Published Friday, Jan. 30 2015
Talking with Peter Mansbridge on Dec. 17, Prime Minister Stephen Harper struggled not to use the word “tax” to describe Alberta’s carbon-pricing scheme. He stated that: “This is the tech fund … ahh price, carbon levy; it is not a levy, it is a price, and there’s a tech fund, in which [the] private sector makes investments.”
As Canadians debate carbon pricing, we should, like the Prime Minister, avoid using the word “tax” and instead use a more accurate three letter word: fee. It’s more than just nit-picking or semantics. It’s about being accurate concerning what we are debating. In a well-designed carbon-pricing system, such as British Columbia’s, “carbon fee” is a more accurate description than “carbon tax.”
Most Canadians think of tax as a giant government hand that takes their money, no matter how they got it or plan to spend it. If you have enough income, you pay an income tax whether you made it teaching, playing hockey, or day-trading Asian currencies. And after you’ve paid your income tax, you pay a consumption tax for almost anything you consume whether it is gas, beer, or art classes.
However, a carbon fee is more like a “fee for service” than a tax. In a well-implemented system (like B.C.’s $30 a tonne), the fee is automatically embedded into the price of every product depending on that product’s carbon content.
If you choose products with high carbon content (for example: gasoline, natural gas, or helicopter rides), then you should pay a fee to use that carbon. If you choose to spend instead on products with low carbon content (art classes or insulation for your drafty windows), then you end up paying a lower carbon fee.
So, where is the service in the “fee for service” you ask? Much like what you get when you park your car, the carbon fee offers you an exclusive use of a public asset. In B.C., for every $30 of carbon fee paid, a consumer gets the exclusive benefits of emitting a tonne of carbon.
There has to be some sort of limit on how much carbon is emitted. If left unchecked, people would likely emit more than the desired limit. Therefore, we can think of all the emissions, up to the limit, as a “public good.”
If I personally want to benefit from emitting a tonne (thus taking that tonne away from everyone else who might want to emit it), then I should pay a fee for that personal benefit. Over time, the fee should be dialled in to a price that steers overall emissions to an acceptable level.
In this way, a carbon fee is very similar to a parking fee or other user fees that Canadians have come to accept. If you use it, you should pay for it. A parking space on a public street is a public asset that belongs equally to everyone. When you are occupying the space, you get exclusive use of it for which you pay a fee. The fees go into general government revenues, and without it the local government would have to raise taxes or reduce services.
Municipal parking fees are a system of fair exchange between consumers who want to park and the public. The driver gets exclusive use of a public asset, and in return the public benefits from increased revenue for city hall to spend on other things such as library books, road repair, or lower property taxes.
Similarly, British Columbians are treated fairly by their carbon fee because every dollar collected is used to lower taxes (if not, the Minister of Finance will, by law, be fined). Last year, B.C. collected $1.2-billion from the carbon fee and lowered taxes by the same amount. Lower taxes benefits everyone in B.C. The end result: Giving citizens more money to spend and stimulating the economy.
Canada is overdue for having a serious discussion about carbon pricing. But before we get caught up in labelling it a tax grab, let’s call it what it is: a user fee.
Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline. Greg Kiessling is chairman of Canadians for Clean Prosperity.