Carbon Pricing Options in British Columbia
Carbon pricing is a key strategy for achieving British Columbia’s climate targets for 2030 and 2050. Since 2008, the province has implemented a Carbon Tax, one of the most well-known carbon pricing models. However, this policy remains politically contentious and faces an uncertain future. This website serves as a guide to understanding carbon pricing approaches used in BC, with the goal of creating a stronger understanding of these policy approaches.
Our Changing Climate
Why is this important?
Human-caused emissions of greenhouse gases (GHGs) are driving rapid changes in our climate. The impacts of these changes are being felt worldwide, with increasingly severe economic, social, and environmental consequences also occurring here in BC. Rising temperatures are linked to more frequent and intense heatwaves, wildfires, and storms, while shifting weather patterns disrupt agricultural productivity and threaten water resources. Coastal communities face the dangers of sea level rise, and many types of ecosystems are under strain as species struggle to adapt.
Approaches
While a broad range of climate solutions are necessary, reducing GHG emissions remains the most critical global priority. Carbon pricing stands out as one of the most flexible and effective tools to drive this transition, encouraging economies to shift towards decarbonization by making the cost of emitting carbon explicit.
Looking forward, there are two primary approaches to carbon pricing policy in BC that are important to understand:
The consumer carbon tax
Industrial carbon pricing
Explore this site to learn more about each of these policy approaches.
These warming stripes show the change in temperature in Vancouver, BC since 1850 (Hawkins, 2023).
What might the future of carbon pricing look like?
Interview segment with Ross Linden-Fraser, Senior Research Associate with the Canadian Climate Institute. December 6, 2024
Consumer Carbon Taxes
What are they, and why do economists support them?
A carbon tax is a fee placed on the burning of fossil fuels, like coal, oil, and natural gas. The idea is simple: when companies and individuals use fossil fuels, they release carbon dioxide (CO₂) into the atmosphere, which contributes to climate change. This is known as an externality because it creates a cost to society (such as environmental damage and health issues) that isn’t reflected in the price of the fossil fuel. By taxing carbon emissions, a carbon tax helps ensure that the true cost of carbon-intensive activities is taken into account, making these activities less attractive.
Governments have various options for discouraging carbon-intensive activities, such as setting strict regulations or outright banning certain practices. However, these approaches can be difficult to implement effectively and may not always target emissions reductions in the most efficient or equitable way. Economists tend to support carbon taxes because they align with what is called the equi-marginal principle.
The equi-marginal principle ensures that the cost of reducing the final unit of carbon emissions is the same across all actors — whether they are businesses, industries, or individuals. Essentially, this means that each company or person will reduce their emissions up to the point where it costs them more to cut emissions than to pay the carbon tax. For some, this might involve switching to renewable energy, improving energy efficiency, or adopting cleaner technologies.
This approach is efficient because it incentivizes reductions where they can be achieved most cheaply, minimizing the overall cost to society. By setting a consistent price on carbon, a carbon tax encourages everyone to find innovative and cost-effective ways to cut their emissions. It also provides a clear, predictable framework that allows businesses to plan for a low-carbon future, driving long-term investment in cleaner, more sustainable technologies.
Case Study: The Equi-Marginal Principle in Action
Imagine two people, Alex and Jamie, who both commute to work. Alex lives just 3 kilometers from the office, while Jamie lives 15 kilometers away. Both of them have the option to drive or bike to work. Let's see how a carbon tax influences their decisions.
Without a Carbon Tax:
Alex finds it convenient to drive because it’s a short trip, and the cost of fuel is relatively low.
Jamie also drives because it's a longer distance and there’s no extra cost discouraging them from using their car.
With a Carbon Tax:
The government introduces a carbon tax, making driving more expensive because it burns fossil fuels and emits CO₂. Now, both Alex and Jamie have to think about whether it's worth paying more to drive or if they should consider alternatives like biking.
Alex's Decision: Since Alex only lives 3 km away, biking to work is easy and costs nothing. With the new carbon tax making driving more expensive, Alex decides to switch to biking most days. This saves Alex money and reduces emissions.
Jamie's Decision: Jamie lives 15 km away, so biking would be a much longer and more challenging option. Even with the carbon tax, driving is still more convenient for Jamie. Therefore, Jamie decides to keep driving but looks for other ways to cut back on emissions, like carpooling or driving a more fuel-efficient car.
Why This is Efficient
The equi-marginal principle is at play here because the carbon tax encourages people to make decisions based on what’s cheapest for them. For Alex, it’s cheaper to bike than pay the tax, so they cut emissions by switching to a bike. For Jamie, driving is still more practical, so they choose to pay the tax but look for other cost-saving options.
In this way, emissions are reduced where it’s most efficient to do so, without forcing everyone to make the same choice. A carbon tax allows individuals to find the most cost-effective way to lower their carbon footprint, leading to overall emissions reductions across society at the lowest cost.
The BC Carbon Tax
Political History
British Columbia implemented its carbon tax in 2008, making it the first jurisdiction in North America to introduce such a policy (Pedersen, 2024). Given the polarized debate around carbon pricing in Canada today, it may be surprising that the policy was introduced by a center-right government. The BC Liberal Party, which is not affiliated with the federal Liberal Party, brought forward the tax under the leadership of Premier Gordon Campbell. The tax was positioned as a market-friendly solution to climate change, aiming to reduce emissions without heavy government intervention. The idea was to use market mechanisms to encourage businesses and consumers to make greener choices, while keeping the government’s role minimal.
At the time, the BC NDP opposed the carbon tax, arguing that it would unfairly burden everyday British Columbians. As part of their campaign against the tax, the BC NDP launched a website called "www.AxetheGasTax.ca" in 2008, seeking to tap into concerns about rising fuel costs (Pedersen, 2024). This "axe the tax" rhetoric has resurfaced in recent years from other parts of the political spectrum as debates around carbon pricing continue across Canada.
Revenue-Neutrality and Economic Incentives
A key feature of the BC Carbon Tax when it was introduced was its revenue-neutral design. This meant that every dollar collected from the tax was returned to citizens and businesses through other tax reductions, such as cuts to personal income tax rates and corporate tax breaks. The goal was to offset the impact of the carbon tax on the economy and ensure that the policy did not become a burden on households or businesses.
As of 2024, the BC Carbon Tax remains largely revenue-neutral, but there have been some adjustments. A portion of the revenue is now reported to be allocated to fund CleanBC programs, which aim to help the province meet its legislated climate targets. (Globe and Mail Editorial Board, 2023).
Integration with National Policy
Since the introduction of a nationwide carbon pricing framework in 2019, BC’s carbon tax has had to align with federal standards. The federal "backstop" policy sets a minimum carbon price that provinces must meet or exceed, ensuring a consistent approach across the country. Fortunately, BC’s carbon tax already met these national requirements, but this alignment has required the province to continue raising its carbon price to keep up with the escalating federal minimum.
Today, British Columbia’s carbon tax remains a prominent example of carbon pricing policy in action. It has proven resilient through changing political landscapes and has been cited as a model for other regions considering similar approaches. However, with a recent provincial election, and the potential of a federal election in the near future, the political future of the BC Carbon tax remains uncertain.