Image: A 2023 forest fire burns into a residential area in Okanagan Valley, B.C.

An Introduction by John Richards

The Globe and Mail published our oped, reproduced below. Our proposal is to dispense with a revenue-neutral tax that redistributes the B.C. carbon tax revenue through a variety of tax credits and instead devote the revenue to offsetting costs arising from necessary adaptation to regional climate-related events.

The acute political problem in imposing a national carbon tax is the “prisoner’s dilemma” – the incentive not to tax ourselves and hope that other countries bear the cost of defossilizing the world economy. It they do defossilize, we share in the benefits of reduced carbon emissions. Of course, political leaders in all countries understand the prisoner’s dilemma as well as we do. Eight years after the Paris Agreement in 2015, modest national policies may have stabilized annual world CO2 emissions, but they have achieved no significant decline.

The logic underlying the national carbon tax is to start with an initially low tax, with the rate escalating by $15 per tonne each year over this decade to $170 per tonne of CO2 equivalent by 2030. Canada’s carbon tax appears to be more fragile than we thought, as can be seen in Ottawa’s recent exemption of oil heating in Atlantic Canada from the carbon tax and Prairie politicians’ vocal opposition to the very principle of the tax.

In 2023, climate-related events are far more evident than they were in 2015. Adaptation costs are now significant and bound to be worse in future years. We have no choice when it comes to adaptation: we have to address the events. Curt Eaton chose two examples:

  • Maintaining the hundreds of dikes in B.C. that have been ignored for the past 40 years – badly maintained dikes in both Princeton and Merritt failed in the atmospheric river event.
  • Doing what is necessary in the forests that surround many Canadian cities to protect them from a Fort McMurray event. We have done very little on this front, despite huge fires in Kelowna (2003 and 2023), Lytton (2021) and elsewhere.

Perhaps, if we dedicate carbon tax revenue to remediation of costs incurred in B.C., B.C. taxpayers will be more supportive of the tax and will be willing to raise the rate above the federal schedule as necessary. Somehow we must improve dikes, radically revise forest management and take other adaptation measures. As opposed to financing adaptation via provincial general revenue, a dedicated carbon tax invokes the “polluter pay” principle. The more one emits CO2, the more one pays. Indirectly, setting the carbon tax rate at a level enabling payment of climate-related costs may increase the currently modest carbon tax rates in the federal schedule.

— John Richards

Revenues from the carbon tax should be funding adaptation measures.

by Marvin Shaffer, John Richards and Curtis Eaton

Marvin Shaffer is a retired consulting economist and adjunct professor in the Public Policy School at Simon Fraser University in Vancouver. John Richards is professor emeritus in the SFU Public Policy School and co-publisher of Inroads. Curtis Eaton is professor emeritus of economics at the University of Calgary.

In its 2023–24 budget, the B.C. government recognized that “British Columbia has seen an increase in extreme, weather-related disasters including wildfires, the 2021 summer heat dome and the November 2021 atmospheric river and subsequent flooding.” In the spring of 2023, it allocated only $200 million for managing wildfires. By the time of its September first-quarter report, the finance ministry acknowledged that the total cost of managing B.C. summer fires was nearly $1 billion – nearly five times the spring estimate!

To pay for wildfire management, the province increased its projected deficit by $760 million. The B.C. government has not even begun adequate budgeting for other severe climate events and has not begun to fund systematically the investments that past commissions of inquiry, government agencies, municipalities, Indigenous communities and others have recommended to minimize damages from future events.

We face two carbon-related problems. We need to reduce future carbon emissions to slow the potentially catastrophic warming of the planet. We also need to adapt to the climate change events upon us, which will almost certainly increase in frequency and severity in the years ahead.

To date, the argument for Canada’s carbon tax has been to increase the cost of using fossil fuels, thereby providing an incentive to find nonfossil alternatives. It is a legitimate rationale. However, in many cases, substituting alternatives is costly and, increasingly, both Ottawa and provinces are making exemptions – for example, eliminating the carbon tax on heating residences reliant on oil or natural gas. The implicit rationale behind carbon tax exemptions is that reducing world emissions requires a concerted international effort. Canada’s exemptions provide a tangible benefit by reducing consumers’ costs, and its imposition of the tax has only a negligible impact on world emissions.

In 2008, British Columbia introduced the first significant carbon tax in North America. To improve public acceptance, the tax was designed as “revenue-neutral.” The revenue raised by the tax has to date been distributed through targeted credits for low-income families and a variety of tax credits for all. Ottawa and other provinces have all designed their carbon taxes as revenue-neutral.

In the 2000s, adverse climate effects were minor. In the 2020s, governments need additional revenue because of climate effects. In the 2023–24 fiscal year, the province projects that carbon tax revenue will be $2.8 billion. At present, B.C. relies on general government revenue to pay for managing forest fires and repairing dikes and other infrastructure destroyed by “atmospheric rivers.” Why not dedicate the $2.8 billion to meeting present climate change costs that B.C. citizens must, one way or another, pay?

If we dedicate the carbon tax revenue to financing adaptation, we continue making a small contribution to future emission reductions. We also address financing of immediate B.C. problems – without increasing government deficits or reducing valuable public services. We can continue to assist lower-income families, in the same way that GST credits offset the effect consumption taxes have on these families.

The need to budget for climate change costs is increasingly apparent. There is a good case for breaking with the original political strategy of revenue neutrality and, instead, dedicating carbon tax revenue to cover at least some of the needed expenditures occasioned by climate change. Committing carbon tax revenues to adaptation expenditures explicitly introduces the principle of “polluter pay.”

Some people have trouble accepting the need for Canada to introduce price signals to reduce future world emissions. Almost everyone understands that investments are necessary to minimize climate-induced damages here and now.

About the Authors

Marvin Shaffer is a retired consulting economist and adjunct professor in the Public Policy School at Simon Fraser University in Vancouver.

John Richards is professor emeritus in the SFU Public Policy School and co-publisher of Inroads.

Curtis Eaton is professor emeritus of economics at the University of Calgary.