How the Carbon Tax Works

The carbon tax applies to the purchase or use of fossil fuels within the province. The amount of GHGs emitted when a unit of fossil fuel is burned depends fundamentally on the chemical make-up of the fuel, particularly on the amount of carbon in the fuel. That fact allows for a relatively simple administrative process for applying the carbon tax.

Administratively, the carbon tax is applied and collected at the wholesale level in essentially the same way that motor fuel taxes are currently applied and collected, except marketable natural gas and propane which is collected at the retail level the same as provincial sales tax. This minimizes the cost of administration to government and the compliance cost to those collecting the tax on government’s behalf.

The tax rates on July 1, 2009 are based on $15 per tonne of CO2 equivalent emissions, increasing by $5 per tonne each year for the next three years to $30 per tonne in 2012. Allowing this relatively long phase-in period up to the $30 per tonne level is intended to give people and businesses time to adjust their habits and purchasing patterns, and to respect decisions taken before the tax was announced, such as vehicle purchases.

Since different fuels generate different amounts of GHG when burned, $15 per tonne of CO2 equivalent must be translated into tax rates for each specific type of fuel. The following table shows the per unit rates for selected fossil fuels at July 1, 2009. For example, in 2009 the rate for gasoline will be 3.51 cents per litre. The tax rate for diesel used for road transportation will be slightly higher at 4.04 cents per litre due to the higher carbon content of the fuel, while the tax on propane will be lower on a per litre basis..

What effect will the carbon tax have on GHG emissions?

According to the IPCC 4th Assessment - Synthesis Report, “an effective carbon-price signal could realize significant mitigation potential in all sectors.” A preliminary estimate by an independent consulting company (MK Jaccard and Associates) suggests that in absence of all other GHG reduction strategies, the carbon tax alone could cause a reduction in B.C.’s emissions in 2020 by up to three million tonnes of CO2 equivalent annually. This is roughly the equivalent to the greenhouse gas emissions created by 787,000 cars per year.

How will the Carbon Tax Affect Businesses?

Every business or other organization that purchases or uses fossil fuel for combustion in British Columbia will be subject to the carbon tax. The main uses of the fuel are for transportation, heating of buildings and providing heat for industrial processes. As with individuals, businesses will have choices to make about their fuel usage that will affect the amount of tax that they will pay. The low initial tax rate is not expected to significantly affect the business community and the five year phase-in will allow time for business to adjust. The Province hopes that other jurisdictions will also put effective mechanisms in place that put a reasonable price on GHG emissions. In any case, carbon tax revenue will be recycled to business, initially through significant corporation income tax reductions mitigating the net impact on the business community. .