David Roberts: “What we can learn from British Columbia’s carbon tax”

From Grist:

It is, on its own terms, a resounding success — carbon emissions are falling even as the economy continues to grow.  …  Research and advocacy group Clean Energy Canada … has now released a report distilling what it learned from those interviews: “How to Adopt a Winning Carbon Price.”

There are 10 key takeaways.

1. A carbon tax and a thriving economy can co-exist.
2. You need strong political leadership to get a carbon tax in place. (Public concern about climate disruption helps, too.)
3. Keep it simple: design a policy that’s easy to administer thanks to broad coverage and minimal exemptions.
4. Commit from day one to a schedule of price increases, and stick with it.
5. Start with a low price.
6. Revenue neutrality helps address private-sector concerns and makes the policy more durable.
7. On the other hand, revenue neutrality doesn’t get you very far with voters.
8. A carbon tax can’t do everything; it needs to be just one component of a full suite of climate policies.
9. Prepare for motivated, vocal — and not necessarily fact-based — opposition. You’ll need active, engaged supporters and targeted communications strategies to counter the critics.
10. Expect a cleaner environment, an enhanced reputation, and a thriving clean technology sector.

… a few are worth digging into a little.

First, No. 2. Numerous interviewees made special mention of the importance of political leadership. Former B.C. Premier Gordon Campbell took the tax on as his signature budgetary initiative and was instrumental in designing it and pushing it forward. It was personal to him. …

And in a fateful twist, the farther left party, the BC New Democratic Party, came out in opposition to the tax. This extraordinarily boneheaded decision had several important consequences. To those on the left, it made Campbell’s centrist BC Liberal party look like it was the one that really cared about climate, thus peeling off some young, climate-concerned voters. To those in the middle, it made the tax plan look like a sensible compromise — after all, anything opposed by both right and left must be on the right track.

Most importantly of all, the Liberal party had a majority in the legislature and — U.S. readers may find this puzzling, but try to follow along — in the Canadian parliamentary system, when you have a majority, you can pass your policies. …

The amazing thing about B.C.’s tax is there are effectively no loopholes, despite considerable pressure to create them. Policy considerations — retaining simplicity and fairness — won out over lobbying. I can’t even remember the last time I heard of something like that happening in a U.S. state. …

Second, let’s take a look at Nos. 6 and 7.  …

It makes clear that the promise of revenue neutrality did almost nothing to sell the public on the tax. Many misunderstood the concept entirely, thinking it promised individual businesses, industries, or households revenue neutrality. (Of course it doesn’t — there will be losers.) Many others simply did not believe that the government would do as it promised and didn’t notice when it did. (A big new tax is noticeable; a small reduction in other taxes is often not.) There is, in short, no reason from B.C.’s experience to think that revenue neutrality generated any public support for the tax.

However, among the business community it’s a different story. Several interviewees in the report are convinced that revenue neutrality was crucial to gaining support — or at least muting opposition — in the private sector. …

… in B.C., linking the carbon tax to tax cuts has proven politically effective in practice. Now that it is in place, abandoning the carbon tax would effectively mean a huge tax hike elsewhere to cover the revenue shortfall. B.C.’s corporate taxes are now below the international average, which gives politicians and businesses something to brag about and something with which to attract more people and businesses. They don’t want to lose that.

Also, there is still some room for spending in the policy, though it comes in the form of “tax expenditures” — targeted tax breaks paid for by the carbon tax. A small portion of the revenue is being directed toward green stuff now but it could rise in the future. Burying spending in the tax code is not ideal, but it’s better than nothing. …

That brings me to one more takeaway I’d add to the list:

11. Peg your tax to inflation, so it rises whether or not anyone’s paying attention to it. That makes it predictable in the long term, which is important for business planning, and automatic, which is important politically.

It will be interesting to see if B.C. can get the tax going up again and maintain progress on other parts of its “suite of climate policies.” If it does both, it will make history, and strike a blow in favor of revenue neutrality that even a skeptic like me has to acknowledge.

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Full article here.