NCPA - National Center for Policy Analysis

Why British Columbia's Carbon Tax Is Not Applicable to America

September 23, 2014

Many proponents of a carbon tax in the U.S. cite the success that British Columbia (BC) has had in their application of it. To get conservatives on board, proponents of the tax have shown how the carbon tax in BC was revenue-neutral -- that is, all the revenue it brings in must be used to reduce other taxes -- and that it generated an increase in gross domestic product (GDP).

However, the arguments for the tax are misleading for several reasons, according to Marlo Lewis, senior fellow for energy and the environment at the Competitive Enterprise Institute.

First, the tax doesn't lower taxes or boost GDP.

  • During the four years that BC's GDP growth outpaced the rest of Canada's was only by an average of 0.1 percent.

  • In 2012, BC's GDP growth was below both the Canadian average and the growth rate of its other provinces.

  • BC's taxes already had low personal income taxes before it enacted the carbon tax. And yet, it has a higher corporate income tax than every U.S. state, with the exception of Iowa.

Moreover, the geological differences between the U.S. and BC means that enacting a similar tax would not yield the same benefits.

  • Nearly all of BC's base-load electricity is zero-carbon hydropower, the second being carbon-neutral biomass, and the third being natural gas which generates only 6 percent of BC's electricity.

  • On the other hand, the U.S. as a whole gets only 7 percent of its electricity from hydro power.

  • Moreover, the U.S. can't construct large dams like BC has because of property rights concerns.

  • Finally, coal generates no electricity in BC but provides the majority electric power in 21 states and is the largest single source of power in half the states.

The carbon tax is not as neutral as proponents would suggest. BC has had and continues to forecast budget surpluses for the foreseeable future. The U.S. on the other hand, has still a nearly half a trillion dollar deficit. It's easier to be revenue-neutral when a country is working with surpluses rather than deficits.

Source:  Marlo Lewis, "Why British Columbia's Carbon Tax Is Not Applicable to America," Competitive Enterprise Institute. September 16, 2014

 

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