Design principles for a Yukon carbon tax

Although they didn't mention it in their budget-response speeches, when pressed by doughty newshounds from this newspaper, NDP leader Liz Hanson and Liberal leader Sandy Silver confirmed they are considering a carbon tax.

Although they didn’t mention it in their budget-response speeches, when pressed by doughty newshounds from this newspaper, NDP leader Liz Hanson and Liberal leader Sandy Silver confirmed they are considering a carbon tax.

So let’s look at the design questions for a Yukon carbon tax. The big ones are how high the tax should the be, who it should apply to, where the money should go and under what conditions should we implement it.

How high should a carbon tax be? The B.C. carbon tax is $30 per tonne of CO2, which works out to about 7 cents per litre of gasoline. However, 7 cents is not likely to significantly change business and consumer behaviour. This of course is the point of a carbon tax, since we need to reduce how much fossil fuel we burn. A recent report by the parliamentary budget officer in Ottawa refers to a variety of studies that suggest a tax in the $100 per tonne range would be needed to really get people’s attention. This would be about 23 cents per litre.

So one option is to set a tax at the $30 per tonne rate, then raise it by $3.50 per year until 2035. This would provide a small immediate incentive, plus tell people to start planning for a world where fossil fuels will be much more expensive.

Consider a Yukon family with an older oil-heated house, which needs about 2,000 litres of heating oil per year, and who fill up their car’s 50 litre gas tank every week. They would pay $325 per year at first and $1,025 when the tax was fully implemented.

According to Myclimate’s air travel carbon emission calculator, a return trip to Vancouver by air for this family would cost an extra $72 in the near term and $240 in the long run (assuming four people in the family).

A Klondike placer mine that used 100,000 litres of diesel per year would pay $7,000 per year at first, and $22,300 in 2035. If you think 100,000 litres is a lot, remember that D9s have an 800-litre diesel tank for a reason.

Or take a big mine. The 2013 feasibility study for Casino talked about a 125-megawatt natural gas power plant. The business case’s line item for power is almost $100 million in year two of the mine. Depending on various technical assumptions, that might generate $5-10 million in tax revenue at first, or perhaps almost $30 million at the higher $100 per tonne rate.

The next question is who should pay. Liz Hanson mused about a carbon tax that targeted industry instead of individuals. That might be politically popular, although environmentalists would point out it gives regular Yukoners no incentive to reduce their driving and home heating oil use. Others would argue for mines to be exempt, fearing that investors would choose projects in non-carbon-tax jurisdictions if Yukon mines had to pay a tax that mines in Alaska or Saskatchewan did not have to.

What is definite is that any plan that is selective in its application will address only part of our carbon footprint and be especially unpopular with those lucky few who get to pay it.

Then there’s the question of where the money should go. In 2012, Yukoners burned 139 million litres of fossil fuels according to Statistics Canada. Assuming the rate for gasoline is close to the average for other fuels, the carbon tax described above on that volume would net almost $10 million in the near term and $32 million by 2035.

Option 1 would be for the Yukon government to just add the cash to the territorial kitty. Option 2 is also for the government to keep it, but promise to spend it on renewable energy projects. Both of these represent a sizeable new tax on Yukoners and a growth in government, which some will like and others will loathe.

Option 3 is a revenue-neutral approach, which is what Sandy Silver mentioned in his post-budget comments. However, he didn’t give any more details. These are important, since a tax can be revenue neutral on average, but still have major winners and losers.

Option 3A is to take the revenue, say that $32 million I mentioned above, and give an equal share of around $850 to each Yukoner. That family of four would get a cheque for $3,400. You can guess how happy the placer miner above would be to pay $22,300 and know that her money paid for cheques to 26 bike-riding, downtown-living environmental activists in Whitehorse.

Option 3B is to do something similar to what B.C. did, and spread the money around. They paid some to lower-income citizens, and used the rest to reduce a variety of other business and personal taxes.

In any of these scenarios, a big mine will make a major new transfer to the territory. Accountants and land-claim negotiators will have to figure out later how this affects royalty formulas and payments to First Nations. In a way, a carbon tax on big mines is a backdoor way to create an Alaska dividend. The more big mines we have, and the more carbon they spew, the bigger the cheques to citizens under option 3A above.

Finally, we have to decide on the conditions for implementation. Would the Yukon go ahead regardless of what the rest of North America did? Or would we say we were on board with the idea, but would only implement it when a pan-Canadian deal was signed? Or would we wait until our mining competitors in Alaska and the other U.S. states were part of a comprehensive North American deal (which might be a very long time coming)?

These are important questions, but also tricky ones. It will be interesting to see what the NDP and Liberals have to say about them in the run up to the election, especially as the Yukon Party stakes out its position firmly against such a tax.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won the Ma Murray award for best columnist in 2015. You can follow him on Channel 9’s Yukonomist show.

Just Posted

Whether the dust jacket of this historical novel is the Canadian version (left) or the American (right), the readable content within is the same. (Michael Gates)
History Hunter: New novel a gripping account of the gold rush

Stampede: Gold Fever and Disaster in the Klondike is an ‘enjoyable and readable’ account of history

XX
WYATT’S WORLD

Wyatt’s World for May 14, 2021.… Continue reading

Copies of the revised 2021-22 budget documents tabled in the legislature on May 14. (Haley Ritchie/Yukon News)
Liberals introduce new budget with universal dental and safe supply funding

The new items were added to secure the support of the NDP.

Community Services Minister Richard Mostyn speaks to reporters on May 13. (Haley Ritchie/Yukon News)
Cap on rent increases will take effect May 15

The rollout of the policy is creating ‘chaos,’ says opposition

Yukon News file
A 21-year-old man is in custody after a stabbing in Porter Creek on May 14.
One man in hospital, another in custody, after alleged stabbing in Porter Creek

A police dog was used to track the suspect who was later arrested in a wooded area.

Safe at home office in Whitehorse on May 10, 2021. (John Tonin/Yukon News)
Federal government provides $1.6 million for Yukon anti-homelessness work

Projects including five mobile homes for small communities received funding.

Drilling at Northern Tiger’s 3Ace gold project in 2011. Randi Newton argues that mining in the territory can be reshaped. (Yukon government/file)
Editorial: There’s momentum for mining reform

CPAWS’ Randi Newton argues that the territory’s mining legislations need a substantial overhaul

At its May 10 meeting, Whitehorse city council approved the subdivision for the Kwanlin Dün First Nation’s business park planned in Marwell. (Submitted)
KDFN business park subdivision approved

Will mean more commercial industrial land available in Whitehorse

Main Street in Whitehorse on May 4. Whitehorse city council has passed the first two readings of a bylaw to allow pop-up patios in city parking spaces. Third reading will come forward later in May. (Stephanie Waddell/Yukon News)
Whitehorse council pursuing restaurant patio possibilities

Council passes first two readings for new patio bylaw

Neil Hartling, the Tourism Industry Association of the Yukon president, left, said the new self-isolation guidelines for the Yukon are a ‘ray of hope’ for tourism operators. (Ian Stewart/Yukon News file)
Yukon tourism operators prepared for ‘very poor summer’ even with relaxed border rules

Toursim industry responds to new guidelines allowing fully vaccinated individuals to skip mandatory self-isolation.

A lawsuit has been filed detailing the resignation of a former Yukon government mine engineer. (Joel Krahn/Yukon News file)
A year after resigning, former chief mine engineer sues Yukon government

Paul Christman alleges a hostile work environment and circumvention of his authority led him to quit

Former Liberal MLA Pauline Frost speaks to reporters outside the courthouse on April 19. One of the voters accused of casting an invalid vote has been granted intervenor status in the lawsuit Frost filed last month. (Haley Ritchie/Yukon News)
Voters named in Pauline Frost election lawsuit ask to join court proceedings

The judge granted Christopher Schafer intervenor status

Most Read