November 2016, Opposition Pieces

Pros and cons of revenue-neutral carbon taxes

The introduction of a revenue-neutral carbon tax would be beneficial to the Canadian economy and to the average Canadian citizen.

The Trudeau government recently announced that the provinces of Canada will have until 2018 to put in place a carbon pricing system before the federal government does so in their place. The system would be revenue neutral for the federal government, meaning that all revenue generated would stay in the province or territory where they were generated. This announcement came as a shock to some. However, a revenue-neutral carbon tax would be beneficial to the Canadian economy and to the average citizen.

First, the revenue generated by the carbon tax could be used to cut personal income tax rates, which means that citizens would not have to pay the price for a greener nation. The revenue could also be used to cut corporate tax rates, which would be beneficial in business, and promote the creation of jobs. If we look at British Columbia’s revenue neutral carbon tax as an example, we can see that it has been a success. Indeed, per-person consumption of fuels have dropped by 16% in the province between 2008 and 2014 while they rose 3% overall in Canada during that same time period (The Economist, 2014). The revenue generated from the carbon tax has been used to cut personal income tax rates, and BC now has the lowest income tax rates in Canada. The province cut $760 million more in taxes than needed to offset the cost of the carbon tax (Beaty et al., 2014). This shows that a revenue neutral carbon tax would be financially beneficial for the average Canadian. British Columbia also has one of the lowest corporate tax rates, thanks to the revenue generated by the carbon tax. Their economy has continued to keep up with the rest of Canada’s economy.  Employment rates have increased by 2% in the six years following the implementation of the tax (Yamazaki), proving once and for all that carbon taxes do not kill jobs.

Furthermore, carbon emissions have a negative impact on human health and on the economy. High levels of air pollution, often due to carbon emissions, are shown to increase the rate of cases of respiratory illnesses such as asthma and even diseases potentially leading to death (Jacobson, 2008). On top of its human cost, air pollution also costs the Canadian economy over $8 billion per year (Beaty et al., 2014).

Given the overwhelming evidence and the numerous examples of its successful applications, it is clear that a revenue neutral carbon tax would be beneficial to the average Canadian citizen and to the Canadian economy.

Written by MWR writer Ila Ghoshal, edited by the MWR team

The introduction of a revenue-neutral carbon tax would be detrimental to the Canadian economy and to the average Canadian citizen.

Environmental change and sustainability is a recurrent theme in any political discourse taking place today in Canada and other Western Liberal democracies. The Canadian government has recently introduced the issue of a carbon tax, most specifically a revenue-neutral one.  While a carbon tax might at times be beneficial and necessary, the implementation of a revenue-neutral one right now would be detrimental to the Canadian economy and to the average Canadian citizen.

Firstly, a revenue-neutral carbon tax does not mean that it will be sector-neutral, as this discriminates against populations living in suburban and rural areas. Indeed, for people living in cities, the consequences of a carbon tax can be significantly mitigated by favouring, for example, the use of public transit over automobiles. However, that is not an option for populations living in suburban or rural areas, since public transit is either non-existent or significantly less present in these locations.  Furthermore, citizens living and working in rural areas generally work in fields in which the use of petrol-powered vehicles is essential (agriculture, mining sector, energy sector, forestry, etc.), so that the tax burden falls even more heavily on their shoulders. Considering that the great majority of Canadian citizens live in urban areas, the heaviest burden would fall on a small percentage of people living in rural areas and earning considerably less than the ones who are least affected by this tax. Therefore, this “revenue-neutral” carbon tax is inherently unfair and discriminatory toward citizens working and residing in rural or suburban areas.

Secondly, the introduction of a carbon tax would harm the Canadian economy by negatively affecting certain industries such as agriculture and the energy sector. For agriculture, the problem rests in the sensitivity to price of the demand for agricultural goods in the international market. The implementation of a carbon tax would increase the price of Canadian products, and as a result, importers would shift their demand to other countries that are unlikely to introduce a carbon tax and which offer more competitive prices. For the energy sector, the problem resides in the low oil prices of the past year and a half or so. Indeed, the energy sector is currently under tremendous pressure, as markets are saturated and experts predict that the current trend of low oil prices will continue for years. Adding the burden of a carbon tax to the poor market conditions would only result in stretching an already taut rubber band: at some point, it will snap. Thus, the implementation of a carbon tax would only harm the Canadian economy right now, even if the tax is revenue-neutral.

As a result, the introduction of a revenue-neutral carbon tax can only be detrimental. It is detrimental for individuals because it is essentially discriminatory towards a small portion of the Canadian population on which the tax burden would fall. It is detrimental to the economy because it puts stress on an already weak energy sector and makes Canadian industries less competitive. The solution to environmental sustainability and to the reduction of greenhouse gas emissions isn’t a revenue-neutral carbon tax, but rather an active investment in renewable energy sources and in emission-cleaning technologies.

Written by MWR writer Raymond Zuo, edited by MWR reviewer Rebecca Windheim

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