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Carbon Showdown: Alberta VS. British Columbia – Who's taxing it right?


Canada finds itself at an interesting crossroads when it comes to the consumer carbon tax. Some provinces have embraced this tax with open arms, while others, skeptical of its benefits, have resisted it. In this climate discourse, Alberta and British Columbia in particular present a fascinating dichotomy - why does British Columbia have a consumer carbon tax, while Alberta staunchly opposes it?



Who's On Board with Consumer Carbon Tax?

British Columbia was one of the first provinces to introduce a consumer carbon tax in 2008 (Carbon Tax Act). Their rationale was: make pollution more expensive, and industries and consumers will be forced to reduce their carbon footprint. As British Columbia's carbon tax aligns with the federal benchmark set by the federal carbon pricing system (Greenhouse Gas Pollution Pricing Act), the province is exempt from the federal "backstop" carbon pricing system. The term "backstop" refers to the fact that this system is applied in jurisdictions that do not have their own carbon pricing mechanisms that meet the federal standards.

British Columbia's carbon tax is applied to the purchase or use of fuels within the province and to combustible waste. The tax rate has been increasing over time, and the revenue generated from this tax is intended to be revenue-neutral, meaning that the funds collected are returned to British Columbians through reductions in other taxes or as rebates.


The current provincial carbon tax in British Columbia is $65 per tCO2e.



The Alberta Standoff.

Alberta, the energy powerhouse of Canada, took a different route. In 2019, the provincial government repealed (via the Carbon Tax Repeal Act) the provincial carbon levy on consumers (Carbon Competitiveness Incentive Regulation (CCIR)). After the CCIR was repealed, the federal government implemented the federal "backstop" carbon pricing system in Alberta, as the province no longer had a carbon pricing mechanism that met the federal standard. The federal carbon tax was applied to all fossil fuels in Alberta, including natural gas, on January 1, 2020. Blue Rock Law Partner, Hon. Doug Schweitzer, ECA, KC, launched the Government of Alberta’s challenge to the federal “backstop” when he was the Minister of Justice & Solicitor General. He also launched the successful challenge to Bill C-69, which aimed to overhaul the environmental assessment process for major projects.


The federal backstop has two main components:

  • Fuel Charge: This charge is applied directly to fossil fuels. Different rates are set for different types of fuels, reflecting the amount of carbon pollution released when they are burned. The rates are designed to increase annually. This charge is the one most associated with the term "carbon tax" in public discourse, as it's what consumers might see added to gasoline prices, for instance.

  • Output-Based Pricing System (OBPS): Designed for industrial facilities that produce a significant amount of emissions. Under the OBPS, performance standards are set based on industry averages or best practices. If a facility emits less than the set standard, it earns surplus credits. If it emits more than the standard, it must compensate by either purchasing credits or paying a federal charge. The OBPS is designed to ensure industrial competitiveness while incentivizing emissions reductions.

In Alberta, the "Technology Innovation and Emissions Reduction" (TIER) (Technology Innovation and Emissions Reduction Regulation) system was recognized by the federal government as being in line with the federal standards for large industrial emitters. As such, TIER effectively replaces the OBPS component of the federal backstop carbon pricing in Alberta for those emitters. But with Alberta's repeal of its provincial consumer carbon tax in 2019, the federal fuel charge (the other component of the federal backstop) was imposed on Alberta consumers from January 1, 2020.


The current federal fuel charge is $65 per tCO2e, matching British Columbia’s current rate.



What is the same in both Alberta and British Columbia?

Both British Columbia and Alberta have a carbon tax on large emitters although the structures and systems differ.


In British Columbia, large emitters are subject to the provincial carbon tax just as other entities are, but with some adjustments. To address concerns about competitiveness and carbon leakage (whereby businesses may choose to relocate to jurisdictions without a carbon tax), British Columbia introduced the "Emissions-Intensive, Trade-Exposed" (EITE) program. Industries that fall under the EITE classification receive relief from a portion of the carbon tax to account for their trade-exposed status, ensuring they remain competitive internationally. This EITE rebate provides a balance between the carbon tax's environmental objectives and the economic realities faced by certain industries. The British Columbia Carbon Tax is not a cap-and-trade system, so there isn't a direct mechanism for trading carbon credits under the tax itself. However, British Columbia did participate in the Western Climate Initiative (WCI), a collaborative effort of several North American jurisdictions to integrate their climate policies and establish a regional cap-and-trade system which was established in 2007. British Columbia also established its overarching greenhouse gas reduction goals in 2007 (Greenhouse Gas Reduction Targets Act). Within this context, BC developed the BC Carbon Registry (Greenhouse Gas Industrial Reporting and Control Act), which facilitates the issuance, transfer, and retirement of BC-based compliance offset units.

Alberta, on the other hand, has a specialized system for large industrial emitters called TIER. Introduced by the United Conservative Party government, TIER replaced the previous CCIR. Under TIER, facilities that emit more than 100,000 tonnes of carbon dioxide euivalent (CO2e) per year are subject to emissions benchmarks. If a facility's emissions exceed these benchmarks, it must either purchase credits, use previously earned credits, or pay into a provincial fund. Facilities that emit less than their benchmarks earn credits. Compared to British Columbia's EITE approach, Alberta's TIER system is a more sector-specific regime, with each industry having benchmarks tailored to its characteristics.


While both provinces aim to address the emissions of large industries, British Columbia integrates large emitters within its broader carbon tax system, while Alberta employs a distinct and tailored system for its large emitters.



A Critical Look at Consumer Carbon Tax.

At the heart of the carbon tax debate is its effectiveness. The primary purpose of such a tax is to discourage carbon-intensive behaviors and promote more sustainable practices. But the big question remains: do these taxes genuinely achieve the advertised goal of curbing emissions, or do they function as economic burdens, disproportionately weighing down consumers?


On the surface, the tax seems straightforward: make pollution costlier, and both industries and individuals will adjust their behaviors, opting for more environmentally friendly alternatives. Yet, its ripple effect on the economy is complex. Rising costs for businesses can lead to increased prices for goods and services, making daily life more expensive for Canadians.


Moreover, in a global context, Canadian emissions are but a fraction of the total. Even if every province adopted a carbon tax, would the global impact justify the domestic economic strain? The challenge remains a balancing act between local effects and global objectives.



Conclusion.

The carbon tax debate is emblematic of the broader challenges Canada faces in harmonizing economic growth with environmental concerns. While British Columbia might believe it's leading the way, Alberta's apprehensions spotlight the real economic concerns shared by many Canadians. Perhaps it's time to reconsider if a carbon tax is the panacea it's made out to be, or if more nuanced, sector-specific approaches like Alberta's TIER are the way forward.


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