Evaluating Carbon Taxes as an Energy Conservation and Emission Reduction Strategy

Carbon taxes are based on the carbon content of fossil fuel and therefore tax carbon dioxide emissions. In July 2008, British Columbia, Canada, introduced the first carbon tax in North America. This paper evaluates that tax. British Columbia's new tax reflects key carbon tax principles: it is broad, gradual, predictable, and structured to assist low-income people. It begins small and increases gradually, allowing consumers and businesses to respond with increased energy efficiency. Revenues are returned to residents and businesses in ways that protect the lowest-income households. Like most new taxes, the carbon tax has been widely criticized. Much of this criticism is technically incorrect or exaggerated. Consumers have many possible ways to conserve energy and therefore reduce their tax burden. Because lower-income households tend to consume less than the average amounts of fuel and receive targeted rebates, most low-income households will benefit overall. This tax supports economic development by encouraging energy conservation, which keeps money circulating within the regional economy. If other jurisdictions follow, its impacts and benefits will be huge.