Misconceptions of Carbon Taxes

With the Liberal's Green Shift plan in hot debate, we thought we would create a FAQ to answer some questions that people may have about Carbon Taxes.  There have been a lot of myths about what they're about, so I hope this will help clear some of them up.




Q: Is a carbon tax just another tax grab?

For those who say that a carbon tax is just a tax grab by the government, Carbon taxes have been proposed by Leading Economists since the 90's (Read "The Ecology of Commerce" by Paul Hawken) and is believed to be a powerful way to reduce green house gas emissions. Recently, over 230 economists teaching at Canadian Universities signed an open letter indicating that carbon taxes are the most effective way to address climate change, and at the same time lead to a more productive economy for all Canadians.

Q: Has a carbon tax been put into practice before?

Finland, Netherlands, Norway and Sweden have had a carbon tax plan since the early 1990s. According to an April 29, 2008 Guardian article, Sweden cut its overall carbon emissions by nine per cent between 1990 and 2006. It has exceeded its Kyoto targets and sets targets for itself which are lower than required under the EU agreement. Sweden hopes to be oil free by 2020, green technology is one of its fastest growing sectors, and it exports wind energy to China and other countries.

Q: Will a carbon tax wreak havoc on the economy?

Sweden's economy grew by 44 per cent during the period of its carbon tax plan. Sweden is currently taxed at $159 per tonne of emissions. Dion is proposing $10 per tonne of emissions, to be increased to $40 in 4 years. Very small, but its a start.

Q: What is a carbon tax?

Here's how a carbon tax works:
1) Apply a tax on companies that emit carbon into the atmosphere. Those who emit more, pay more.
2) Companies can either pollute less, or try to pass some of the extra costs to consumers
3) To offset higher costs and implement progressive tax reform, the people will receive an income tax break (This is the revenue neutral part, where tax revenue received from Carbon tax is given back to the people).

Q: What does this mean for consumers?

If a person doesn't do anything different (ie. change spending habits), the carbon tax and the income tax break cancel each other out. So if this is the case, why apply the carbon tax in the first place you ask? If a person is smart, they will look at how they can save money. They will have additional spending money (from the income tax break), and will have the choice on where/how they use that money. They can choose to make their home more efficient and save on their energy bill, buy a fuel efficient car on their next purchase, or choose to take public transit. This creates a positive feedback loop that will help reduce GHG emissions and increase individual incomes.

Q: What does this mean for companies?

On the company's side, they will pay for every tonne of carbon they emit into the atmosphere. They now have a couple of options: Pay for their pollution, or become more efficient and use cleaner technologies. If they're smart, they will pollute less to be more competitive to bigger polluters, and be able to provide people with similar products at lower costs. Another consequence of this is that the green sector companies will see a boom in demand, and create many highly skilled jobs in Canada. As this happens, prices for these technologies will drop, creating a positive feedback loop whereby more companies adopt cleaner technology at lower costs.

Q: Will consumer spending really change?

You be the judge. Take a look at the drop in pickup truck / SUV sales this year, and the increase in hybrids and fuel efficient vehicles. Decreased sales have changed American Car companies to produce different products and increased costs have changed consumer spending habits. Since the Carbon taxes are scheduled to increase over time, industry and consumers can make investment decisions accordingly.

Q: What are the experts saying about Carbon Taxes?

"Pollution must have a price tag. Currently it is too cheap to pollute, and too expensive not to."
- Don Drummond, Chief Economist, TD Bank, March 7, 2007

“If your objective is to cut greenhouse gas emissions, a carbon tax is definitely one of the most effective ways of doing that.”
- Doug Porter, Deputy Chief Economist, BMO

“There is a growing consensus that the time to act on climate change is now. The most effective way to address problems related to carbon consumption is with a carbon tax. With a carbon tax, we can have a cleaner environment, a stronger economy, and a brighter future for our children.”
- November 1, 2007 TheTyee.ca article, signed by 70 academic economists from the University of British Columbia, Simon Fraser University and the University of Northern British Columbia


"Pricing[carbon] allows each business and family to choose the response that is best and most efficient for them. Firms and families will differ greatly in the options they have for reducing their use of carbon, as well as in the value they place on carbon-generating activities. Price mechanisms give everyone the incentive to reduce their carbon use, but to do so to the degree and in the way that is best for them. This is the main reason that pricing policies are the lowest-cost way to meet our climate change goals.... Pricing[carbon] induces innovation. As the price of carbon increases, users of carbon intensive goods will demand alternatives. This will induce innovations in the goods and services that are produced, how those goods and services are produced, and the way people live. By moving relatively early in terms of climate policy, Canada has an opportunity to innovate and sell new technologies to the rest of the world."
-Open letter signed by 230+ of Canada’s leading economists on their call for action on climate change, Tuesday Oct. 7, 2008

Additional Resources:

For more information about Carbon Taxes, visit the Carbon Tax Center.