Skip to content

Revenge of the Carbon Tax

Above all else, I believe in pragmatism. Laws and policies should be evaluated not by ideology, but by whether (or not) they work. As such, it has been very interesting to see results from things like marijuana legalization in (first) Colorado and now Washington state, or the availability of free or low-cost contraception on teen pregnancy and abortion rates in Colorado.

And here’s another one, but this time from Canada, and it is rife with irony. I’m sure most Americans don’t know it, but the current Prime Minister of Canada, Stephen Harper, is a conservative (similar in some ways to conservatives in the US). For example, he has repeatedly claimed that a carbon tax to fight climate change would “destroy jobs and growth”. Sound familiar?

There’s just one big problem. One of Canada’s largest provinces, British Columbia, has had a carbon tax for the last six years, and rather than being a “job killer”, BC’s economy has outperformed the rest of Canada over the same time. How? The carbon tax was designed to be “revenue neutral” — by law the funds raised by the carbon tax must be matched by cuts in other taxes (similar provisions have been included in carbon taxes proposed in the US). In fact, the province has cut more in income and other taxes than it has raised from carbon taxes. As a result, BC now has the lowest personal income tax rate in Canada and one of the lowest corporate tax rates in North America. And BC’s GDP is doing better than the rest of Canada.

And that doesn’t count the health and economic benefits from reducing pollution caused by burning fossil fuels.

How has the carbon tax done in reducing carbon emissions? Extremely well actually. Since the tax was enacted, fuel use in BC has dropped by a stunning 16%, while in the rest of Canada fuel use has gone up 3%. To put that in perspective, Canada’s Kyoto accords target was a 6% reduction in 20 years, but BC managed a 16% reduction in just six.

To borrow (and mangle) a phrase from Obama, I’m not against taxes, but I’m against stupid taxes. I think our taxes are completely wrong. We tax things that we should be encouraging, like income and sales, while not taxing things that we should be discouraging, like pollution and the consumption of scarce resources. A carbon tax that offsets income and sales taxes has always seemed like an good idea to me. It is heartening to see strong evidence that it actually works, with excellent results.



  1. ebdoug wrote:

    I hope this post of yours “goes viral”.
    I’m always always shocked when I hear people tell me they “like to shop” if only window. And, of course, they drive to get there.

    Friday, July 11, 2014 at 5:53 am | Permalink
  2. tmfct wrote:

    The problem with revenue neutral is that over time, you want the carbon tax to collect zero. As we use less and less fossil fuels, we pay less and less taxes, and then if we want to keep the government functioning, we need to go back and raise the taxes we already reduced. And going back and raising taxes is very problematic.

    Friday, July 11, 2014 at 6:37 am | Permalink
  3. Michael wrote:

    Yes, the long-term goal is for the carbon tax to collect zero. But that is not going to happen now or any time soon. Carbon taxes are a short- to medium-term solution to an immediate crisis.

    And to go back to the first two sentences of IK’s post: When the carbon tax stops working and fails to provide adequate income, then it’s time to look at a new model. But for now, it’s a good model.

    Friday, July 11, 2014 at 6:42 am | Permalink
  4. Dougie wrote:

    If companies, and individuals, have to pay for the costs of the pollution they generate they’re going to have a tremendous incentive to reduce pollution.

    Friday, July 11, 2014 at 7:02 am | Permalink
  5. Iron Knee wrote:

    Maybe if we significantly reduce pollution, reduce the wars we fight for oil, reduce hurricanes and flooding exacerbated by global warming, and other benefits of weaning ourselves off fossil fuels, then we won’t need as many taxes. It’s a win-win!

    I also want to point out a logical fallacy of TMFCT’s comment. If the carbon tax (or any tax) is revenue neutral, then you lower other taxes to balance the additional revenue brought in. So if the carbon tax stops bringing in as much revenue (which is good) then you can stop lowering the other taxes and you will still be revenue neutral. For example, we could structure it as a refund or kickback — each year take the money raised by carbon taxes and refund people’s income, property, or sales taxes by the same amount. Oregon has done this since 1980 with their “kicker”. See

    Friday, July 11, 2014 at 10:03 am | Permalink
  6. Iron Knee wrote:

    By the way, if anyone wants a post to “go viral” there is a “share/save” button after every post that makes it easy to repost to various websites. Totally up to you of course.

    Friday, July 11, 2014 at 11:04 am | Permalink
  7. Thanks for a marvelous posting! I quite enjoyed reading it, you
    might be a great author.I will be sure to bookmark your blog and may come back sometime soon.
    I want to encourage yourself to continue your great work,
    have a nice morning!

    Monday, July 14, 2014 at 9:10 am | Permalink