British Columbia implemented a carbon tax in 2008 that has increased over time. The tax raises about $1.2 billion annually, which is used to lower personal and corporate income taxes, making BC's taxes among the lowest. Studies found the tax responsible for a 5-15% reduction in greenhouse gas emissions with no impact on overall GDP growth. While some sectors like manufacturing contracted by 5-7%, the tax led to a shift to cleaner sectors and the creation of about 5,000 new jobs per year. The tax was designed to offset costs for low-income households but evidence is mixed on how well it compensates them. Support for the tax has risen over time but remains lowest in older, rural males.

1. Integration of carbon pricing with fiscal
reform
The case of British Columbia’s carbon tax
Nicholas Rivers
Graduate School of Public and International Affairs
and Institute of the Environment
University of Ottawa
North American Climate Policy Forum
June-22-23 2016, Ottawa

2. BRITISH COLUMBIA’S CARBON TAX
Carbon tax on all combustion greenhouse gases
implemented in July 2008.
Initially $10/t CO2, increased to $30/t CO2 by 2012. Works
out to about 7 c/L on gasoline.
Tax raised about $1.2B in 2015. Equivalent to 5% of
provincial government tax revenue, or 0.5% of provincial
GDP.
All revenue from tax used to:
Reduce personal income taxes
Reduce corporate income taxes
(There has been a move away from broad-based reductions
in taxes to more targetted reductions since 2013)
BC now has amongst lowest income taxation in Canada
(for corporations and individuals earning up to $75,000)
OECD refers to policy as “a textbook example of good
climate policy” (simple, cost effective, environmentally
effective)

3. FUEL USE IN BRITISH COLUMBIA
Simulation model suggests roughly 10% reduction in
provincial greenhouse gas emissions due to tax (Beck, at
al., 2014)
Overall, a body of evidence suggests that the carbon tax is
responsible for a 5-15% reduction in greenhouse gas
emissions in BC (Murray and Rivers, 2015).

4. OVERALL ECONOMIC PERFORMANCE IN BRITISH
COLUMBIA
No empirical evidence that overall GDP growth worsened
as a results of carbon tax (Metcalf, 2015)
This is consistent with model-based simulations of the
carbon tax (Beck et al., 2015)
CGE model simulation suggests that BC carbon tax reduced
income in the province by 0.06% (about $30/person/year)
Results from CGE model suggest that recycling of revenue
by cutting taxes cut economic impact of carbon tax in half
Emerging empirical evidence suggests that carbon tax had
a positive impact on overall employment in BC (Yamazaki,
2015), creating about 5,000 new jobs/year.

5. IMPACT OF THE CARBON TAX ON SECTOR
PERFORMANCE
A major concern of policy makers is the distributional
impact of a carbon tax.
New evidence is emerging about sectoral impacts of BC
carbon tax.
Rivers and Schaufele (2015) find no impacts of the carbon
tax on agricultural commodity trade.
Yamazaki (2015) uses aggregate sector data and finds a
significant shift in economic structure from dirty
(manufacturing/extractive) to clean (service) sectors as a
result of the carbon tax.
Yamazaki (2016) uses plant-level data for manufacturing
firms only. His results suggest a contraction of the
manufacturing sector by about 5-7% in BC due to the tax.

6. IMPACT OF THE CARBON TAX ON DISTRIBUTION OF
HOUSEHOLD INCOME
A persistent concern associated with carbon pricing is that it
could be regressive.
The carbon tax in BC was designed to offset carbon tax
payments for low-income households with tax credits.
There is mixed evidence on whether these are large enough to
completely compensate low-income households (Lee and
Sanger, 2009; Beck et al., 2015).

7. IMPACT OF THE CARBON TAX ON DISTRIBUTION OF
HOUSEHOLD INCOME (2)
In response to complaints from Northern/Rural British
Columbians , a new tax credit was introduced. A modeling
study (Beck et al., 2016) suggests that:
1. this tax credit was mostly unnecessary
2. it over-compensated Northern/Rural households
3. it reduced support for the tax in Northern/Rural areas

8. POLITICAL SUPPORT FOR THE CARBON TAX
Polls suggest that the tax was initially met with opposition,
but that respondents have become more supportive. More
than half of respondents now typically support the tax.
Opposition is strongest in older males with medium to low
income, living in smaller communities. (Support is
strongest in younger females with high income, living in
large urban areas).
Rivers and Murray, 2015

9. WHAT HAVE WE LEARNED?
British Columbia went through a bold experiment in
environmental tax reform. What have we learned?
Environmental tax reforms can be effective in addressing
environmental problems
Modest environmental tax reforms can be implemented
with little or no aggregate economic cost
There is some evidence of a structural shift in the economy
in response to the carbon tax
Overall, support for the carbon tax is fairly high, but
remains low in certain populations
Deep greenhouse gas reductions require a much higher
carbon price than currently in place in British Columbia