About Carbon Taxes

A carbon tax usually refers to a tax on the carbon content of fuels, based on the assumption that burning fuel results in emission of carbon dioxide and other gases that cause climate change.

Carbon taxes don't mean more taxes or a more regressive tax system. Revenue derived from a carbon tax must be equitably returned to taxpayers if the tax is to be accepted by the public.

Compared with other policy alternatives, carbon taxes are simple and direct, providing a clear economic advantage to low-energy methods and low-carbon or carbon free energy sources. The carbon content of fuels can readily be assessed. Aside from tax variances that may be needed to compensate for applications where carbon is prevented from reaching the atmosphere (production of plastics, carbon sequestration), carbon taxes don't directly involve elaborate regulation or artificial market mechanisms.

Carbon taxes are most effective when applied close to the source. Taxes applied at the first point of sale at the wholesale level in Canada, at the point where fuel products first enter the market. The tax can be a fixed percentage of carbon content, increasing in a predictable way over time in order to provide time for the market to plan and adapt.

No. Targets of so-called 'sin' taxes such as alcohol and tobacco are end-use products, whereas energy sources are intermediate products that can be displaced by alternatives. That is, if you want to drink wine, your only option (other than making it yourself) is to purchase it, whatever the cost. But if you want to heat your home, you want to do so with the lowest cost energy source, regardless of what kind of source it is.

Not in the long term. Countries such as Norway and Sweden employ carbon taxes and have a higher GNP per capita than Canada. The short-term impact of carbon taxes can be reduced by starting with a low carbon tax rate, and by compensating those who face unavoidable short-term costs.

In reality, the economy will suffer much greater damage as a result of investments made in the fossil fuel economy. These investments will perform poorly as the world inevitably makes a transition out of fossil fuels.

Carbon tax policy should provide tax credits for uses of fossil fuels that don't result in release of carbon products into the atmosphere.

An effective method of sequestering carbon would be a great way to avoid carbon taxes. But carbon taxes need to exist if they're to motivate avoidance strategies.

A number of countries in the Europoean Union have carbon taxes and have taken other measures to decrease their emissions. They aren't very happy with countries such as Canada that haven't taken their Kyoto obligations seriously, and punitive trade measures have been proposed to deal with the inequity.

Assuming that our other major trading partners move in the direction of emissions control, early action by Canada will give our economy a competitive advantage.

Standards are useful to create options for consumers in particular classes of products such as automobiles. But the overriding goal is to reduce fossil fuel emissions, not to promote energy efficiency. Standards take time to legislate, and are complex and difficult to enforce. Carbon taxes, on the other hand, are immediate, relatively simple to administer and target fossil fuel use directly.

Incentives for fuel efficiency - for high-mileage cars and better home insulation, for example - reward those who obtain the benefits of lower gas consumption and heating bills, but they often simply shift consumer demand to other high energy products or increase overall consumption. The goal is to reduce emissions through lower overall fossil fuel use, not to improve the efficiency of particular products.

Although a flat tax on fossil fuels would seem to make the tax system more regressive, high income Canadians use more energy than low income earners, and would therefore pay more tax.

Many low-income Canadians will require financial assistance to deal with additional costs that they can't avoid - those living in apartment buildings who have no control over heating costs, for example. Providing support for those who face costs that are unavoidable in the short term is a critical component of an acceptable carbon tax policy.