Lawrence Solomon
National Post
February 21, 2008

The B.C. government this week introduced what it hails as North America’s first carbon tax, but many will see it mostly as just another hike in the gas tax, and for good reason. The gas tax, rising to 7.24¢ per litre over four years, will do next to nothing apart from increasing the provincial take – Europe with its sky-high gas taxes and ever-increasing auto use demonstrates the ineffectiveness of gas taxes in curbing the car.

Meanwhile, British Columbia has a slew of other tax policies, many of them in the energy-intensive resource sector, that do wonders at influencing B.C.’s carbon dioxide footprint – for the worst!

Take the mining sector, as adept at mining provincial treasuries as hard-rock. Measures such as the B.C. Mining Exploration Tax Credit, flow-through shares, and super-flow-through shares, bolstered by federal programs such as the federal Investment Tax Credit for Exploration are credited with spurring boom times in B.C.’s mining communities – B.C.’s explorations expenditures soared from $30-million in 2001 to $300-million in 2006.

Other provinces likewise give preferential tax treatment to mining, as attested to by local variants such as the Manitoba Mineral Exploration Tax Credit. The upshot is that the more energy-efficient metal recycling industries, which must compete against the primary metals industry, are knee-capped. They end up with a smaller market share and society ends up with increased carbon dioxide emissions.

The pulp and paper industry gets preferential tax treatment, too, arguing quite correctly that without tax breaks or tax holidays, mills would close and forest towns would die. If they did die – as would happen with a tax policy that was even-handed – we would use less virgin paper and more recycled stock. Again, carbon-dioxide emissions would decrease.

Maintaining rural Canada, and rural industries, is a prime thrust of government tax policy, even though these industries have several times the carbon footprint of urban industries, and would be rapidly phased out if not protected from the marketplace. Not surprisingly, the B.C. carbon tax exempts the worst polluters, most of them rural-based, from carbon taxes. These include British Columbia’s most energy-intensive sectors: oil and gas, aluminum, cement and agriculture. Together, exempted industries account for about one-third of the province’s carbon emissions.

Because tax breaks for rural industries aren’t enough to support rural Canada, governments provide outsized supports directly to rural residents too. To ration scarce jobs in uneconomic areas, and keep workers from migrating, the federal government tailors the Employment Insurance system to retain rural workers: It collects payroll deductions from resource workers for but a few weeks before granting them benefits for the rest of the year. To encourage more remote workers, the government provides more benefits still.

Northern residents can claim a residency deduction of up to 20% of net income through their income tax forms, plus travel deductions, including travel for vacations (the federal government permits two vacations per year for each member of the household).

The more directly that governments control a sector, the more likely that it will be a polluter, a greenhouse-gas contributor, and a recipient of tax breaks. Most of Canada’s power is generated by Crown corporations and most of these are largely or wholly untaxed. Most of Canada’s mining lands and forest lands are in government hands. Most of Canada’s roads are run by governments.

Eliminating the tax breaks in these government-run areas would do more to reduce carbon-dioxide emissions than any carbon tax possibly could. A charge on roads, for example, greatly reduces road use and greatly increases public transit use, as evidence from London, Stockholm and other road-tolling jurisdictions attest. Rather than increasing the gas tax by 7.24¢ per litre, B.C. could have replaced it with a European-style road levy that merely charged those who used roads, in proportion to their use. Less carbon tax plus more accountability equals less carbon emissions

Lawrence Solomon is executive director of Energy Probe and Urban Renaissance Institute, and author of The Deniers (forthcoming).