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The Sustainable Economy

Carbon Tax: the Vancouver solution

by Jeff Spross

The market is really just a giant computer, the biggest problem-solving tool at our disposal. A carbon price is how we tell the computer that climate change is a problem that needs solving.


Across America, the impacts of climate change are already being felt as temperatures rise, droughts are prolonged, and weather becomes increasingly severe and unpredictable. But solutions seem few and far between — and solutions that both sides can agree on even fewer. Outraged Republicans and recalcitrant conservative Democrats cut down the cap-and-trade bill in 2009; and President Obama’s promised regulations are probably destined for years of give-and-take between the Environmental Protection Agency, the courts, and the power industry. The result: America remains one of the few advanced nations with no national policy of any sort to curb its carbon dioxide emissions.

But there’s something happening north of the border that can give Americans a glimmer of hope. Liberals like its effectiveness, conservatives like its lack of bureaucracy, economists like its elegance, and businesses like its freedom to experiment. It integrates with policies like renewable energy standards more easily than cap-and-trade. It can be easily replicated by other countries for a coordinated and global effort. Lawmakers in California and Massachusetts have already proposed it. Any state could use it to fulfill their obligations under EPA’s coming carbon rules. And if done right, the legislation could be written on a single page.

It’s a carbon tax
Put another way, it’s a price on carbon pollution. And here’s how it would work...The market is really just a giant computer. It runs on prices rather than electrons, but it’s a computer nonetheless — the biggest humanity has ever devised. That makes it the biggest problem-solving tool at our disposal. And a carbon price, in essence, is how we tell the computer that climate change is a problem that needs solving. It isn’t all just theory, either: in the Canadian province of British Columbia, a carbon price is already in operation. And by all accounts, it’s working fine.

What the U.S. can learn from Vancouver
In American politics, the first worry is that a carbon price would slow down the economy and hurt job creation. But Kim Hauner says that hasn’t been a problem for Vancouver, British Columbia’s biggest city:

“Living in Vancouver you would’ve felt that. It’s in the air. Vancouver’s done extremely well.”

Hauner owns Interstyle Ceramic and Glass in the city, which he co-founded company with his brother back in 1977. Today, they employ around 150 people, making those decorative ceramic tiles that often spruce up the floors and walls of people’s homes.

A 2013 study by the group Sustainable Prosperity backs up Hauner’s observations. The tax went into effect in July 2008, after being passed by British Columbia’s provincial government. The global recession hit a few months later, and British Columbia’s economic growth rebounded at the same rate as the rest of the country. Hauner says:

“When you want to make something here and compete against somewhere else, it’s very unlikely that you’ll compete on the basis of price. We have a high cost of living, so that reflects in the wages you have to pay. It reflects in the transportation costs and everything else. Businesses that are located here had to adapt to that before we talked about the carbon tax.”

British Columbia’s government also made it much easier for people to adapt by taking the revenue and plowing it right back into the economy. They cut income taxes for the province’s two lowest brackets, set up a system of quarterly lump-sum rebates to low-income families to offset the increase in energy prices, and trimmed taxes for corporations and small businesses. When NPR’s Planet Money talked with Henry Jacoby, an economist at MIT’s business school, about this approach of immediately recycling all the revenue back into peoples’ wallets, he said the models show it basically eliminates any drag on the economy.

Amusingly, this budget-neutral approach also makes BC’s carbon price compatible with the “No Climate Tax” pledge put out by the Koch-backed Americans for Prosperity, and signed by large portions of the GOP. The pledge’s language expressly singles out legislation “that includes a net increase in government revenue.”

A Carbon Price On The Ground
The revenue is collected at the point of sale for a range of fuels that produce carbon emissions — transportation, home heating, electricity generation, and more. Sales for all of them fell 17.4% in British Columbia from 2008 to 2012. In the rest of the country, sales rose 1.5% over the same period. Fuels for air travel, however, were largely exempted from the carbon price. Their use remained the same for both the province and the country as a whole, making a strong case that the tax is having the desired effect.

In Hauner’s case, he used fossil fuels to run pieces of equipment like forklifts, and to power his kilns — the massive chambers, 150 to 200 feet long, in which the tiles are heated. “The forklift we used outside in the yard was diesel powered. So we had the option to buy one that’s either propane powered or an electric one,” Hauner explained. “We chose to go electric.”

Most of BC’s electricity comes from long-established hydropower dams, making it a relatively climate-friendly and affordable switch. But some of Hauner’s kilns were just too large to be heated by anything other than natural gas. So he conserved energy there by recycling the heat from the kilns to dry out the tiles as well. “Instead of buying some equipment that perhaps burns new fossil fuels, we siphoned the heat from the existing ovens and used that in the driers,” he explained.

Instead of tackling every form of energy use individually — with, say, efficiency standards for light bulbs or bans on high-wattage vacuums — a carbon price just makes every use of fossil fuel a bit more expensive. That essentially turns every home and businesses into a laboratory, seeking the cheapest and most effective way to cut emissions in their particular circumstances. It’s another reason economic models show a carbon price having so little effect on job growth. Says Hauner,

“You’re always thinking, ‘How am I going to tweak things a little bit? So instead of just saying, ‘Power’s so cheap, don’t need to worry about it,’ we’re now considering a little further down the line.”

The design of BC’s carbon price helps with that forward planning as well. It started at C$10 per metric ton of carbon emissions in 2008, then ramped up over the next four years to C$30 per metric ton in 2012. Shifting to American dollars and tons, that would be $9.29 per ton and $27.88 per ton, respectively. That worked out to an increase in BC’s gas prices of 6.67 cents per liter, or around 23 cents per gallon in American dollars.

That price per ton falls in the middle of the U.S. government’s recent estimates of the social cost of carbon. Look at the full range of studies and $27.88 per ton is actually on the low end. (Though it’s probably about as high as U.S. politics would realistically tolerate).

Power may be cheap today, [but] you really want to think about how you’re going to get that power in twenty years. The scaling up of BC’s carbon price enables people and businesses to plan ahead and continue to look for ways to cut their emissions. As Hauner points out,

“Power may be cheap today, but what happens if it starts to creep up? The investment that’s made today, if it’s going to be something for twenty years, you really want to think about how you’re going to get that power in twenty years.”

A Cultural Shift
Granted, the carbon price isn’t the only thing cutting British Columbia’s carbon emissions. The car-sharing company Car2Go is big in Vancouver, bike routes are increasing, and a mass transit system called SkyTrain was put in place. Vancouver also sits near the U.S. border, so residents may be crossing into the states to fill up on gasoline where the tax isn’t in effect — thus artificially driving down fuel use within the province.

The Sustainable Prosperity study tried to account for this possibility. The researchers pointed to how BC’s aviation fuel use matched Canada’s, while other fuel use diverged, as evidence that cross-border shopping isn’t a major factor. Another study, carried out by Nicholas Rivers and Brandon Schaufele of the University of Ottawa, noted that 95% of BC’s population would have to drive two hours or more to reach the neighboring province of Alberta. Shopping in America would require crossing an international border, which presents practical difficulties. And at first blush at least, fuel consumption in Washington State, Alberta, and the Northwest Territories show no obvious evidence of displaced demand from BC. Rivers and Schaufele also found that the carbon price cut gasoline consumption seven times more than an equivalent change in price from a regular market shift. They speculate the reason may be cultural. The carbon price didn’t just signal a province-wide effort to tackle carbon emissions; it ensured fairness in that effort. People who reduce their emissions aren’t just rewarded with a warm glow in their stomachs, but with lower bills. For his part, Hauner doubts the average BC resident is really aware of or understands the carbon price.

“There’s all sorts of taxes on gasoline. There’s taxes for urban areas, there’s taxes for transportation improvements, and then there’s the carbon tax. All they see is their fuel bill has gone up.”

But businesses, he says, feel the price much more directly. So if there’s anything to Rivers and Schaufele’s cultural theory, maybe it’s occurring within the business community specifically.

Getting closer to harmony
According to numbers from the International Monetary Fund, the absence of a carbon price in America means we’re implicitly subsidizing fossil fuels by a whopping $502 billion a year — far more than any other country on Earth. Between that and our global leadership role, the United States is ground zero in the fight against climate change. But despite ostensible support from politicians, voters, and economists across the political spectrum, a carbon price remains little more than a suggestion floating around Capitol Hill.

According to Sustainable Prosperity’s analysis, BC’s greenhouse gas emissions dropped 10% from 2008 to 2011 — 8.9% more than in Canada writ large. The carbon price is now scheduled to stay where it is for the next five years, as the provincial government decides what to do next. It’s the same government that implemented the policy in the first place, and it’s survived another election since.

Canadian politics as a whole has fallen in love with the money from its recently-discovered and carbon-heavy oil sands. But Hauner doesn’t think things will change for British Columbia any time soon:

“I don’t think you’ll find great opposition to the carbon tax. I’ve never seen of it or heard of it. We all live here because of how we feel about nature.”

◊ Jeff Spross is a reporter and video editor for
    Publ. here 3.3.2014

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