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Tuesday, February 3, 2015

Carbon Taxes May be Closer than you Think



By Amy Erixon, Toronto


If you haven’t been following the news on Climate Change, you may be surprised to learn that according to Wikipedia, 28 U.S. states have already adopted greenhouse gas mitigation strategies or action plans, including some unlikely places like coal mining centers: Kentucky, Tennessee, Pennsylvania and Montana, and conservative voter strongholds such as Alabama, Utah, Arizona and Iowa.  These actions include increasing renewable energy generation, selling agricultural carbon sequestration credits and encouraging efficient energy use.  

In the U.S. venerable statesmen including Reagan’s Secretary of State, George Schultz, former NYC Mayor Michael Bloomberg, and philanthropist Bill Gates are among those calling for action on carbon emissions.  The University of California chart above measuring CO2 levels over the past 800,000 years illustrates why.  For a good introduction to this topic I recommend watching the TED Talk featuring Bill Gates in 2010 on what he is doing about it called:  Innovating to Zero!

Here in Canada, politicians (other than the Prime Minister), economists and academics on all sides of the aisle, including the founder of the modern Conservative Party: Preston Manning, are calling for putting a price on Carbon.      Passed in British Columbia in 2008, the tax is being touted as a “success” by both industry and public opinion.  According to the latest polls, a majority of Canadians are supportive of more action on climate change (including nearly two-thirds of residents in Ontario.)   The Liberal Premiers of Quebec and Ontario signed an accord last November and are talking to British Columbia and three US States about joining their efforts - and taking action this year.  California Governor Jerry Brown, spearheading the effort suggests that in 2015 he anticipates several coastal provinces of China to also join the accord.   The specifics are expected to be unveiled at the climate change summit here in Ontario scheduled to occur in July to coincide with the Pan Am Games. 

The surprise outcome from the B.C. experiment comes from the fact that the Province has enjoyed strong economic growth since the tax came in to effect and carbon use has declined 16% over the same period; decoupling the GDP from its historical correlation with oil consumption.   The same results have been achieved over a longer period (more than two decades) in Scandinavia.   Here is some recent press coverage on these reports:

“The shocking truth about B.C.’s carbon tax: It works” – The Globe and Mail, July 9, 2014

“Because the tax must, by law in BC, be revenue-neutral, the province has cut income and corporate taxes to offset the revenue it gets from taxing carbon.  BC now has the lowest personal income tax rate in Canada and one of the lowest corporate rates in North America, too.” -  British Columbia’s carbon tax: The evidence mounts -The Economist, July 31, 2014

“Under an accord signed yesterday by leaders of the three western U.S. states and the Canadian province…Washington and Oregon agreed to adopt low-carbon fuel standards and the four governments said they’ll “harmonize” greenhouse-gas reduction targets for 2050.” - BloombergBusiness October 29, 2013

``A carbon tax maximizes the use of markets and minimizes complexity”, “a carbon tax is a better approach”… Imperial Oil Ltd. (Canadian division of Exxon) spokesman – Why Canada Oil Sands Industry Wants CO2 Tax - BloombergBusiness –February 1, 2013

If a carbon tax (or fee for use, as some politicians prefer it to be phrased) comes into effect, those of us in the real estate industry will feel its bite.  According to British Colombia, 11% of carbon tax revenues are coming in from the real estate sector as buildings currently represent 14% of all carbon effluents in the Province.  


According to the Petroleum Institute, the oil industry is already taking into account a carbon tax of between $30 and $40 per ton in its profitability forecasts.  Cynics suggest that the oil industry has joined the call for action for two reasons:  political expediency (to reduce resistance to fracking and pipelines) and because it is much more punitive on Coal than it is on Oil (in other words in a fight for market share).  Whatever the reason, if this highly effective lobbying body has indeed joined the call for a tax on carbon, it is closer than we think.  

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