Carbon Taxes
Posted October 7, 2016
The government of Nova Scotia has declared itself upset by the federal imposition of a carbon tax. In secret, they should be pleased.
The federal government has said that the provinces must create their own carbon tax regime, or they will do it for them. In either event, all the money will go to the province.
The tax starts at $10 per ton in 2018 and grows to $50 per ton in 2022. At that point, it will add 11 cents a litre to the price of gasoline.
The government in Nova Scotia protests, arguing that the province has already exceeded the national goal for reducing greenhouse gas emissions. In fact, Nova Scotia’s position on that account is a bit weak.
Even after the reductions, we produce 73% of our electricity by burning fossil fuels—perhaps the highest rate in Canada. Worse than that, the province rebates the 10% provincial portion of HST on home heating and electric bills. Instead of taxing carbon emissions, we are subsidizing them to the tune of $110 million this year.
The federal government’s initiative gives the provincial Liberals a chance to fix that and some other problems, with their federal counterparts getting the blame for the politically unpleasant parts.
Carbon taxes are an excellent way to reduce greenhouse gas emissions, if everyone has them. If the United States and some other countries don’t tax them, the tax risks just displacing the carbon producing activity and associated jobs to those jurisdictions.
Consider the example of Port Hawkesbury Paper, which consumes 10% of the electricity in the province. A tax growing to $50 a ton in 2022 would cost it more than $30 million per year, and could easily put it out of business.
The federal government seems to recognize that. It has said that the province can do whatever it wants with the money. That would include providing refundable tax credits (a euphemism for handouts) to the company to offset some or all of the carbon tax.
Even after rebates to paper companies, Michelin, and a few others, there would be a lot of new money for the provincial treasury. What to do with it?
British Columbia has been the pioneer in establishing a carbon tax, and it made a point of making it revenue-neutral by using the money to reduce other taxes. That is the example Nova Scotia should follow.
First priority would be to reduce tax rates on low income earners. A single Nova Scotian earning $20,000 pays the same tax as a counterpart in Prince Edward Island, and more than anyone else in Canada. At $50,000, tax on the single Nova Scotian is second only to Quebec. Nova Scotia is tied with several provinces for the highest sales tax.
A second area for consideration is the maximum tax rate of 54% on taxable income from employment above $200,000. Helping that group may seem politically unattractive, but marginal tax rates above 50% have a serious detrimental impact on the efforts of important large employers to attract and retain key executives.
It also discourages companies from establishing head offices here and successful entrepreneurs from staying. The province gets no tax revenue from people who leave. The net impact of the 54% rate on tax actually collected by the province may be negative.
Instead of the carbon tax, the province has the alternative of establishing a cap and trade system. The impact of that is murky, and it does not provide the opportunity to fix some of the problems in our present tax regime. Take the money.
Meanwhile, the federal government’s effort will be more of a success for its political fortunes than for the planet.
In May 2015, the Conservative government pledged to cut emissions 17 per cent from 2005 levels by 2020, and 30 per cent by 2030. Having declared that as a floor, the Liberals have on this file—and several others—quietly adopted the Conservatives’ policy.
These goals will not be enough to support our commitments under the just ratified Paris climate agreement. Nor is it likely that these measures will achieve those goals. Plus ça change…
But with the NDP and environmentalists denouncing it as inadequate and the Conservatives saying it is too much, the Liberals are positioned just where they want to be.