Raising the carbon tax

Posted April 21, 2009 by Sacha Peter
Category: BC Greens, Economy, Environment

The Green Party sent out a press releasing calling for an increase to the carbon tax (Media Release).

Victoria, BC –– The Green Party of BC is calling on British Columbians to support an increased tax shift on green house gas emissions from $10/tonne to $50/tonne.

The $10/tonne (now $15) shift by the BC Liberals is a start, but BC Greens would shift more sooner — starting with $50/tonne,” said Jane Sterk, Leader of the Green Party of BC.

“Since revenues from the tax will be used to reduce payroll and income taxes, most British Columbians who have choosen alternates to burning hydrocarbons have already increased their overall revenues. Along with the GST rebate and lowered personal taxes, some low income, northern and rural dwellers have also seen reduced expenses.”

The press release looks rushed and not researched properly.

The second paragraph states that the carbon tax is levied at $10 per tonne, but then states it is now $15 – it is not. It will be $15 as of July 1, 2009, and $20 as of July 1, 2010, and $25 as of July 1, 2011, and then the last legislated increase is $30 as of July 1, 2012. Presumably this legislation will be extended if the BC Liberals are re-elected.

The third paragraph is badly worded and is plainly incorrect. Revenues from the carbon tax cannot be used to decrease payroll taxes (CPP and EI) mainly because these are federal jurisdiction items. The provincial government cannot directly reduce these payroll taxes. Saying that the carbon tax, from an individual perspective “increases overall revenues” is also incorrect phrasing; “reducing expenses” is proper. Finally, the GST rebate (another federal jurisdiction matter) has nothing to do with the provincial carbon tax.

This isn’t the first time the provincial Green party has mixed provincial and federal jurisdiction matters; in their original platform document, they stated they would accelerate capital cost allowance rates for “green” capital expenditures; and also permanently put in place the oil drilling moratorium – both of which are federal matters.

Politically, calling for a carbon tax increase is not going to win mainstream voters for the Green party; especially since this release does not explain in a concrete fashion (i.e. dollars that are planning on being spent for various initiatives) on how the revenues from such a tax increase would be utilized – there is reference to “Initially money would be directed toward programs in rural and northern communities”, but somehow I doubt those communities will be thrilled about this. The press release also implies that the “revenue neutral” aspect of the carbon tax (i.e. every dollar collected from carbon taxation will no longer be applied to tax reductions elsewhere) will no longer be adhered to.

The impact of a $50/tonne carbon tax, assuming a 10% reduction in consumption of fossil fuels over projected 2009-2010 levels, would be a $1.42 billion dollar per year tax increase over and above the 2009-2010 budgeted amount (of $546 million). A $50/tonne carbon tax would represent a 11.7 cent tax per litre of unleaded gasoline.

Finally, keep in mind the title of the press release was “Green Tax Shifting Reduces Emissions Without Increasing Taxes”, which is completely inconsistent with what the rest of the press release stated since the tax increase would be approximately $1.42 billion, assuming fossil fuel consumption is reduced by 10%.

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Looking at the “scrap the gas tax” backlash

Posted April 14, 2009 by Sacha Peter
Category: Analysis, Economy, Environment, NDP

The BC Liberals are firing the first shots in the yet-to-be-formalized election period, with respect to the NDP’s positioning on their declaration of scrapping the carbon tax.

Rather, it was the environmental lobby groups (most notably the David Suzuki Foundation) that went against the NDP for their stance on the carbon tax, but quite a few others piled in.

This policy decision was a very interesting choice for the NDP, and I generally think it will be a net positive for them, although whether it is a “small” or “large” net positive will remain to be seen in terms of how they perform in the rest of their campaign.

The reason is because people that are generally inclined toward the environment as single-issue voters are much more likely to vote Green than to vote for the NDP, and even less likely to vote for the BC Liberals. The simple election calculation is that the NDP already bled most of their environmental support in 2005, and likely did not stand to gain much by supporting a tax which polling indicated about half of British Columbia did not like. I have not seen a recent poll on the question of the carbon tax, however – this may have changed.

The NDP probably looked at the federal election results in British Columbia and judged the carbon tax and its impact (weighed against the fact that the Liberal Party was running a weak leader in Stephane Dion). The real question is – how many “single issue” voters are there with the carbon tax, and how many “multi-issue” voters are there that would be tipped with the promise of getting rid of the carbon tax?

Most people (except the media) generally tune out what the environmental groups have to say as the alarm bells have been rung too many times to be effective; the only news is that the apparent perception that the environmental groups were solid support for the NDP has been confirmed, but this is just revealing something that has been the case for awhile.

One negative aspect of this tactical choice by the NDP is that the government gives out a $100 cheque for anybody making less than $30,000 income a year (or $35,000 joint income if you are married; which is really a penalty on marriage). The BC Liberals will argue this. This is a rational argument, but the opponents of the carbon tax have made it beyond numbers, and have been quite successful at that.

Lower gasoline prices have also mitigated the problem somewhat for the BC Liberals; they will not be nearly as fortunate in 2013 when it is very likely that fuel prices will be much, much higher (here’s a hint for everybody – you may wish to hedge your price on energy consumption by looking into investing in some oil and gas companies).

In general, the government would have saved themselves a lot of pain had they just increased the motor fuel tax by 2.4 cents a litre and phased in subsequent increases in future years. This would not cover natural gas, coal, etc., but this could have been worked around.

The NDP, as an alternative, have been proponents of cap-and-trade, which is a less transparent system of greenhouse gas emission taxation, although public perception is generally not aware of this. What is odd, however, is that the government has already enacted a form of cap-and-trade, via Bill 18 (2008), the Greenhouse Gas Reduction (Cap and Trade) Act.

Finally, something powerful is the effect on ordinary voters, opposed to special interest groups, when they do the mental comparisons – if the NDP made the ballot question “Do you want to scrap the carbon tax?” it may be highly effective for them in the very swingy interior regions (e.g. the Cariboo).

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Independent Power Production

Posted March 26, 2009 by Sacha Peter
Category: Environment

IPPs have been a hot topic amongst the environmental lobby.

The government wrote a press release, titled Facts on Independent Power Production, and it is a fairly accurate release.

I will talk about two parts of this release which I will take issue with, however:

1. In the second claim, the facts mention “between 43,000 and 54,000 gigawatt house of electricity per year” – I’d love to know what a gigawatt house is! They must have a lot of Christmas tree lights there!

These releases are written by people, and occasionally a non-spelling error does spill through. Sometimes they’re funny. The worst type of mistakes are when the word “no” or “not” is omitted accidentally.

Readers of this site will know that I make plenty of errors of this nature – my most frantic editing is within a minute after I hit the “publish” button.

2. About the following:

Claim: B.C. ratepayers are paying the capital costs of new power projects being built by private energy developers through Electricity Purchase Agreement contracts with BC Hydro, and are paying as much as double the current energy market rates

The facts laid out in the press release are correct, but here is some more colour:

BC Hydro takes on price risk by taking fixed prices for power they receive from IPPs. BC Hydro has a standing offer program for potential IPPs (which can be found here, local copy), and looking at section 12 (section 4.1), we have a list of prices:

Across BC the “residential rate” is $59.80 per MWh for the first 1.35MWh you consume (per two month period), and $72.10 for anything after that. This rate will go up about 8% on April 1, 2009. Business rates are much more complicated to explain.

There is also an adjustment for inflation (the CPI rate, which is not necessarily indicative of inflation, so this would favour BC Hydro if “real” inflation is higher than the CPI rate), and an adjustment factor for when the power is delivered, as follows:

So one of the disadvantages of the energy purchase agreements that BC Hydro takes on is that the public is taking on risk that:

1. Prices of electricity remain stable or increase relative to CPI over the typical 35-year contract that BC Hydro would enter;
2. Price differentials between electricity delivered in ‘light load’ times vs. ‘high load’ times remains such that BC Hydro can trade it off profitably via PowerEx, and that this differential between light and heavy times remains the case throughout the 35 year period.

So this would make BC Hydro susceptible to ultra-low cost power generation inventions (e.g. if somebody invented sustainable fusion), etc.

Are these risks reasonable ones to take? In my opinion they are, but I am not enough of an expert in this field to give any confidence level to this opinion.

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First election promise of the campaign

Posted February 13, 2009 by Sacha Peter
Category: BC Liberals, Environment, NDP

The government will be coming with a throne speech on the 16th, and the budget will be on 17th, which will likely involve components of an election platform that will likely be two-tiered; i.e. the first bit will be enacted this term, while the second (and presumably more lucrative to the public) will be done if the government is re-elected.

The NDP have come out last Thursday with their first election promise to provide a $1 billion “Green Bond“, which will be issued in $1 billion increments, for 10 years, to be invested in various spending and infrastructure projects.

This seems to be none other than an idea just to spend money, with a fancy marketing name. A bond is a bond – the province borrows money from the public, and eventually the province has to pay back this money with tax dollars earned from the people and businesses within the province. It appears that this approach to spending capital infrastructure is not significantly changed by this announcement, other than a pledge to spend a billion dollars a year on these projects. They will make for some comfortable talking points during communication scrums, however, which perhaps will be politically valuable. From a policy perspective, this doesn’t appear to be a change from a lot of the government’s present policies, especially with respect to subsidies to retrofit structures for “greening” purposes. With the BC Liberals, it’s about the “Climate Action Plan”, while with the NDP it’s about the “Green Bond”.

One can infer to this point that the marketing arms of the political parties (sometimes less ceremoniously referred to as “spin doctors”) are working overtime to create these buzz-phrases. They are still nowhere close to those of the wordsmithing skills of the Singapore government, however.

I will be keeping track of explicit promises by the parties on the Platforms page.

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Trouble brewing in Mackenzie

Posted February 4, 2009 by Sacha Peter
Category: Environment

Out in Mackenzie, the government had to issue an order to take over a pulp mill. The previous owners had taken the mill, but had not paid the people in a month, and there was a looming environmental hazard that could have happened.

It seems likely the government will have to pay some money to clean up the operation, and the ability to claim these costs against the owners might be limited.

Apparently the workers have now been paid.

Local issues are very important for rural ridings, and Prince George-Mackenzie is a rural riding – with popular centres of Mackenzie and the western side of Prince George. Although Pat Bell won the riding with nearly 50% of the vote in the last election, this could swing if there is enough alienation – former NDP cabinet minister Paul Ramsey was the previous MLA.

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Fort Nelson Carbon Tax Opposition

Posted March 26, 2008 by Sacha Peter
Category: Analysis, Environment

The Mayor and Council of Fort Nelson, a town in the far northeast of the province, has called upon the government to give an exemption to northern communities from the carbon tax because they consider their fossil fuel consumption to be a non-discretionary expense given their geographical location.

The province is very unlikely to respond to their request, mainly because of how the legislation is structured – for example, according to the revenue neutrality aspects of the carbon tax, corporate and personal income taxes would decrease. There is no way that the province would also offer differing rates of taxation depending on the region.

The issue of the carbon tax is part of a larger issue which divides the province – the urban-rural split. Currently, the BC Liberals have 6 MLAs elected from the northern regions (considered to be roughly Prince George and above). Although two of these ridings (Peace River North, Peace River South) are safely BC Liberal ridings, the other ridings are contestable by NDP candidates. It should be noted that Peace River North and Peace River South were also both elected BC Reform party candidates in 1996.

A loss of 6 MLAs would result in the loss of a majority in the legislature (using 2005 boundaries).

The government has to be very careful at balancing the fine line between the urban and rural interests of the province. Currently their emphasis on environmental and aboriginal affairs has continued to marginalize the NDP, but at the possible expense of alienating rural voters.

I do not foresee this alienation resonating too deeply enough to harm the BC Liberal party’s chances for another majority government in 2009, but it is something to watch for.

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Michael Smyth on the Premiers and Climate Change

Posted January 29, 2008 by Sacha Peter
Category: Environment

This one was is paraphrased roughly from the Vancouver Province:

By standing up for the oil industry, Mr. Stelmach seizes a critical “wedge issue” prior to the election while appealing to Albertans’ well-honed sense of western alienation when it comes to their oil reserves. The other premiers understand that kind of hardball politics. Ontario Premier McGuinty wants to be seen as a leader on climate change, but he has a huge industrial economic base that is on its knees. Every politician wants to look like they are saving the planet, but does not want to stick their own necks out while they do it. Premier Campbell is sitting in the cat-bird seat: he has promised to cut greenhouse-gas emissions by 33 per cent by 2020 and 80 per cent by 2050, but he does not have an auto industry to worry about. Going green is easier for Campbell and it has transformed him into a national leader on the issue, to the frustration of his domestic political enemies such as NDP Leader Carole James. Climate change is a losing political issue for a guy like Stelmach. It’s a winner for a guy like Campbell. And he’s milking it for all it’s worth.

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