.

We agree with Anderson’s conclusion that "taxing particularly harmful behavior, and rewarding the opposite" — precisely what a revenue-neutral carbon tax is designed to do — is a potential political winner.

We intend to give more thought to his political communications point and whether there is a better way to frame the case for a revenue-neutral carbon tax. Ideas?

Photo: Flickr / champy1013

UPDATE – May 11 – The Canadian Press reported today on unsubstantiated rumors that the Liberal Party’s pollster has found far less favorable views about carbon tax when respondents were given details of British Columbia’s carbon tax plan. According to the rumors, "the poll found 30 per cent strongly opposed to the idea and 12 per cent somewhat opposed, compared to 23 per cent strongly supportive and 25 per cent somewhat supportive." Based upon Anderson’s conclusion above and assuming the rumored poll results are accurate, the Liberal Party pollster’s results might have been more favorable had he avoided use of the terms "carbon tax" and "revenue-neutral."

Canadian Liberal Party chief touts carbon tax on fuels, billions in tax cuts (Globe & Mail)

Thanks to the gas tax “holiday” proposed by Senators McCain and Clinton, gasoline taxes (a component of carbon taxes) have become a major issue in the presidential campaign. Senators McCain and Clinton have been attacked across the political spectrum for pandering. Politicians from President Bush to House Speaker Pelosi have rejected the idea, as have newspaper editorial boards from the New York Times to the Wall Street Journal.

New York City Mayor Michael Bloomberg, a powerful carbon tax advocate, may have been the most succinct, calling a temporary suspension of the federal gasoline tax “about the dumbest thing I’ve heard in an awful long time from an economic point of view” and saying he did not see “any merit to it whatsoever” (NY Times, May 2). Economists have been nearly unanimous, with over 100 economists, including three Nobel Prize winners, signing a statement opposing the gas tax holiday.

In our last newsletter we acknowledged that “the ‘T’ word is unpopular with politicians,” but asserted that “awareness is growing that ‘putting a price on carbon’ is an essential element of any successful strategy to significantly reduce greenhouse gas emissions.” In fact, awareness is growing faster than we expected. We’re heartened by the widespread recognition that the gas tax holiday proposal is fundamentally flawed because it undercuts the need to properly price gasoline and would encourage gas use just when it is essential to discourage consumption. In breaking news, the Monday (May 5) New York Times will report that by 49% to 45%, more Americans think that lifting the gas tax is a bad idea than approve of the plan.

In addition, we are intrigued by a Wall Street Journal report that some members of Congress are advocating that proceeds of a windfall profits tax be used to provide rebates for consumers. It sounds a lot like the rebate we have proposed to return carbon tax revenues to the American people. While we take no position at this time on the merits of a windfall profits tax, it’s good to see thought being given to returning the windfall profit tax proceeds. It’s a step toward a revenue-neutral carbon tax.

Our next challenge is to convert the well-reasoned opposition to a gas tax holiday into support for a carbon tax. As a first step, we have begun preliminary planning for a Carbon Tax Conference to be held in Washington, D.C. in mid-November. The conference will be designed to focus public attention on a carbon tax as the best policy for reducing U.S. greenhouse gas emissions and is timed to occur just as a new administration and Congress begin establishing priorities and mapping out strategies. Interested in being involved in the early planning? If so, please let us know.

Please check our web page regularly for the latest developments on carbon tax issues and progress. We add important news stories to the “Headlines” column on our home page almost every day. Take a look at the excellent guest post by James Handley, an extraordinary volunteer at CTC, addressing the gas tax holiday issue. It was on our web page until today (in case you haven’t noticed, previous blog posts are listed just below the current post). Our next post will take up a related issue, the impact on demand of rising gasoline prices. There is more and more evidence that higher prices, such as would result from a carbon tax, lead to reduced consumption. That’s the premise of our proposed carbon tax and it’s being validated every day.

Finally, CTC does have to admit to one major failing. We’ve been so focused on policy issues and getting the message out that we haven’t spent the necessary time on fundraising. The result is predictable. We’re desperately short of money just when we need it the most. To continue playing our essential role, we need your financial help.

You can contribute to CTC in three ways, two of which are tax-deductible:

* Tax-deductible:

Write a check or money order to ELPC (Environmental Law & Policy Center), writing Carbon Tax Center in the memo line; mail it to ELPC at 35 East Wacker Drive, Suite 1300, Chicago, IL 60601. ELPC is CTC’s fiscal sponsor.

* Tax-deductible:

Make an on-line contribution via Groundspring by clicking on the DONATE NOW box on our website, www.carbontax.org.

* Not deductible:

Write a check or money order to Carbon Tax Center and send it to our New York City mailing address: CTC, 636 Broadway, Room 602, New York, NY 10012.

Please be as generous as you can, and please donate today. Thank you.

Sincerely,

Charles Komanoff
Dan Rosenblum

The British Columbia Ministry of Finance issued this News Release on April 28. It speaks for itself and requires no comment from the Carbon Tax Center.

N E W S   R E L E A S E

For Immediate Release                                                                       Ministry of Finance

2008FIN0009-000615

April 28, 2008 

CARBON TAX GUARANTEES TAX CUTS FOR BRITISH COLUMBIANS

VICTORIA — British Columbia is the first province to implement a comprehensive, revenue-neutral carbon tax – an initiative that returns every dollar raised to the people and businesses of British Columbia as tax cuts, Finance Minister Carole Taylor announced today.

“British Columbia is leading the way in addressing climate change, and the revenue-neutral carbon tax is another pioneering step forward for our province,” said Taylor. “Each step we take to change our habits and behaviours, as individuals and as a community, will help leave a legacy that our children and grandchildren can be proud of.”

By tying the carbon tax to reductions in personal and business taxes, the Province is giving the people of British Columbia the power to make their own choices.

“Pricing carbon sends a clear message that there is a cost to the environment involved in emitting carbon,” said Taylor. “Leading economists and scientists agree that introducing a revenue-neutral carbon tax is the right thing for our province, today and for the future. We took time to design a model that protects low-income families and moves British Columbia to being one of the lowest-taxing provinces in Canada.”

In the first three years, the carbon tax is estimated to generate $1,849 million in revenue, which will be returned to British Columbians as follows:

The bottom two personal income tax rates will be reduced for all British  Columbians, resulting in a tax cut of two per cent in 2008, rising to five per cent in 2009 on the first $70,000 in earnings – with further reductions expected in 2010: $784 million.

Effective July 1, 2008, the general corporate income tax rate will be reduced to 11 per cent from 12 per cent – with further reductions planned to 10 per cent by 2011: $415 million.

Effective July 1, 2008, the small business tax rate will be reduced to 3.5 per cent from 4.5 per cent – with further reductions planned to 2.5 per cent by 2011): $255 million.

Beginning July 1, 2008, the new Climate Action Credit will provide lower-income British Columbians a payment of $100 per adult and $30 per child per year – increasing by five per cent in 2009 and possibly more in future years: $395 million.

Total tax cuts over three years:$1,849 million.

This groundbreaking legislation is supplemented by an immediate Climate Action Dividend, $100 for every man, woman and child in British Columbia. This dividend, which will further support our community’s ability to make greener choices, will go out to residents of British Columbia starting in late June.

For further information about the carbon tax and ideas for making greener choices, please visit:

The year-long effort to enact congestion pricing in New York City had a lot going for it:

• Traffic congestion is roundly despised. Gridlock has few defenders.
• NYC’s mass transit system, the asserted beneficiary of revenues from the traffic fee, is riding a 25-year upswing and is understood to be the linchpin of the city’s prosperity.
• A broad coalition of business, labor and environmental groups supported and actively campaigned for congestion pricing.

The demise of the pricing plan — it passed the City Council last week but wasn’t brought up for a vote in the State Legislature yesterday — is prompting much hand-wringing in the City. The New York Times today decried the powerful Speaker of the State Assembly for failing to throw his weight behind the proposal. The blogs, from the estimable Streetsblog ("covering the Livable Streets Movement") to the Times’ dot Earth, are asking what pricing’s defeat says about the fate of other, larger issues, from livable urban streets to the campaign to stop climate change.

There’s soul-searching at the Carbon Tax Center as well. Having argued last year that congestion pricing and carbon taxing were thematically linked — both entail valuing the commons to preserve it; both appear income-regressive but can be made strongly progressive by fairly and effectively allocating the revenues — we’re obliged to ponder what the failure of congestion pricing portends for carbon taxes in America.

We’ve already posted a Top 10 Reasons piece to Grist. It’s a bit on the lite side, but it makes some salient points, such as this:

Misplaced emphasis on climate: Hitching congestion
pricing to climate protection, even in part, was disingenuous. The anticipated traffic reductions would have eliminated no more than 1% of NYC’s CO2. The emphasis should have been on cutting the scourge of traffic, whose theft of time, sanity, and safety from New Yorkers outweighs the climate damage from CBD-bound tailpipes by a couple of orders of magnitude.

(That was reason #10; it would probably rank higher on this blog.)

Our Grist post elicited a number of candid, private replies. Here are three worth pondering (edited, and with the names redacted):

A chemical engineer and policy analyst who worked with congestion pricing theorist and Nobel Laureate Bill Vickrey, honed in on the winners/losers conundrum:

The central problem policy problem, both here and around the world, continues to be that the losers from any policy change know who they are and are always far better organized than are the winners. Indeed, some winners are bamboozled into thinking that they will be losers. Nowhere is this more true than with congestion pricing — invariably this has been opposed by a majority before introduction but is warmly welcomed by a majority afterwards.

This is why political leadership is so important. Such leadership emerges in New York only very rarely if ever and is one of the reasons New York continues to decline relative to other states.  History tells us that this has long been true however; consider how T.R. got on the national ticket with McKinley in 1900.

A writer on transportation and public spaces blamed congestion pricing’s messenger:

Appalling though this setback is, I think it has its up-side — Bloomberg
is not really the champion you want for this kind of fundamental
change.  He (your reason #3) never really "got it" in anything other than a
gaudy, intellectualized fashion and, as you say, certainly never put in the work needed to make this
real. The plan was
never properly linked to specific, pre-visualized, and fully explained transit
and other benefits (your reason #2); and for all of Bloomberg’s newly-donned, enviro-conning
green robes he is planning a Manhattan top-heavy with the swaggerers
(your #6 reason). So I think your 10 reasons actually boil down to 1: the
Mayor.

Another writer on public policy was more pessimistic:

Today’s New York Times turned over a patch of its most coveted space — on its op-ed page — to a curious essay. On Carbon, Tax and Don’t Spend is vexing and even a tad bipolar, in one moment calling a carbon tax "glamorous" (who knew?), but in the next insinuating that a revenue-neutral carbon tax could be a big no-no for the U.S.

The article’s big idea is that carbon tax revenues should be allocated to industry as lump-sum incentives to invest in cutting carbon, rather than returned to households to offset higher prices for energy and products. To support this thesis, the author points to carbon-taxing Scandinavia, where Denmark, the only country to dedicate carbon tax revenues to industry, is also the only one where CO2 emissions have plummeted.

On close examination, this "finding" turns flimsy. The fly in the ointment is that while all four Scandinavian countries have indeed levied some form of carbon tax since the early 1990s, in each case the tax levels so far have been on the "lite" side, making it difficult to tie changes in emissions to specific tax and revenue policies.

Sweden, for example, taxes carbon at $150 per ton (that’s a hefty $41 per ton of carbon dioxide), as we report elsewhere on this site, but fuels to generate electricity are untaxed, and industries pay only 50%. Denmark’s carbon tax is $14 per ton of CO2, reports Alan Durning of Sightline Institute; while that’s not chicken feed — it equates to around half-a-buck per gallon of gasoline — it’s still insufficient to account for more than a fraction of Denmark’s carbon reductions, especially considering that, as in Sweden, industry in Denmark is taxed at only half the going rate.

Denmark has trimmed CO2 emissions impressively. The Times op-ed puts the drop in per-capita emissions at 15% from 1990 to 2005; using regression analysis, which infers the trend line from all the annual data points instead of just the first and last, we calculated the per-capita drop at 15% using EIA data and 18% using CDIAC data. This decline is heartening, but we’re inclined to ascribe it primarily to Denmark’s aggressive pursuit of wind power (which now accounts for over 20% of electricity generation), steep taxes on coal-fired electricity (not quite a carbon tax though with similar impact) and ongoing promotion and enabling of bicycle transportation, which now accounts for 24% of urban trips by vehicle, nationwide.

Our big beef with the article is with its use of Norway as a lesson in failed carbon taxing. Unlike Denmark, Norway doesn’t dedicate carbon tax revenues to industry, and per capita emissions have risen 43%. Ergo, implies the author, carbon taxing with revenue return is tantamount to allowing producers
"to continue polluting while handing over cash to the government." Not only is that argument a non sequitur, its premise may be shaky if Norway’s carbon accounting hasn’t been adjusted for oil infrastructure and exports, which have grown enough recently to make Norway the world’s third largest oil exporter.

We’ll concede that countries with sturdy safety nets and small carbon taxes can probably get away with directing the tax revenues to industry or other agents for low-carbon investment. But for big carbon taxes in the USA, we think a revenue-neutral tax with revenue recycling will be imperative to keep not only poorer Americans but much of the middle class from being pushed to the wall.

Notwithstanding our dissatisfaction with the op-ed, we regard the author, Monica Prasad of Northwestern University, as an interesting thinker. Her new paper on which she based her essay, Taxation as a Regulatory Tool: Lessons from Environmental Taxes in Europe, is a provocative work that uses behavioral economics as a window for evaluating taxes and other policies for curbing carbon emissions. It’s worth careful study, by us and by you.

Photo: Flickr / Less Salty.

We reported last week that British Columbia will implement a carbon tax of $10 per metric ton of carbon on July 1, rising in $5/tonne annual increments to reach $30 in 2012.

In both scope and size, the tax leapfrogs North America’s other, modest carbon taxes, in Quebec and the City of Boulder, Colorado. How did the tax come about? CTC supporter Jurgen Hissen filed this account from Vancouver.

The idea for a carbon tax came from the top ranks of the BC government. It wasn’t foisted upon them. I think they were actively seeking ways to justify it to the citizenry.

BC Liberals — who aren’t connected to Canada’s national Liberal Party — have always been pro small-government. When they came into office in 2001, they cut taxes and government spending extensively. BC Liberals have also historically emphasized personal responsibility and environmental issues, and a carbon tax (a consumption tax) is pretty consistent with that.

After meeting last year with California Governor Arnold Schwarzenegger, BC Premier Gordon Campbell resolved to set carbon reduction targets for BC. Suggestions of a carbon tax began circulating, but the real push likely came from Carole Taylor, Campbell’s finance minister.

In late 2007, Taylor assembled a committee, the Select Standing Committee on Finance and Government Services, to collect public input on the budget. The committee issued a questionnaire to every household in the province; how to tackle climate change covered three of the six questions, and two of them were what pollsters would call “leading”:

The Province currently provides tax incentives to encourage the purchase of hybrid vehicles [… etc.]. What tax changes would you make to encourage environmentally responsible choices? and

What tax changes would you make to discourage British Columbians from activities that contribute to greenhouse gas emissions?

Clearly, the government was looking to rationalize carbon taxes. The response was favorable, and crucial, not to mention broad-based. A carbon tax was backed by business leaders, a group of 60 economists from BC universities, and key religious leaders.

Taylor, the finance minister, reported getting 700 letters in support of a carbon tax (about 10 of those were mine, I think), and only about 160 opposed — a fact she cited on the day she announced the tax.

CTC invites readers from British Columbia or elsewhere to write with further details/insights on the development of BC’s carbon tax as well as potential implications for other provinces and the U.S.

Photo: Wikipedia

British Columbia’s Finance Minister Carole Taylor introduced a revenue-neutral carbon tax today that will serve as an excellent model for the United States. According to a story in the Canadian Press, the carbon tax will be effective July 1, will be phased in over five years and will start at a rate of $10 per tonne of carbon emissions. It will rise $5 a year to $30 per ton by 2012. The carbon tax revenues will be returned to taxpayers through personal income and business income tax cuts, according to Taylor. 

According to the same story, climate specialist Ian Bruce of the David Suzuki Foundation stated that "The Government has used the most powerful tool, a carbon tax, to reduce greenhouse gas emissions." As Bruce pointed out, "Green choices will become cheaper."

B.C. can now be proud of its natural beauty and its wise public policy designed to reduce the impact of climate change. Note that the proposed new carbon tax is very similar to the revenue-neutral, phased-in carbon tax proposed by the Carbon Tax Center. 

For more on the new B.C. carbon tax, see stories at right under "Latest Headlines." 

Photo: bfraz / flickr