Myths and Facts About the Carbon Tax

Myth: The carbon tax is just a tax grab.

Fact: Every dollar raised by the carbon tax will be returned to individuals and businesses through tax reductions. None of the carbon tax revenue is used to fund government spending.

In 2008/09, the revenue-neutral carbon tax generated about $306 million, all being returned in the form of personal and business income tax cuts estimated at about $313 million. As a result, the tax cuts returned $7 million more to taxpayers than the amount of carbon tax collected.

Myth: Industry/business are exempt from the carbon tax.

Fact: Industry is not exempt from the carbon tax. Industry is required to pay the carbon tax on the purchase and use of fossil fuels the same as everyone else and they also pay tax at the same rate. For example, the oil and gas industry will pay the carbon tax on all combustion of fossil fuels, estimated at 85 per cent of their total emissions, including flaring, and the cement industry will pay the tax based on the coal and tires they burn in the production of cement. It is estimated that the oil and gas industry paid about $50 million in the first year and the cement sector paid about $7 million.

Myth: Many emissions are not taxed.

Fact: The carbon tax has the broadest base possible given current technological, measurement and data limitations and applies to virtually all emissions from fossil fuel combustion in British Columbia captured in Environment Canada’s National Inventory Report.
The carbon tax applies to all emissions from burning fossil fuels, which accounts for an estimated 70 per cent of total emissions in British Columbia.
Of the 30 per cent of emissions that are not from burning fossil fuels:

14 per cent are from non-energy agricultural uses (e.g. emissions from enteric fermentation, manure management, and agricultural soils) and waste (landfills);
11 per cent are from fugitive emissions which cannot currently be accurately measured; and
Only 5 per cent are non-combustion industrial process emissions.

The Province will look to how it can extend the carbon tax to emissions beyond those generated by the burning of fossil fuels, and integrate the carbon tax with other climate action initiates such as cap-and-trade.

Myth: The carbon tax unfairly impacts low-income British Columbians.

Fact: Most low-income individuals and families are better off under the revenue neutral carbon tax than they were before. A major component of the personal and business income tax cuts provided as part of the revenue neutral carbon tax is the ongoing low income climate action tax credit designed to help protect low income individuals and families. The credit will be paid quarterly along with the federal GST credit.

The credit as of July 1, 2009 provides an annual maximum of $105 for each adult and $31.50 for each child ($105 for the first child in a single parent family). The maximum credit is reduced by 2 per cent of net income in excess of $30,600 for single individuals ($35,700 for families) The maximum tax credit amounts increases by 10 per cent July 1, 2011 to $115.50 per adult and $34.50 per child. The reduction thresholds are indexed to provincial inflation.

Myth: Government said that the carbon tax is revenue neutral for every individual.

Fact: Government said it would return every dollar collected from the carbon tax to taxpayers through tax cuts. The tax cuts for the years 2009/10 to 2011/12 fiscal years consist of:

The first two personal income tax bracket rates were reduced by 2 per cent effective January 1, 2008;
Low Income Climate Action tax credit paid quarterly along with the federal GST credit with a maximum annual benefit of $105 per adult and $31.50 per child ($105 for the first child in a single parent family) as of July 1, 2009. The credit will increase by 10 per cent on July 1, 2011;
A Northern and Rural Homeowner benefit of up to $200 starting in the 2011 taxation year.

Revenue neutrality is intended to apply to the total carbon tax revenues collected rather than on a sector by sector or individual basis. If everyone was given back the exact amount of carbon tax they paid there would be no incentive to use less fossil fuel and reduce emissions. Some individuals, businesses, or sectors will pay more than they receive through recycling measures and some will pay less, but the carbon tax as a whole will be revenue neutral. All carbon tax revenue will be returned to taxpayers through tax cuts.

Myth: Government gets more tax revenue when gas prices rise.

Fact: The carbon tax, like the other B.C. fuel taxes on gasoline and diesel, is levied on a per volume basis and is not related to the selling price of the fuel. The government collects the same amount of carbon tax per litre at any price. For example, if someone bought 100 litres of gasoline they would pay $2.34 in carbon tax when the tax is at $10 per tonne of CO 2e. This is the case whether the gas costs 50 cents per litre or $2.00 per litre. In fact, to the extent that higher prices lead to lower consumption, the B.C. government will get less tax revenue.

Myth: The carbon tax applies to goods other than fuel (e.g. vehicles).

Fact: The carbon tax is only applied to the purchase and use of fossil fuels in B.C. Therefore, it is applied to gasoline or diesel used in a motor vehicle but does not apply to the vehicle itself.

Myth: The carbon tax unfairly impacts those in northern and rural areas.

Fact: Although each area of the province has unique challenges and opportunities, overall the impact of the carbon tax depends more on the personal circumstances of British Columbians than where they live in the province. Everyone can make choices that will help to reduce their own emissions and consequently the amount of tax they pay.

With respect to home fuel consumption, data on natural gas use by residential customers shows that while residents in some northern regions have higher average consumption than the Lower Mainland, residents in the Lower Mainland use more gas per household than residents in most other regions of the province.

In addition, after taking into account the carbon tax, customer usage, and the different natural gas prices across the regions, the average total cost for those using natural gas is higher in the Lower Mainland than all other regions of the province with the exception of Fort Nelson.

While some people living in remote areas may drive farther distances on average than those living in cities and small towns, Statistics Canada 2006 Census Journey to Work data show that, on average, commuting distances to and from work for residents of municipalities in the Lower Mainland are among the highest in the province. In addition, compared to other regions of the province, a larger percentage of commuters in the Lower Mainland have to travel 15 km or more to get to work.

Myth: People are being double taxed because local governments have to pay the tax and because they do not get income tax reductions taxpayers will have to pay again.

Fact: All of the revenue from the carbon tax, whether from individuals, businesses, or local governments is returned to British Columbians through personal and business tax cuts.
Local governments and School Districts that commit to carbon neutrality by 2012 can access the Climate Action Revenue Incentive, a grant that offsets the carbon tax local governments and school districts pay.
Those municipalities that move soonest to reduce their fossil fuel consumption create the greatest benefits for their residents. In addition to the tax cuts funded by the carbon tax, municipalities have the opportunity to pass the carbon tax and fuel savings back to their local ratepayers.

Myth: The carbon tax is just another gas tax. It does not actually tax carbon dioxide emissions.

Fact: The carbon tax is a tax on carbon dioxide equivalent (CO 2e) emissions generated from the burning of all fossil fuels in B.C. including gasoline, diesel, natural gas, fuel oil, propane and coal. It is not just a “gas tax.”
Environment Canada determines emission factors (EFs) that measure the CO 2e emitted from combusting each type of fossil fuel. The EFs are reported in Environment Canada’s “National Inventory Report, Greenhouse Gas Sources and Sinks”. The B.C. carbon tax rates for different fossil fuels are determined by the amount of CO 2e emitted when the fuels are combusted.

Myth: When gas prices rise by so much, there is no need for a carbon tax.

Fact: The historical volatility of gas prices, rising and then falling, has blunted the price signal for consumers and resulted in less conservation than required to meet government’s targets. The purpose of the carbon tax is to ensure that a consistent long term price signal is provided to consumers so that they continue to make the choices required to reduce their fossil fuel use and emissions.

Myth: Many people have no alternatives and no way to reduce their emissions.

Fact: Business and individuals can choose to reduce their carbon tax by reducing usage, increasing efficiency, changing fuels, adopting new technology or any combination of these approaches. We can all begin to make the small changes towards a cleaner future that fit into our own individual circumstances, such as choosing energy efficient lights, lowering the temperature on the thermostat at night, or keeping our cars tuned-up. Simply driving 10 km less per week will more than offset the cost of the carbon tax for most British Columbians.

Myth: The carbon tax will not have any effect on people’s behaviour.

Fact: The tax is based on the assumption that consumers respond to price signals. The purpose of the tax is to send a price signal to reduce the use of fossil fuels and thereby emissions. Several studies show that consumers generally respond to higher gasoline prices by reducing consumption either by purchasing more fuel efficient vehicles or by driving less.
Based on new car sales data for British Columbia since 2001, it is evident that the increase in gasoline prices has caused many consumers to buy more fuel efficient vehicles. The market share of subcompact and compact passenger car sales has increased steadily from 26 per cent in 2001 to 31 percent in 2006. At the same time, the market share of larger cars, SUVs, pickups and minivans has declined from 61 per cent in 2001 to 51 per cent in 2006. Recent price increases have resulted in a significant shift towards more fuel efficient vehicles.

Myth: The carbon tax will adversely affect the economy.

Fact: By returning all of the carbon tax revenues to the people of British Columbia through tax cuts, we will keep our economy strong. In a recent affirmation of B.C.’s triple-A credit rating, Moody’s recognized that B.C.’s revenue-neutral carbon tax will allow us to continue the trend, starting in 2001, of personal and business tax cuts. Moody’s is telling investors that the tax reductions made possible by the carbon tax helps keep B.C. competitive with other jurisdictions and encourages investment.

Myth: The carbon tax will have virtually no impact on reducing B.C.’s greenhouse gas emissions.

Fact: British Columbia’s carbon tax is one of the broadest and most comprehensive in the world. The fossil fuels included in the tax base account for about 70 per cent of British Columbia’s current GHG emissions. At current rates the carbon tax itself will initially have a small impact on emissions. However, this was intentional. The tax rates were deliberately set low to begin with and scheduled to rise slowly over time to send the correct price signal while giving consumers and businesses time to reduce their fossil fuel use. It is important to look at the whole range of initiatives government is introducing to meet its targets rather than just the tax.