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B.C. carbon tax receives enthusiastic welcome

The carbon tax applies to the purchase or use of fossil fuel within the province. The tax rates starting on July 1, 2008, are based on $10 per tonne of CO2-equivalent emissions, increasing by $5 per tonne each year for the next four years to $30 per tonne in 2012. The government hopes that this gradual phase-in will make it easier for businesses and individuals to alter their habits and purchasing patterns. 

What the tax means in real terms immediately for tax payers is that there will be a tax on gas prices of 2.41 cents a litre as of July 1^st, and 2.76 cents a litre for diesel. Natural gas use will be hit by a 49.88 cents a gigajoule rise in price. Canadian bitumous coal, meanwhile, will face a tax of $20.79 a tonne. This will rise substantially over the next few years as well. Biodiesel and ethanol are classified as alternative motor fuels for all purposes and are exempt from the tax. Renewables such as wind and solar power, of course, are exempt from the tax.

Interestingly, biomass and biofuels are also exempt from the tax because it is reasoned that the CO2 they produce is offset by the carbon originally sequestered by the plants used to make the fuel.

The impact of these increases are being offset by a number of tax reduction measures elsewhere. The general corporate income tax rate will be cut from 12 per cent to 11 per cent. By 2011, that rate will be further reduced to 10 per cent. Meanwhile, the small business tax rate will be reduced to 3.5 per cent from 4.5 per cent. This will be reduced to 2.5 per cent by 2011.

There are also a number of PST exemptions that could help certain businesses and municipalities, such as:

• PST exemption for production machinery and equipment for local governments for power production and cogeneration.
• PST exemption for biodiesel fuel, including the portion of biodiesel fuel used in a furnace oil blend, when used for heating or other uses.
• PST exemption for insulation designed to prevent heat or cold loss from hot water tanks, hot and cold water pipes, and ductwork.
• PST exemption for certain aerodynamic devices purchased for use on commercial motor vehicles.

There are some exemptions to the new tax; emissions resulting from industrial processes such as the production of oil, gas, aluminum and cement, as well as emissions from landfill and other sources, will not be subject to the tax. The budget states that it is “technical measurement issues” that create a challenge to including these in the tax base, and the variability of emissions from facility to facility. More importantly, many of these industries will likely be subject to the cap and trade system or other greenhouse gas (GHG) emissions reductions measures now under development.

The B.C. government took a tentative but still brave step with the introduction of this new tax. By keeping competitiveness in mind as it developed its plan, it dodged what could have been a very negative reaction from industry and the public at large.

Federal environment minister John Baird has rejected the idea of a carbon tax, but it will be interesting to see how other provinces respond to B.C.’s move.