Who stands to benefit from the B.C. Carbon Tax?

Will the controversial carbon tax cost the Liberals – or kill the NDP?

It was the smog in China. B.C. Premier Gordon Campbell says – with apparent conviction – that he never had an epiphany on climate change. There was no single book (although he mentions Al Gore’s 1992 classic, Earth in the Balance), no single person, no transformational event that caught his attention. Rather, in 2006, he just started to feel the weight of evidence that climate change was one of the greatest environmental challenges that humans had ever faced.

But even while denying the single trigger during a late-March conversation in his Vancouver offices, Campbell immediately mentions a 2006 trip to China in which he endured a series of “hazardous air” days: days where particulate pollution exceeds 500 parts per million. For those who have not experienced such a day, imagine standing right behind a badly tuned diesel transit bus, inhaling particle-laden fumes that make you want to spit and that leave you – come the afternoon of the second day – suffering what seems like an advancing case of bronchitis.

Campbell understands the difference between smog and carbon dioxide. He understands that the kind of pollution that makes your eyes weep is different from the greenhouse gas that warms the planet. But travelling in China, he says, it dawned on him: “?‘Hazardous air’ shows the effect that one person’s actions, repeated 16 million times, can have on the environment.”

Campbell also knew that B.C. had been feeling those effects in different and expensive ways. The province had been subjected to floods, fires and pestilence – a mountain pine beetle infestation that alone has destroyed billions of dollars’ worth of Interior forest – and the premier became convinced that something must be done. This doesn’t make him particularly special: almost every politician on
the continent proclaims a personal commitment to tackle climate change.

But Campbell walked the talk, and in February 2008 his party introduced a carbon tax – a measure that has enjoyed significant success in Europe but that was untried in North America.

To hear Campbell tell it, this was a relatively obvious choice. “A carbon tax is the most cost-effective regime,” he says. And a “revenue neutral” regime – one in which you shift taxes away from good things like income and onto bad things like greenhouse gases – “creates incentives for people to do the right stuff.” It was, perhaps, a little complicated, but Campbell concludes that, on balance, it was the right thing to do.
His timing, however, couldn’t have been worse. When the government introduced its tax, gas prices were under a dollar and crude oil prices were under $100. But in the four months that passed before the tax took effect, both prices spiked by almost 50 per cent. As Finance Minister Colin Hansen puts it, “The public was mad as hell and looking for someone to blame, and we [the Liberals] came along on July 1 and said, ‘Pick me!'”

Having passed a tax that would increase the pump price of gasoline by 2.34 cents a litre, the government was either blamed for the full 50-cent-a-litre jump or, at the very least, condemned for “piling on.”

Enter the New Democratic Party. It’s fair to say that the NDP has traditionally been B.C.’s more environmentally conscious party. The iconic environmentalist and scientist David Suzuki tells a story about arguing with then NDP environment minister Moe Sihota during the resource wars of the early 1990s. After listening to Suzuki criticize his government’s recent actions, Sihota said, “Oh yeah, well if you don’t like it, then who are you going to vote for?” At the time, Suzuki agreed that there was no acceptable second choice. The Green Party of B.C. was non-existent and the Liberals of the day would surely be worse.

That explains why some in the environmental community were surprised when the NDP – that environmentally conscious party – turned on the carbon tax. It wasn’t a straight-ahead decision, according to Bill Tieleman, the former NDP communications specialist who is now a columnist for the daily newspaper 24 Hours. “There were some in the caucus who wanted to support the tax,” Tieleman says. “But Carole James, to her political credit, saw that this was a wedge issue.”

The subordinate clause in that sentence speaks volumes. James made a political decision and, by some interpretations, it was a great success. “I’m surprised they took on their own base on this issue,” says Vancouver Sun columnist Vaughn Palmer, referring to the backlash from the NDP’s environmental wing. “It was a bold thing to do, but politically very effective. They found themselves talking to people they’d never been able to talk to before: people who are anti-tax and who have always believed that the NDP would just pick their pockets. Politically, it was a very, very good move. And Axe the Tax was a great slogan.”

In the short term, the political results looked great as well. Having trailed in the polls pretty much since the election of Glen Clark in 1996, surveys in late August and early September of 2008 showed the NDP even with the Liberals or, in some polls, slightly ahead. The gambit seemed to have worked.

In  the course of the pitched political battle that unfurled last fall – a battle that is expected to rage again in advance of the May 12 election – a dispassionate observer might be forgiven for asking, Why all the fuss about carbon taxes, anyway? If that’s how you feel, Mark Jaccard is the man with the answers.

Jaccard has been a professor at SFU’s School of Resource and Environmental Management since 1986, not counting a five-year break in the 1990s when he sat as chair and CEO of the B.C. Utilities Commission – a position to which he was appointed by the NDP. Today Jaccard is a world-leading authority on energy economics, contributing to the Nobel Prize-winning work of the Intergovernmental Panel on Climate Change and sitting on the China Council for International Cooperation on Environment and Development as well as the Global Energy Assessment (a multi-year project of the Austrian-based International Institute for Applied Systems Analysis). “I have been saying for 20 years that the first thing we need to do if we are ever going to deal with climate change is to put a price on carbon,” Jaccard says.

What he means is that governments have to start charging people for dumping carbon-based pollution into the atmosphere – a process that is warming the globe dangerously. Whether it’s coming out of the tailpipe of your car or the smokestack of a major industrial emitter, the carbon dioxide that results from burning fossil fuels is airborne garbage that is exacting a global economic cost.

There are basically three ways to put a price on that carbon-garbage dumping, Jaccard says. The first, easiest and most efficient is by charging a carbon tax. It costs almost nothing to collect or remit such taxes because there are already people in government and business who manage payment and collection. All you have to do is change the numbers they work with. The carbon tax is also transparent. Consumers at every level can see what they are paying, which adds to its effectiveness as a policy tool. If people want to avoid the tax, they avoid the activity (burning fossil fuels) that is causing the problem. They save money and pollution goes down. Everyone wins.

The second carbon-pricing mechanism is usually called “cap and trade.” Government puts a “cap” on the total amount of carbon that can be emitted in its jurisdiction and then grants (or sells) permits allowing major industries to emit at current or slightly restricted levels. Industries that can easily reduce emissions do so, enabling them to sell their permits to industries that are more challenged.

It’s a good mechanism that worked well in reducing acid rain in North America, but it takes a substantial government bureaucracy and generates a private-sector administrative cost as well, employing brokers and traders who must manage the permit market. Consumers ultimately have to pay those additional costs, including profits for brokers and traders. It’s also easier to game cap-and-trade systems – to avoid paying your share – and it’s impossible to apply caps to individuals, so you miss the opportunity to affect fully half of all greenhouse gas emission sources.

The third pricing mechanism is regulation. For example, you can pass regulations limiting emissions from new cars – regulations that cost consumers money as car companies try to recover the costs of innovation. You can also specify that a certain amount of electrical energy must come from renewable sources, but this also drives up the cost of power to consumers as power companies experiment with new technologies.

All of these mechanisms cost money, Jaccard says, and in all cases those costs – big or small – are ultimately passed on to consumers. But in the second and third options, the costs are hidden from view, so while economists like carbon taxes, politicians tend to like cap and trade or regulation because they are more politically palatable. “That’s why I have never been an open, public advocate of carbon taxes, because politically they are just too difficult,” Jaccard says. “People inevitably link the politician to the rise in gas prices. If Gordon Campbell or [then finance minister] Carole Taylor had consulted me, I would have said, ‘Don’t do it.'”

Jaccard actually gave that advice to then federal Liberal leader Stéphane Dion, who ignored him, and, about three years ago, to current Liberal leader Michael Ignatieff, who backed away from his support for carbon taxes at the time. But when Jaccard saw the B.C. tax debate beginning, he changed tack. “It was such an amazingly honest and courageous thing to do,” Jaccard says of the Liberals’ tax. “But the real reason that I have defended it so aggressively is because there has been so much lying about it. It’s a difficult trade-off between trying to be honest versus opposing something to make gains politically,” he says of the NDP’s position. But it’s an ethical tradeoff, he adds, in which the NDP chose poorly.

The party has said they would “axe the tax” if elected and still reach or surpass the Liberals’ emission targets by imposing restrictions on industry – a feat Jaccard dismisses as impossible without some mechanism to influence the 50 per cent of all emissions that come from gasoline and home heating. The NDP has also said that rural and northern dwellers would be unfairly targeted by the tax because they live in colder climates and must deal with greater distances.

But Statistics Canada data show, for example, that the average urban commuter actually drives much farther on an annual basis and in heavier traffic. And BC Hydro released statistics last spring showing that northerners, living in smaller, better-insulated houses than their Lower Mainland counterparts, actually have competitive or even smaller hydro bills. The idea that the tax favours the Lower Mainland just doesn’t stand up.

Jaccard isn’t the only person angry with the NDP. Tzeporah Berman, who cut her environmental teeth on then premier Mike Harcourt during the internationally infamous 1993 campaign to save the forests around Clayoquot Sound, is perhaps in a greater rage. “It is unforgivable that a political party is deliberately misleading the public and using climate change to get a leg up,” says Berman, who last year left the advocacy group ForestEthics to create PowerUp Canada to build public engagement on climate change.

Berman made peace with the NDP during the Harcourt years and became a vocal NDP supporter. “I knocked on doors for those people,” she says. “But to say that another mechanism [besides the carbon tax] will work better and that this will hurt families – well, it’s just dishonest.” Berman says that the NDP’s opposition to the carbon tax, combined with its campaign against the introduction of smart meters that read and display people’s electricity consumption, shows that the party has turned full circle and now has an anti-environmental program.

Not surprisingly, NDP environment critic Shane Simpson has a different take. He is withering about the carbon tax, dismissing it as much too small to have an effect – even while arguing that it is too big for consumers to bear. (The B.C. tax came in at $10 a tonne, where the Swedish tax, for example, which has helped reduce carbon emissions in that country by eight per cent from 1990 levels, is $120 per tonne.) Simpson criticizes the Liberals for reducing income tax, which is “progressive” (the more money you make, the higher percentage you pay), in favour of adding a carbon tax, which is “regressive,” applying as it does to consumption. Simpson says the poor can’t avoid the carbon tax and the rich don’t care. Or in Bill Tieleman’s words: “It’s not revenue neutral to those who are paying it.”

Jaccard sneers at the point. He says it’s better to tax pollution than income. And he argues that the top 20 per cent of income earners consume energy at five times the rate of people in the lowest income bracket. The government also implemented rebates and tax credits to protect low-income British Columbians, which means they’re ahead of the game. In fact, in its first year, everyone was ahead of the game. Audited accounts show that in its enthusiasm to be “revenue neutral,” the government actually gave back in tax cuts more than it collected in carbon tax revenue.

Simpson argues that the Liberals let industry off the hook while punishing individual taxpayers, but Ministry of Finance officials point out that the government collected 70 per cent of its carbon tax revenue from industry or business while paying 60 per cent of all taxes collected back to individuals. Simpson promises that the NDP will institute a comprehensive cap-and-trade plan, which he believes will evolve, sometime in the next two years, from an initiative driven by U.S. President Barack Obama.

But the Liberals say they are committed to cap and trade as well. In fact, the Obama cap-and-trade agreement is expected to flow out of the so-called Western Climate Initiative, a collaboration of 11 U.S. states and Canadian provinces (including B.C.) that have been working on a cap-and-trade agreement since February 2007. Simpson also insists that the NDP can achieve some of its greenhouse gas-reduction goals through subsidies and incentives (for individuals and industries buying or developing green alternatives), but Jaccard dismisses these as exactly the kinds of policies that failed to slow emission increases under the NDP in the 1990s. In the immediate term, Simpson says a new NDP administration would rely on the recession to reduce economic activity – and thereby emissions – by the party’s targeted amount of three per cent per year.

 At time of writing, the NDP had not released its election platform, which may include an explanation of how the party plans to make up the revenue lost by cancelling the carbon tax while, at the same time, not reversing the Liberals’ income tax cuts. It is, say many observers, a political gamble. As national pollster Allan Gregg points out, the NDP has “a lower ceiling” than other parties. With the exception of the disastrous post-Glen Clark election of 2001, the NDP have always been able to count on at least 35 per cent of the popular vote, but the party’s share never rises above 42 or 43 per cent. When the right-of-centre vote has split – as it did in 1972, 1992 and 1996 – the NDP has ridden those votes to power. But when the right-of-centre block holds together, that ceiling keeps the NDP on the sideline.

This year, however, the split seems to be on the left. A February Mustel Group poll showed the Liberals at 52 per cent, having more than recovered from the carbon tax slide, while the NDP was back at 36 per cent and the Green Party was at 12 per cent. Tieleman and Simpson argue that the Green vote is always soft – parked there between elections. But if it stays parked or breaks toward the Liberals, the NDP doesn’t have a chance.

And it may well stay parked. David Suzuki, in a sharply worded letter to Carole James in February of this year, described the NDP’s stand on the carbon tax as a “terrible disillusionment.” “This is pure political opportunism and it hurts me to think what the party of Tommy Douglas and Jim Fulton has become,” he wrote. “It grieves me that a party I once worshipped as a party of principle is just another group lusting for power above all else.” The B.C. green movement’s spiritual leader is particularly unhappy because NDP campaign co-chair Gerry Scott used to work at the David Suzuki Foundation, running the climate change program and advocating for carbon taxes.

Suzuki, it should be said, is not an unreserved fan of the Gordon Campbell team. “The reality is that the Liberals’ other environmental policies are terrible,” he tells me quite bluntly. But climate change is the number one threat facing the natural world, and on that issue the NDP has broken faith – trading away the loyalty of stalwarts such as Suzuki and Berman for a chance to chat to the legions of people who are anti-tax and, traditionally, anti-NDP. Come election day, the party will find out if the gamble was worth it.