Problem

Burning fossil fuels not only contributes to global warming but also worsens air pollution. In Canada, this costs thousands of lives – as well as over $8 billion per year for the economy. Introducing a carbon tax, which puts a tax on emissions-intensive goods and services, can be a useful incentive for reducing fossil-fuel use. 

However, an equity-related concern of carbon taxes is that they may be regressive, impacting low-income households, rural populations and small businesses disproportionately.

Responses

In 2008, British Columbia introduced a carbon tax scheme that covered 70% of greenhouse gas emissions (GHG) emissions. The tax was increased in phases, starting at $C10/ton and rising by $C5/ton each year. The tax aims to be revenue-neutral by design, with every dollar raised by the tax being returned to businesses and individuals via tax breaks or credits.

The tax was applied throughout 2013-2017 to make room for impact assessment and adjustments. The Government established a multistakeholder team comprising representatives from businesses, indigenous communities, local government, academia, and environmental organisations to evaluate the carbon tax scheme and plan its future implementation.

The policy was revised in 2018 to enable some of the tax revenue to be spent on green investment. Throughout its iterations, the aspects of the policy were designed to protect vulnerable groups, namely supporting low-income households (reducing the lowest personal income tax rates by 5%), northern and rural homeowners (benefits of up to C$200), and small businesses (tax cut from 12% to 11%). By 2016, approximately 200 cleantech firms were generating 1.7 billion $CAD revenue across British Columbia, thanks to this scheme. In April 2024, the system for large industrial emitters was further adjusted into an output-based pricing system to ensure continuous emissions reduction while providing companies with more flexible options such as carbon offsets.

Find out more: World Economic Forum