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City mayors panting to get hold of some carbon-tax revenue as they drown in demands for transit, water plants, and more

September 12th, 2012 · 152 Comments

As the province contemplates what to do with the carbon tax beyond this year, various groups are piling on with their opinions.

Mayors have been trying to get carbon-tax money for a while. They say they don’t want all of it, just some. And they claim that it can be done without too much pain.

I have to acknowledge that I think there is a touch of wonky math behind some of these assumptions, some of which may be mine. At any rate, here’s the story for you to hash over.

You can also look at the calculation below that Metro Vancouver did of how much local residents and businesses paid in carbon tax and how much they got back. You’ll be surprised at the numbers.

To: Environment and Parks Committee
Finance Committee
From: Jason Emmert, Air Quality Planner
Metropolitan Planning, Environment and Parks Department
Ann Rowan, Sustainability Strategist (Acting), CAO’s Office
Date: August 27, 2012
Subject: Implications of the BC Carbon Tax for the Region
Environment and Parks Committee Recommendation:
That the Environment and Parks Committee direct staff to further develop the actions
related to the carbon tax as outlined in the Integrated Air Quality and Greenhouse Gas
Management Plan, and provide more detailed recommendations to the Province. Those
actions include:
· The return of carbon tax revenues to local governments to fund greenhouse gas
reduction actions;
· Adjustment of the future carbon tax rate, including measures to mitigate the impact
on low income households; and
· Encourage adoption of the carbon tax in other jurisdictions.
Finance Committee Recommendation:
That the Finance Committee receive for information the report dated August 27, 2012, titled
“Implications of the BC Carbon Tax for the Region”.
To report on the revenue implications of the BC Carbon tax on Metro Vancouver residents
and businesses, its effectiveness in reducing greenhouse gas emissions, and to identify
how Metro Vancouver could work with the Province to ensure that the tax achieves its
objectives of reducing greenhouse gases.
On July 1st, 2008, the British Columbia government began to levy a carbon tax on the
purchase and use of fossil fuels, such as gasoline, diesel, natural gas, heating fuel, propane
and coal. The initial tax was $10/tonne of greenhouse gas (GHG) emissions and was
scheduled to rise by $5 increments until 2012. Because the carbon tax is assessed in
dollars per tonne of GHG emissions (expressed as carbon dioxide equivalents, or CO2e),
the taxation level varies according to the carbon intensity of the individual fossil fuel. As of
July 1, 2012 the carbon tax is $30/tonne which translates into 7.2 cents per litre ($2.08 per
EP 120911 – 113 –
Implications of the BC Carbon Tax for the Region
Environment and Parks Committee Meeting Date: September 11, 2012
Finance Committee Meeting Date: September 20, 2012
Page 2 of 7
gigajoule) of gasoline, 8.3 cents per litre ($2.15 per gigajoule) of diesel, and $1.50 per
gigajoule of natural gas.
The Province is currently reviewing the carbon tax and accepting written submissions from
July 1 to August 31, 2012. This issue was discussed at the July 27 Board meeting and the
attached letter was sent to the Minister of Finance.
In the Integrated Air Quality and Greenhouse Gas Management Plan (IAQGGMP) Metro
Vancouver states its support for improvements to the Carbon Tax that would increase its
effectiveness as a disincentive to emit GHGs, mitigate its financial impact on low-income
households, and the need to reinvest a portion of the carbon tax revenues in carbon
reduction projects.
How does the carbon tax work to reduce GHG emissions?
A carbon tax places a ‘price’ on GHG emissions and should encourage users of fossil fuels
to switch to fuels with little or no emissions. To be effective, a carbon tax has to meet two
conditions: it must be sufficiently high to send a market signal that emissions have a cost
and it has to be sustained to encourage the development and adoption of low emission
technologies and transportation systems by businesses and residents. A carbon tax is an
example of a market-based approach to achieving environmental objectives. Businesses
and individuals can reduce the amount of tax they pay by reducing their use of fossil fuels,
increasing their energy efficiency, switching to low or zero-emission fuel sources, and/or
adopting new technologies that reduce or eliminate emissions. A carbon tax on
transportation fuels provides an incentive for commuters to shift to low carbon modes of
transportation – such as walking, cycling, carpooling and if it exists, taking transit. A carbon
tax should also drive more innovations in the development and marketing of technologies
that result in low or no carbon emissions such as hybrid or electric vehicles.
Financial implications of the Carbon Tax: How much was collected from the region?
In announcing B.C.’s carbon tax, the provincial government said it would be “revenue
neutral” meaning that the revenues generated from the new tax would be offset by
decreases in other provincial tax rates. The logic behind a “revenue neutral” tax is that
undesirable activities, like those that result in emissions that lead to climate change, are
taxed at higher levels while taxes on activities that produce social or environmental benefits,
like job creation, are taxed less.
In terms of the financial implications of the carbon tax for Metro Vancouver residents and
businesses, the 2010/11 fiscal year was chosen as a case study. The provincial government
reports that in 2010/11, $741 million was collected in carbon taxes across the province but
does not provide details on the sources of this revenue by geography or sector. Using data
on total fuel sales in 2010 in the Metro Vancouver region, staff estimate that residents in the
region paid an estimated $120 million while the commercial/industry sector in the region
paid an estimated $100 million in carbon taxes1 totaling $220 million. Figure 1 shows a
breakdown of the carbon tax by sector and emission source. Based on these estimates, on
average, each household in the region paid $133 in personal carbon taxes.2 Since business
energy use is highly dependent on the type and size of business, the carbon tax per
business cannot be estimated with current data.
1 Estimates of carbon tax paid for the region are based on fuel sales data from the 2010 Community Energy and Emissions
2 Based on an estimate of 910,800 households in Metro Vancouver in 2010.
EP 120911 – 114 –
Implications of the BC Carbon Tax for the Region
Environment and Parks Committee Meeting Date: September 11, 2012
Finance Committee Meeting Date: September 20, 2012
Page 3 of 7
Financial Implications of the Carbon Tax: How much did the region receive in tax
cuts and credits?
To offset revenues from the Carbon Tax, the provincial government introduced three
measures to reduce taxes on personal income and four to reduce business taxes. In terms
of personal tax measures, the government reduced personal income tax rates by 5 per cent,
introduced a climate action tax credit for low-income households and a northern and rural
homeowner benefit. For businesses, there was a cut in the general corporate income tax
rate and a corresponding cut in the small business corporate income tax. In addition,
industrial property owners received a tax credit for school property taxes paid and lands with
“farm” status benefitted from a reduction in school property taxes. The government also
announced a one-time Climate Action Dividend of $100 payable to every resident of BC to
“encourage the transition to a greener lifestyle.”
According to data provided by the Province the Carbon Tax, as implemented, has been
more than revenue neutral.3 While $741 million in carbon tax revenues were collected in the
2010/11 fiscal year, the Province received $846 million less in personal income and
business taxes due to associated tax cuts, credits and benefits. In terms of reduced taxes,
personal taxes were reduced by $372 million and business taxes were reduced by $475
Figure 1: Carbon Taxes Paid by the Household and Commercial/Industrial Sector in
Metro Vancouver (2010)
Coal and Tires $8 million
Natural Gas
$17 million
$19 million
Industrial Buildings
$29 million
Aircraft, Rail, Marine, and
$33 million
Residential Buildings
$41 million
Passenger Vehicles
$80 million
There is no provincial data available on the geographical distribution on tax cuts and credits
so demographic data was used to estimate the personal tax credits returned to the region.
3 “Budget and Fiscal Plan 2012/13-2014/15” , p. 66
EP 120911 – 115 –
Implications of the BC Carbon Tax for the Region
Environment and Parks Committee Meeting Date: September 11, 2012
Finance Committee Meeting Date: September 20, 2012
Page 4 of 7
In the 2010/11 fiscal year, it is estimated that households in Metro Vancouver received $93
million through reductions in the personal income tax rate.4 In addition, Metro Vancouver
low income families received tax credits that were estimated at $38 million.5 Together the
estimated total reduction in personal taxes in the region was $131 million.6 This is greater
than the estimated $120 million residents paid in personal carbon taxes but the financial
impact a household would depend on their particular income and household energy use.
Estimating the tax benefits that Metro Vancouver small businesses and industries received
under the revenue neutral framework is more difficult. The corporate tax structure, including
the distinction between general corporate and small business tax rates, made a detailed
analysis unfeasible without more geographically located tax data. However, because Metro
Vancouver generates 53% of the B.C.’s GDP, we can reasonably guess that likely over half
of the $475 million in business tax cuts and credits, or $238 million, were received by
businesses across the Metro Vancouver region.
Environmental Implications of the Carbon Tax: How effective was it in driving down
emissions in the region?
At this time, there isn’t enough available data to determine the full effectiveness of the
carbon tax on driving down regional emissions. The carbon tax has only been in effect for
four years, which does not provide enough years of data to analyze the long-term effect of
the carbon tax on technological and behavior changes that drive emissions reductions.
While the Province’s own review of the carbon tax notes that it is too soon for a definitive
assessment of its effectiveness, it nonetheless offers this hopeful note:
“There are positive signs that B.C. is experiencing a shift toward less fossil fuel use and
lower emissions while continuing to grow its economy. Emissions in B.C. went down by
4.5 per cent from 2007-2010, while GDP growth through 2011 was above the Canadian
average. At the same time B.C. is attracting green investment and green technologies
with twice the Canadian average adoption of hybrid vehicles, 20 per cent of all Canadian
LEED gold building registrations since 2007, and a 48 per cent increase in clean
technology industry sales from 2008-10.”i7
In 2010, Metro Vancouver commissioned a study by MK Jaccard and Associates (MKJA)
which assessed the effectiveness of a number of policy measures at reducing GHG
emissions. The study modeled the GHG reductions from existing government policies as
well as other policy options including a carbon tax. The model predicted that the tax would
have limited impact at $30/tonne (see Figure 2) but could play a more important role in
reducing the region’s GHG emissions if the rate increased to $50/tonne. In combination
with other policies, the carbon tax would support the implementation of technologies and
building of infrastructure that would increase options for residents and businesses (e.g.
incentives for energy efficiency retrofits for buildings, investment in walking/cycling
4 In 2010, total personal income for Metro Vancouver residents was 45 per cent of the provincial total personal income (BC
Stats – Community Facts). This percentage was applied to the Province’s estimate of reduction in personal taxes of $207
million to estimate the impact on Metro Vancouver residents (B. C. Budget and Fiscal Plan 2012/13 to 2014/15).
5 This figure was calculated using data on the incidence of low incomes in Metro Vancouver and Low Income Climate Action
Tax Credit rate of $105 per adult and $31.50 per child. The incidence of economic families is 17 per cent and for unattached
individuals over 15 years it is 40 per cent in Metro Vancouver. Assuming that in each economic family had 1 child and 2
adults, the total low income tax credit was $24.7 million.
6 The credit for northern and rural homeowner benefit does not apply to residents of Metro Vancouver thus was not considered
in the total
7 “Making Progress on BC’s Climate Action Plan”, June 27, 2012

Click to access 2012-Progress-to-Targets.pdf

EP 120911 – 116 –
Implications of the BC Carbon Tax for the Region
Environment and Parks Committee Meeting Date: September 11, 2012
Finance Committee Meeting Date: September 20, 2012
Page 5 of 7
infrastructure, plug-in hybrid regulation, etc.) to reduce their fossil fuel use and reduce the
carbon tax paid.
Although it is difficult to assess the overall impact of the carbon tax, there are a number of
individual GHG reduction projects where the carbon tax helped provide a business case for
the project. These projects are an indication of the incentive effect a carbon tax has on
supporting the use of low carbon technologies and practices.
One example is the new Bioenergy Energy Research and Demonstration Facility (BRDF) at
University of British Columbia (UBC). The project will supply between 12-25% of UBC’s
average heat and up to 4.5 per cent of its electricity demand to campus. The project
business case was supported by the carbon tax and the carbon neutral requirements for
public sector organizations. It will reduce UBC’s GHG emissions by 7,000 tonnes per year
which will produce a savings in the carbon taxes paid by $214,000 each year. UBC is also
saving $373,000 in carbon tax from converting the steam district energy system to a hot
water system. This upgraded system heats over 100 buildings and will reduce GHG
emissions by 12,000 tonnes per year. Overall, the system conversion will save UBC $4
million per year in energy and other costs.

Page 6 of 7
How has the carbon tax been invested in greenhouse gas reduction projects in the
Since the carbon tax is revenue neutral the revenue collected has not been specifically
invested in projects to reduce greenhouse gases. Instead, the revenue has been returned to
residents and businesses with a larger portion being returned to businesses through the
corporate and small business tax credits. Whether these tax savings have been invested in
the means to reduce future greenhouse gas emissions is not being tracked.
A small portion of the carbon tax, 0.6 per cent, has been returned to local governments
through the Carbon Tax Revenue Incentive Program (CARIP). This is the tax that local
governments have paid on fuels purchased directly for government operations. In 2010,
Metro Vancouver and its member municipalities received $1.7 million in CARIP rebates
which were then allocated to a variety of different projects to reduce emissions from
municipal operations and in communities. Metro Vancouver, for example, used CARIP
funding to conduct energy assessments for Metro Vancouver housing facilities to identify
opportunities to improve energy efficiency at our housing facilities. Several municipalities
have used CARIP funds to develop Community Energy and Emissions Plans (CEEP) and
some have purchased electric vehicle plug-in stations.
Review of the Carbon Tax
The Metro Vancouver Board has recognized that B.C.’s Carbon Tax could be improved to
further reduce GHG emissions. This recognition is reflected in the IAQGGMP and in a
resolution that went to Union of B.C. Municipalities in 2010. The IAQGGMP identifies the
need for the Provincial Government to continue to increase the carbon tax provided:
a) Impacts to low income households are mitigated,
b) A portion of the funding is dedicated to a regional climate action funds for
greenhouse gas emission reduction projects in the region, and
c) Local governments continue to receive CARIP funds.
The revenue neutrality of B.C.’s Carbon Tax was important to build public confidence that
the tax would not add an unfair burden to residents and businesses. To date, that promise
has been met. One question in moving forward is whether maintaining the strict revenue
neutrality of the tax should be maintained or should carbon tax revenues be used to fund
initiatives that provide households and businesses the options and tools necessary to
reduce their emissions and carbon tax bill? By shifting the carbon tax revenues towards
initiatives that directly reduce emissions, the effectiveness of the carbon tax can be
Securing a portion of the carbon tax revenues for region-specific GHG reduction
programs/projects would help reduce emissions by supporting technology and infrastructure
investments by local governments, businesses, residents and other community
organizations. This could be achieved by directing a portion of carbon tax revenues to a
regional fund.
In order to illustrate the magnitude of the carbon tax paid by the residents and businesses in
the region ($220 million) and the size of example GHG reduction projects:
· Installing solar hot water systems on 5,000 rooftops costs $25 million
· Building 100 manure methane collection systems for medium-sized dairy
operations costs $70 million
EP 120911 – 118 –
Implications of the BC Carbon Tax for the Region
Environment and Parks Committee Meeting Date: September 11, 2012
Finance Committee Meeting Date: September 20, 2012
Page 7 of 7
· Lonsdale Energy Corporation District Energy System in City of North Vancouver
capital cost was $8 million in 2003 (saves approx 4000 tonnes of GHG / year) 9
· 30 km of separated bike lanes cost $90 million10
· Installing 1000 electric vehicle charging stations in public places costs $10
· Evergreen Line capital costs are $1.4 billion.
British Columbia demonstrated leadership in adopting a carbon tax and since then
numerous other jurisdictions have considered implementing a similar tax and some have
done so.11 However, the adoption of the carbon tax has not been as widespread as
anticipated especially through the Western Climate Initiative. As a result, businesses based
in British Columbia have raised concerns that a carbon tax negatively impacts their
competitiveness. This is particularly true for businesses that compete with companies based
in jurisdictions who do not have a carbon tax.12 Recognizing in the short term, a carbon tax
can present challenges in competitive markets, in the long run the value of putting a tax on
carbon today is that it provides an incentive for businesses to become more energy efficient
and less reliant on fossil fuels as an energy source in what is generally recognized as a
future where the price of fossil fuels will continue to climb.
None presented.
Based on estimates by staff, residents and businesses in the region have received more in
tax credits as a whole then the carbon taxes they paid under the revenue neutral model.
Although the overall impact of the carbon tax on regional GHG emissions is difficult to
calculate at this time, there are examples in the region where the existence of the carbon
tax provided the incentive to undertake projects to reduce GHG emissions. In addition,
analysis by the MK Jaccard and Associates indicate that a sustained and higher carbon tax
will be important for reducing GHG emissions in the Metro Vancouver region. For these
reasons, Metro Vancouver should work with the Province to improve the effectiveness of
B.C.’s Carbon Tax and to mitigate some of the challenges.


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