Governments and those that oppose the use of traditional energy sources are increasingly advocating for various types of carbon taxes and fees which are increasing costs for citizens. In Australia, a carbon tax — which has since been repealed — caused electricity prices for the average family to increase by 10 percent. Despite the carbon tax, carbon dioxide emissions in Australia in 2016 were the same as they were in 2008—between 408 and 409 million metric tons. In Canada, carbon and other taxes are causing gasoline prices to rise to almost $5 a gallon in some areas. Prime Minister Trudeau’s carbon tax begins at $10 per metric ton, and rises to $50 per metric ton by 2022. Environment Canada, however, indicates that $300 per metric ton would ultimately be needed for Canada to hit its emissions targets. Carbon taxes, to be effective, must be large enough to change behavior. A survey has shown that Canadians do not understand what carbon pricing is, but they will once the carbon tax impact is large enough to inflict painful price increases.
Gasoline prices in Vancouver reached $1.62 a liter (US$4.77 a gallon) recently–the highest in North America. Vancouverites are paying about a third more than drivers in Honolulu, more than in the Cayman Islands which does not have a refinery and must import fuel on barges, and more than any other major oil-producing country except Norway, which also taxes motor fuel. Besides being affected by a carbon tax, its gasoline prices are high because of refinery maintenance, a weakening loonie that makes U.S. imports more expensive, and other taxes such as a levy for public transportation. In the Vancouver area, there are a host of taxes on gasoline: a TransLink Tax (17 cents), Dedicated Motor Fuel Tax (6.75 cents), Provincial Motor Fuel Tax (1.75 cents), Carbon Tax (7.78 cents), Federal Excise Tax (10 cents), and the Goods and Services Tax (5 cents), which totals almost 49 cents per liter Canadian.
The Australian government introduced carbon pricing or a “carbon tax” through the Clean Energy Act 2011, and the tax came into effect on July 1, 2012. The tax was the initial step to reaching Australia’s legislated reduction in greenhouse gas emissions of 80 percent below 2000 levels by 2050. It was introduced at $23 ($17.63 U.S.) per metric ton of carbon dioxide. The initiative resulted in increased energy prices for both households and industry and was repealed on July 17, 2014.
The increase in electricity costs for households and industry led to business closures and other economic hardships:
- The tax increased the cost of electricity for the average family by 10 percent.
- Approximately 75,000 businesses paid the carbon tax directly or paid an equivalent penalty through changes to duties and rebates. The businesses passed on part or all of the cost to their customers, smaller businesses and households, which experienced higher prices as a result of the tax. The introduction of the carbon tax was estimated to have increased the cost of living of households by around AUD 9.90 ($7.59 U.S.) per week on average, and increased the Consumer Price Index by 0.7 percent.
- For businesses, the impact was more significant with up to 30 percent of small and medium sized enterprises’ electricity bills being affected by carbon pricing and other green initiatives. The cost increases resulted in factory closures and job losses. One company had to pay AUD 8 million ($6.1 million U.S.) a year for the carbon tax, which forced it to close.
Washington D.C. Proposes a Carbon Pricing Bill
D.C. Council member Mary Cheh has a draft proposal that includes a carbon pricing fee starting at $10 per metric ton, increasing to $100 per metric ton by 2038. Some environmental activists insist that the price is too low to effectively cut carbon dioxide emissions in line with the city’s commitment to the Paris climate agreement. Their higher proposal starts with a tax of $20 per metric ton and increases to $150 per metric ton by 2032. The carbon pricing plan would target the transportation, home heating, and electric power sectors.
Under to the coalition’s proposal, part of the revenues would be rebated back to families, with larger rebates going to low-income families. The average family would receive a $500 annual rebate in the first year of the program and $1,920 annual rebate by 2032. Low-income families would receive a $900 annual rebate in the first year and $3,330 annual rebate by 2032.
Comparable legislation has been introduced in several Northeastern states. The proposal also has similarities to a climate action plan tax passed in 2007 in Boulder, Colorado where a tax is levied on city residents and businesses and is based on the amount of electricity they consume. The tax generates approximately $1.8 million each year and is expected to continue through March 31, 2023.
Carbon pricing or a carbon tax is supposedly one way to reduce greenhouse gas emissions, but few people understand what it means and how they will be affected as a survey in Canada indicated. Adding a carbon tax onto other taxes on fuels, such as federal and state taxes on gasoline, will increase prices further, as Vancouver motorists are recognizing with one of the highest gasoline prices in North America. But, to get changes in behavior, the tax has to be sufficiently large or the result on emissions reductions would be negligible as many countries are finding out.
Because consumers and businesses need energy to survive, charging more for it just makes people poorer. A carbon tax has shown to be regressive since it has a greater negative impact on lower income people than on higher income people, which is why Washington D.C. is considering rebating part of the tax back to consumers. Nevertheless, it will result in higher prices for D.C. residents. Lessons should be learned from Australia’s carbon tax fiasco with business closures and job losses.