British Columbia's Carbon Tax Failure

On July 1, 2008, the Canadian province of British Columbia implemented a supposedly "revenue-neutral" carbon tax. The current tax rate is $30 per tonne of CO2 equivalent emissions.

Over the past couple years, a number of carbon tax proponents in Canada and internationally have attempted to show that British Columbia's carbon tax has either not increased the cost of living in the province and/or has not reduced the province's economic performance relative to the rest of the nation. The economic data simply do not support these assertions.

As the provincial government notes, "the carbon tax applies to the purchase or use of fuels within the province." Here are the tax rates by fuel:

Putting a tax on energy might lead one to suspect that the inflation rate on energy in British Columbia will have increased faster than the rest of the country since the carbon tax was implemented. And, of course, it did.

 

The consumer price index (CPI) for energy in British Columbia has consistently increased more rapidly than the national average since carbon tax implementation. Between June 2008 and April 2014, Canada's energy CPI increased only 3.6 percent, exactly half the rate of increase seen in British Columbia (7.2 percent) over this period. Thus, the cost of energy post-carbon tax is increasing twice as fast in British Columbia versus the Canadian average. Compare that to the six-year period before British Columbia brought in its carbon tax. From June 2002 to June 2008, the energy CPI in British Columbia was increasing significantly slower than the national average.

To summarize: before the carbon tax, the energy CPI in the province was increasing at a much slower rate than the Canadian average; after the carbon tax, the energy CPI for British Columbia has increased at twice the national average. This is called carbon tax induced energy poverty, and it is detrimental to economic growth.

Speaking of economic growth, since implementing its carbon tax in 2008, British Columbia has lagged the national average in growth of real per capita GDP, primary household income, and household disposable income. Surely this can't be seen as promising news for the purportedly non-harmful economic impacts of carbon taxation? In the five years before the carbon tax came in, British Columbia's real per capita GDP grew at almost twice the rate of the rest of Canada. After the carbon tax, the province's growth rate has been four-fold lower than the national average. That is an eight-fold abrupt turn negative swing in the opposite direction following the carbon tax.

The same stories exist for real per capita primary household income and real per capita household disposable income in British Columbia. Both were also growing much faster than the Canadian average in the five years before the carbon tax, and since the carbon tax both have been growing much slower than the Canadian average. Since the carbon tax, British Columbia's unemployment rate has also increased 70 percent faster than the Canadian average.

Residents of British Columbia simply cannot afford higher costs of living and substandard economic performance. Between 2008 and 2012, the household saving rate (saving as a percentage of household disposable income) averaged -1.5 percent (i.e., negative), whereas the corresponding Canadian average was +4.6 percent (i.e., positive). British Columbia has the highest average consumer debt -- excluding mortgage -- in Canada, at 41 percent above the national average. Throw in mortgage debt, and British Columbia is still 36 percent above the Canadian average.

British Columbia isn't alone. Denmark -- with a carbon tax for two decades -- has an economy going backwards at a rapid rate coupled to skyrocketing crime rates. The experiment has failed. It is long overdue for British Columbia to jettison its carbon tax and get its economy moving again.

On July 1, 2008, the Canadian province of British Columbia implemented a supposedly "revenue-neutral" carbon tax. The current tax rate is $30 per tonne of CO2 equivalent emissions.

Over the past couple years, a number of carbon tax proponents in Canada and internationally have attempted to show that British Columbia's carbon tax has either not increased the cost of living in the province and/or has not reduced the province's economic performance relative to the rest of the nation. The economic data simply do not support these assertions.

As the provincial government notes, "the carbon tax applies to the purchase or use of fuels within the province." Here are the tax rates by fuel:

Putting a tax on energy might lead one to suspect that the inflation rate on energy in British Columbia will have increased faster than the rest of the country since the carbon tax was implemented. And, of course, it did.

 

The consumer price index (CPI) for energy in British Columbia has consistently increased more rapidly than the national average since carbon tax implementation. Between June 2008 and April 2014, Canada's energy CPI increased only 3.6 percent, exactly half the rate of increase seen in British Columbia (7.2 percent) over this period. Thus, the cost of energy post-carbon tax is increasing twice as fast in British Columbia versus the Canadian average. Compare that to the six-year period before British Columbia brought in its carbon tax. From June 2002 to June 2008, the energy CPI in British Columbia was increasing significantly slower than the national average.

To summarize: before the carbon tax, the energy CPI in the province was increasing at a much slower rate than the Canadian average; after the carbon tax, the energy CPI for British Columbia has increased at twice the national average. This is called carbon tax induced energy poverty, and it is detrimental to economic growth.

Speaking of economic growth, since implementing its carbon tax in 2008, British Columbia has lagged the national average in growth of real per capita GDP, primary household income, and household disposable income. Surely this can't be seen as promising news for the purportedly non-harmful economic impacts of carbon taxation? In the five years before the carbon tax came in, British Columbia's real per capita GDP grew at almost twice the rate of the rest of Canada. After the carbon tax, the province's growth rate has been four-fold lower than the national average. That is an eight-fold abrupt turn negative swing in the opposite direction following the carbon tax.

The same stories exist for real per capita primary household income and real per capita household disposable income in British Columbia. Both were also growing much faster than the Canadian average in the five years before the carbon tax, and since the carbon tax both have been growing much slower than the Canadian average. Since the carbon tax, British Columbia's unemployment rate has also increased 70 percent faster than the Canadian average.

Residents of British Columbia simply cannot afford higher costs of living and substandard economic performance. Between 2008 and 2012, the household saving rate (saving as a percentage of household disposable income) averaged -1.5 percent (i.e., negative), whereas the corresponding Canadian average was +4.6 percent (i.e., positive). British Columbia has the highest average consumer debt -- excluding mortgage -- in Canada, at 41 percent above the national average. Throw in mortgage debt, and British Columbia is still 36 percent above the Canadian average.

British Columbia isn't alone. Denmark -- with a carbon tax for two decades -- has an economy going backwards at a rapid rate coupled to skyrocketing crime rates. The experiment has failed. It is long overdue for British Columbia to jettison its carbon tax and get its economy moving again.

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