Yukonomist: Yukon carbon tax decisions

With the carbon tax coming into effect on July 1, you now have to decide how to react.

The purpose of the carbon tax is to influence you to use less fossil fuels and therefore emit less carbon dioxide into our shared atmosphere.

The carbon tax will be phased in over several years. It will start at $20 per tonne of carbon dioxide, or about 4.4 cents per litre of gasoline. The plan is for it to rise to $50 per tonne, or 11.1 cents per litre, in 2022.

This is on top of existing excise taxes. There is a federal excise tax on gasoline of 10 cents per litre, plus a Yukon excise tax of 6.2 cents per litre. So, after the carbon tax is fully implemented, the total tax on a litre of gasoline will go from 16.2 cents per litre today to 27.3 cents per litre.

There are also federal and Yukon excise taxes on diesel, but not on propane or LNG. The carbon tax will apply to three.

To decide how to adjust to these new price signals, you’ll need to know how much more the carbon tax will cost you.

Let’s look at your car first. Here’s a rough example. Suppose you drive a minivan that burns 11 litres of gas per 100 kilometres. Your commute to work is 15 kilometres one-way and you commute five days a week all year, except for two weeks of vacation. That’s about 7,500 kilometres per year. Suppose you do an equivalent number of kilometres driving the kids to hockey and math club, plus weekend getaways and trips to the grocery store.

The carbon tax will cost you an extra $182 per year by 2022. It works out to an additional 18 cents each way of your commute.

Note that if you walk, bike or take the bus you save more than 18 cents. This is only the incremental cost of the carbon tax. But one presumes you already decided the other costs, such as the cost of the gasoline itself, the existing excise tax and vehicle depreciation, were worth it. So the question is whether the extra 18 cents per commute will push you over the line into leaving the minivan at home.

Now let’s look at home heating. Unlike the NWT, home heating fuel will not be exempt in the Yukon. Suppose you have a typical older Whitehorse home that drinks about 2,000 litres of home heating fuel every winter. The carbon tax will cost you approximately $275 extra every year.

Again, the question is whether that will nudge you to put the spouse and kids into thicker fleeces and turn down the thermostat.

This brings up the fact you are facing two kinds of decisions. The first is day-to-day decisions based on the minivan and furnace you already own.

I can picture your reaction if, on Monday morning, your neighbour leaned over the fence and offered you 18 cents to leave the minivan at home.

The second kind of decision is about investments. Your thinking about the 18 cents would probably be different if the minivan had just died, and you were standing in a car dealership choosing between a gas guzzling 4X4 pickup and a mini-compact. Given how long cars last, it’s a decision you might be living with—and paying for—for a decade.

Ditto for when your furnace expires or you build a new house and have to decide how to heat and insulate it. You have to live with your furnace decision for even longer than you’ll regret the V-8 behemoth with cheesy vanity plates.

These are long-term decisions. Whether you think about it consciously or not, your decision will be based on what you think the answers are to a couple of long-term questions.

First, will the carbon tax stay the same, get ratcheted up, or done away with after the next the next round of national and territorial elections? The same question applies for the exemptions and rebates.

Second, is global climate change going to keep developing into a bigger and bigger problem?

Third, if your answer to the second question is yes, will the big global powers agree on action that is dramatically more significant and concerted than they have so far? Over half of global emissions come from China, United States, European Union and India (Canada was 1.6 per cent of the total in 2016).

I can’t predict what voters will decide. It’s worth noting that the BC carbon tax came into effect in 2008 and is still with us, even if a subsequent government capped the planned increases lower than originally planned.

But I will go out on a limb on the second question. I predict that we will see increasingly serious impacts from climate change. The big United Nations scientific report that came out last October made for scary reading.

The answer to the third question is “probably yes,” but the timeline could be years or decades away. To paraphrase Winston Churchill, governments can be trusted to do the right thing, after all the alternatives have been exhausted. If and when the big players move, Canada will too. But the carbon situation may be so dire by then that much bigger carbon taxes than 11.1 cents per litre—and with no exemptions—will be required.

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 is a Ma Murray award-winner for best columnist.