Even Eby government will scrap B.C.’s poorly-designed carbon tax

According to Premier David Eby, his government will scrap British Columbia’s consumer carbon tax if Ottawa scraps the requirement to tax carbon emissions. BC Conservatives Leader John Rustad has also promised to axe the tax if he’s elected premier in the provincial election next month. This is good news for British Columbians.

While carbon taxes are theoretically the most cost-effective way to reduce greenhouse gas (GHG) emissions, real-world experience consistently shows they’re almost always poorly designed, resulting in significant costs for both consumers and the broader economy.

B.C.’s carbon tax, introduced in 2008 by Gordon Campbell’s BC Liberal government, is currently $80 per tonne and set to incrementally increase to $170 per tonne by 2030. Again, economists generally agree that carbon taxes are the least-costly way to reduce GHG emissions because they provide flexibility to businesses and consumers in choosing how to reduce their carbon footprint. However, design is crucial. To be cost-effective, carbon taxes must meet certain conditions, and B.C.'s carbon tax suffers from serious design flaws that impose steep costs on British Columbians. 

One key principle of an efficient carbon tax is “revenue neutrality,” which means all carbon tax revenue is returned to taxpayers rather than spent by government, ideally by reducing personal and business income taxes, which discourage productive activities such as entrepreneurship and investment. In other words, using carbon tax revenue to reduce other taxes can improve economic growth. 

When the B.C. government originally introduced its carbon tax, it was revenue neutral. In fact, in the first five years of the tax, the government implemented four tax reductions (e.g. cuts to the bottom two personal income tax rates) to ensure revenue neutrality. However, over time, the government abandoned its revenue-neutral approach, and the revenues gradually went into the government’s coffers to be spent like any other source of revenue. So much for revenue neutrality. 

An efficient carbon tax should also replace existing GHG-related regulations and prevent future regulations. However, since the carbon tax’s inception, not only has the B.C. government failed to repeal any existing GHG-related regulations, it’s introduced new regulations including the Clean Electricity Standard and the Low-Carbon Fuel Standard. These regulations short-circuit the function and rational of a carbon tax and consequently impose higher costs on British Columbians and reduce their living standards.

Indeed, according to a 2021 study, B.C.s carbon tax is expected to shrink the provincial economy by 1.6 per cent by 2030 and lead to an estimated 21,538 permanent job losses. The burden falls on British Columbians who already face affordability woes.

It’s no wonder both the NDP and BC Conservatives want to scrap B.C.’s carbon tax, or at least the portion that hits consumer directly. While a well-designed and properly implemented carbon tax can effectively reduce GHG emissions, B.C.’s version is poorly designed. British Columbians deserve better than a flawed policy that does more harm than good.