Provincial Issues - Finance
BC’s Costly Carbon Tax (2012)
The last scheduled increase in the BC carbon tax goes into effect in July 2012. The Provincial Government’s recent budget statement makes it clear that important decisions concerning the future of the carbon tax will be made in the forthcoming months. Like everyone, the Chamber is strongly in favour of working towards a clean environment; however, the carbon tax is doing extreme damage to the competitiveness of many parts of the economy with little evidence to show how it is protecting the environment.
Although the Carbon Tax was introduced as revenue neutral for the government, it has proven to be far from revenue neutral for many British Columbians. Those who live in rural areas or colder parts of the province, or businesses that compete or trade with other jurisdictions where there is no carbon tax, have without question shouldered a greater burden.
In many cases, the tax already has, or threatens to displace industrial activity in the province. In February 2012, following the most recent provincial budget, the Globe and Mail reported that the province is actually “providing more in tax breaks than it takes in through carbon-tax revenue.” The Globe reports that “the carbon tax generates $960-million in revenues against $1.1-billion in tax breaks.”(1)
The Chamber agrees that a review of the carbon tax is in order.
On 1 July 2008, the province of BC became the first jurisdiction in North America to implement a tax on carbon.
The original $10 per tonne of carbon dioxide equivalent (CO2e) emissions in 2008 has steadily increased and in July 2012 will rise to its final scheduled price of $30 per tonne.
It was believed that phasing in the tax would provide time to adjust and that other jurisdictions would quickly follow BC’s lead. Today BC remains alone. No other government on the entire continent has followed suit. Even the state of California, arguably the most environmentally conscious of the US states, has rejected a broad based carbon tax like the one in BC.
“We are dancing alone,” says Jock Finlayson of the BC Council. “BC only makes up 1 percent of the North American economy, and in general, our organization remains skeptical about the rationale and the effectiveness of the tax.”
BC Greenhouse Growers Industry
There is little doubt that the growers’ industry has suffered the most from carbon tax plan. “This tax is killing us,” says Linda Delli Santi, the executive director of the Greenhouse Growers Association. “A five acre greenhouse operation will pay $50,000 a year in carbon tax. That rivals our yearly labour costs. Our profit margins are already thin. Three or four smaller operations have already shutdown—others are moving out of the province to Alberta and US to places like Nevada and Texas.”
“The decline in our industry will also affect other industries like the fertilizer business, the irrigation and trucking industry in the lower mainland. One large operation in Ladner paid $600,000 in carbon tax last year. We believe in a clean environment, but this is putting our livelihood and thousands of jobs in danger,” she adds.
The Provincial Government recognized that the Carbon Tax had reduced the competitiveness and sustainability of this industry and on April 3, 2012 announced that it would provide a onetime grant to this industry of $7.6 million, which is the amount of Carbon Tax paid by this industry over the period of a year. This action will help to maintain the industry in BC while the carbon tax is undergoing a review, whereas if no action had been taken, many of the existing operators would have closed.
The Cement Industry
The economic damage done to the once vibrant BC cement industry is another victim of the carbon tax. Since 2008, the industry has paid $20 million in carbon taxes while cement imports to the province have increased from 4% to an unprecedented 23%. According to the Cement Association of Canada, cement kilns at the Lehigh plant in Delta and the Lafarge plants in Kamloops and Richmond BC in 2011 were running at only 50 to 70% capacity. The cement industry draws a direct line from declines in the industry to the carbon tax.(2)
In a speech held in Kamloops in September 2011, Michael McSweeney, the president and CEO of the Cement Association of Canada, clarified the challenge faced by the industry.
“Why? Because imported cement is not subject to the BC carbon tax. Foreign cement powder comes into BC tax free.”
“This has meant rotating layoffs for hundreds of employees and termination or layoff notices for contractors. Local mines, trucking lines and railways serving the kilns are also hurt. The negative provincial economic impact runs in the 10s of millions of dollars. But most of all the impact of this is on BC families - as they are the ones that have to bear the brunt of unemployment, while others are employed making cement elsewhere in the world.”
Cross Border Gas Consumption
Different types of fossil fuels produce different levels of (CO2e) emissions and are taxed a different rates. In July, when the carbon tax on gasoline at the pumps will rise to 7.2 cents per litre, BC will have the highest gas prices in Canada.
The Canadian Taxpayer’s Federation (CTF) in BC is calling for an end to carbon tax legislation in its 2012-2013 pre-budget submission. The CTF argues that the tax is not revenue neutral. Rising home heating costs and gasoline prices place an unfair burden on lower income families. In rural areas, where there are few public transport options and no access to cheap gas south of the border, the unfairness remains an issue. The carbon tax costs drain disposable income from consumers and ripples throughout the entire economy.
A recent poll of a relatively small group (835) done for the Pembina Institute reported that 29% of those polled showed strong support for “continued increases in the carbon tax after 2012. That is hardly the majority of British Columbia. The real picture is that 51% of those asked preferred not to see an increase.”
The Provincial Government has recognized that the carbon tax does affect the competitiveness and the ability of industry to maintain and increase jobs. It has also taken action to mitigate the effects where it can be shown that industries have been adversely affected.
The effects are mainly on manufacturing and processing industries and on commercial transport within the province. Utilizing the same mechanisms as were used with the Greenhouse industry would help maintain and encourage growth within BC. Furthermore, it would address a major concern that is currently causing some industries to consider moving from BC or in cases where a company has production facilities in more than one jurisdiction, to utilize facilities outside BC and importing the product at a lesser cost. All these factors are to the detriment of the BC economy.
Many manufacturing industries that are exporting from BC have been significantly adversely affected by this tax and have had their export volumes reduced.
THE CHAMBER RECOMMENDS
That the Provincial Government undergo a complete review of the carbon tax with the specific goal of immediately relieving extreme pressure on not just the Agri-food industry, but on all industries. The study should also address the cost that the tax is having on the BC economy and how it is a cascading tax that is added at all levels of production, transportation and sale, thereby reducing the overall competitiveness of the BC economy.