How B.C. brought in Canada's 1st carbon tax and avoided economic disaster

Eleven years ago, Jock Finlayson and his colleagues at the Business Council of B.C. were mildly alarmed by how quickly Gordon Campbell's provincial government implemented North America's first broad-based carbon tax.

"We were concerned, to be candid, about what the implications of this would be for our members and for the business community generally," Finlayson, the council's chief policy officer told CBC.

Today, after watching the tax in action for more than a decade, he still doesn't love it, but he's also seen the advantages of putting a price on pollution.

"I'd say in macro [economic] terms, because of the way the policy was designed, it's probably been a wash. In other words, I don't think it's either helped or hurt overall growth in the provincial economy," he said.

As the last four provinces to resist carbon pricing are dragged into a new federal tax scheme, the country's oldest carbon tax might serve as a good example of what to expect.

'Good for the environment and the economy'

To be clear, not everyone is happy with the tax. The right-leaning Fraser Institute argues it makes B.C. less attractive for investors.

"The end result is less investment, lower rates of job-creation, and fewer opportunities for British Columbians to prosper," the institute's Niels Veldhuis and Charles Lammam wrote in a 2017 op-ed opposing increases to the tax.

And Finlayson said he's still concerned that businesses in industries like pulp and paper, mining and food processing can't compete with rivals in other provinces because of the high price of energy in B.C.

But the economists who spoke to CBC for this story suggest B.C.'s tax is working as it should. By making pollution more expensive to reflect the environmental costs, the tax appears to have changed the behaviour of British Columbians and led to a drop in greenhouse gas emissions.

At the same time, while sectors of B.C. economy that consume a lot of energy have suffered from the higher cost of fuel, others, apparently spurred by corporate tax cuts, are thriving.

"This carbon tax is a model for the world that well-designed carbon pricing can be good for the environment and the economy. In the 11 years since B.C. brought in its carbon tax, it's outpaced the rest of Canada both on emission reduction and GDP growth," said Stewart Elgie, a professor of law and economics at the University of Ottawa.

Looking back, the origin story for B.C.'s carbon tax sounds counterintuitive.

The tax, first set at $10 per tonne of carbon dioxide emissions, was brought in by a B.C. Liberal government — the equivalent of a conservative administration in most parts of the country.

But that was July 2008, before the true onset of the global financial crisis. Al Gore's climate change documentary, An Inconvenient Truth, was still fuelling a wave of concern about greenhouse gas emissions.

"It was a very popular tax. I think it caught both the NDP and the Greens provincially off guard," said pollster Mario Canseco, president of Vancouver's Research Co.

The NDP launched an "axe the tax" campaign, arguing it would kill jobs, and leader Carole James promised she'd dump it if she were elected premier in the 2009 election.

She wasn't, and the Liberals helped ease British Columbians into the idea of a carbon tax by making it revenue neutral. Taxpayers received rebates, and the province lowered corporate and personal income taxes.

NDP embrace the tax

Since then, the provincial NDP has come around on the tax. When the party came into power two years ago, James was named finance minister, and she's overseen a thaw of the carbon tax rate, which had been frozen since 2012.

As of April 1, B.C.'s rate is $40 per tonne of carbon dioxide emissions, which translates to 8.89 cents per litre of gasoline. It's set to top out at $50 a tonne in 2021.

In the meantime, numerous researchers have tried to determine the impact of the tax. According to a 2015 paper, B.C.'s emissions had dropped by between five and 15 per cent since the tax was implemented, and it had a "negligible impact" on the overall economy.

Elgie, of the University of Ottawa, was part of a wide-ranging 2013 study that showed a 19 per cent drop in B.C.'s per capita fuel consumption in the first four years of the tax, while the province's economy slightly outperformed the rest of the country.

"The other side of the carbon price is that it creates an incentive for innovation," Elgie said. "B.C. has now become a leader in clean technology."

He pointed to Squamish's Carbon Engineering, which has developed technology that it says can suck carbon dioxide from the atmosphere and turn it into fuel.

Sumeet Gulati, a professor in food and resource economics at the University of British Columbia, has studied the impact of the carbon tax on consumer choices — particularly, the choices of drivers.

A 2016 research paper he co-wrote suggests the carbon tax has pushed B.C. drivers to choose cars that are more fuel efficient.

"If we didn't have it … we'd be at least emitting on average seven per cent more per person in B.C. in terms of carbon emissions while driving, and cars would be about four per cent less fuel efficient," Gulati told CBC.

Room for improvement

In recent years, the province has abandoned the idea of keeping the tax revenue neutral, and is now using some of the proceeds to encourage development of green technologies.

The folks at the Fraser Institute say that's a mistake.

"Firms in British Columbia now not only face the highest carbon tax in North America, but they no longer enjoy any of the offsetting benefits that briefly existed as a result of lower [corporate income tax] rates," the authors of a January report wrote.

Gulati also believes a return to revenue neutrality is essential.

"It's important to make it politically resilient, despite who comes into power," he said.

On the other hand, he'd like to see the rate keep rising, up to $75 or even $100 per tonne of emissions.

As for Finlayson at the Business Council of B.C., he'd like to see more support for businesses that have been hurt by the tax, including exporters, manufacturers and pulp and paper mills.

He'd also like to see a true Canada-wide carbon pricing scheme that would put businesses on an even playing field while tackling emissions.

"It's unfortunate that the whole national climate change policy framework is in disarray at the moment because of all the opposition that we're seeing from some provinces and some political parties," he said.

"If we're going to deal with this climate change issue and do so through a sensible carbon pricing regime, the logic is very powerful to try and do that in a coordinated, pan-Canadian way."