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Does the Yukon need a carbon tax?

Canada isn’t well known for innovative public policy. In fact, the ridiculousness of our dairy supply management policy – supported by all three major political parties for years – is the butt of vicious economist jokes.

Canada isn’t well known for innovative public policy. In fact, the ridiculousness of our dairy supply management policy – supported by all three major political parties for years – is the butt of vicious economist jokes at this month’s Trans Pacific Partnership negotiations.

However, one policy has won plaudits internationally, including from the hard-to-please boffins at the World Bank.

In case you missed World Bank president Jim Yong Kim’s speech to the Council on Foreign Relations in Washington, the former Harvard professor had lots of good things to say about B.C.’s carbon tax.

Yes, that’s right. The much hated B.C. carbon tax.

Dr. Kim talked about how putting a price on carbon, while cutting other taxes, was a way to go from “taxing the goods” (such as income from jobs) to “taxing the bads” (such as carbon emissions).

Here’s what he said: “The example of British Columbia is one of the most powerful. Its carbon price mechanism is neutral to the taxpayer. It’s not an increase in tax ... as a carbon tax is introduced, taxes on labour, for example, were reduced.

“Introduced at the height of the financial crisis in 2008, the carbon tax has risen from 10 Canadian dollars per tonne to 30 Canadian dollars per tonne today. During this period, the taxes reduced emissions and provided a net benefit to taxpayers of 300 million Canadian dollars in personal and business tax cuts. It’s worth noting that British Columbia’s GDP has outperformed the rest of

Canada’s after introduction of the tax.”

According to the B.C. finance ministry, the tax of $30 per tonne of CO2 works out to 6.7 cents per litre of gasoline, 7.7 cents per litre of home heating oil and 4.6 cents per litre of propane. Added to other provincial taxes, the B.C. tax rate on gasoline is 21.17 cents per litre.

The equivalent in the Yukon is 6.2 cents per litre.

Meanwhile, as required by the carbon tax law, the province has cut other taxes so the carbon tax is not a net “tax grab” by the province.

B.C.’s income taxes are now lower than the Yukon’s for every income bracket except people making more than half a million bucks per year. Someone making $50,000 in the Yukon pays 9 per cent in territorial income tax, while the equivalent B.C. rate is 7.7 per cent.

The B.C. budget for 2013/14 had $1.2 billion in carbon tax revenue forecast, with 17 different tax reductions returning a slightly larger amount to B.C. citizens and businesses.

So, should the Yukon move to a B.C.-style carbon tax?

Many economists would recommend the move. As Kim notes, it is better to tax bad things like CO2 emissions than good things like work and savings like we do now.

John Streicker, a member of the federal Green Party and candidate for the territorial Liberal Party in the next election, kicked off the debate with an op-ed in May. He described a B.C.-style revenue-neutral carbon tax as a “smart tool for a serious problem that has been put off for far too long.”

He is right about that.

The challenge will now be convincing Yukoners. The NDP and Conservatives had great success campaigning against a similar proposal from Stephane Dion, the short-lived federal Liberal leader, in the 2008 election. It was an easy target in the world of 30-second attack ads. Some political opponents called it a “tax on everything” while others claimed they wouldn’t tax regular people like Dion’s plan, just large corporate polluters.

By the way, if you think large corporate polluters won’t pass such a tax on to you through the prices you pay for their products, I have some Antarctic Solar Energy tax credits I’d like to sell you.

In the Yukon political context, the attack ads almost write themselves. A carbon tax would raise heating costs for anyone - i.e., most of us - who has been ignoring the call of environmentalists to replace our oil furnaces. It would also raise gas prices on some iconic Yukon gear, such as the snowmobile and the 4x4 pickup. If it affected aviation fuel, it could also boost the ticket price for junior’s hockey trip to Vancouver, and her parents’ weekend getaway to relive their youth at the upcoming AC/DC Rock or Bust World Tour.

Another challenge in the Yukon is our highly progressive income tax system. In 2012, about one quarter of Yukon tax returns had no tax payable. The number of Yukoners who don’t pay income tax is probably close to one-third, since some people don’t file.

These people would all end up paying a carbon tax, but an income tax deduction does them no good. The Yukon would want to emulate B.C.’s Low Income Climate Action Tax Credit, which piggybacks on the federal government’s GST tax credit cheques. Eligible recipients receive the money whether they pay income tax or not.

There is also the challenge of figuring out how high such a tax should be to encourage people to migrate away from fossil fuels. The World Bank reports that, since B.C.’s carbon tax came in, per capita consumption of petroleum products subject to the tax has fallen 16 per cent. Meanwhile, it rose three per cent in the rest of Canada.

While this is promising, I have to admit that I don’t think a seven cent tax will really be enough to make a big dent in our fossil fuel use. Especially with the prices of oil and natural gas falling recently, and possibly staying low for years.

But a carbon tax would be a start, as long as it was revenue neutral and issued GST-style cheques to low-income earners. Expect the debate to heat up on this issue as the territorial election approaches.

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 this year’s Ma Murray award for best columnist. You can follow him on Channel 9’s “Yukonomist” show or Twitter @hallidaykeith