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The B.C. government introduced North America’s first
full-fledged carbon tax last week and made it the centerpiece of the province’s
budget announcement. The concept of a carbon tax is one that has concerned
industry for quite some time, but the B.C. government tempered the blow of its
arrival with other tax reductions and certain industry exemptions. By gradually
phasing in the tax, B.C. is showing its savvy, making sure everyone knows the
province is open for business.
The carbon tax applies to the purchase or use of fossil fuel
within the province. The tax rates starting on July 1, 2008, are based on $10
per tonne of CO2-equivalent emissions, increasing by $5 per tonne each year for
the next four years to $30 per tonne in 2012. The government hopes that this
gradual phase-in will make it easier for businesses and individuals to alter
their habits and purchasing patterns.
What the tax means in real terms immediately for tax payers
is that there will be a tax on gas prices of 2.41 cents a litre as of July 1st,
and 2.76 cents a litre for diesel. Natural gas use will be hit by a 49.88 cents
a gigajoule rise in price. Canadian bitumous coal, meanwhile, will face a tax
of $20.79 a tonne. This will rise substantially over the next few years as
well. Biodiesel and ethanol are classified as alternative motor fuels for all
purposes and are exempt from the tax. Renewables such as wind and solar power,
of course, are exempt from the tax.
Interestingly, biomass and biofuels are also exempt from the
tax because it is reasoned that the CO2 they produce is offset by the carbon
originally sequestered by the plants used to make the fuel.
The impact of these increases are being offset by a number
of tax reduction measures elsewhere. The general corporate income tax rate will
be cut from 12 per cent to 11 per cent. By 2011, that rate will be further
reduced to 10 per cent. Meanwhile, the small business tax rate will be reduced
to 3.5 per cent from 4.5 per cent. This will be reduced to 2.5 per cent by
2011.
There are also a number of PST exemptions that could help
certain businesses and municipalities, such as:
- PST exemption for production
machinery and equipment for local governments for power production and
cogeneration.
- PST exemption for biodiesel
fuel, including the portion of biodiesel fuel used in a furnace oil blend, when
used for heating or other uses.
- PST exemption for insulation
designed to prevent heat or cold loss from hot water tanks, hot and cold water
pipes, and ductwork.
- PST exemption for certain
aerodynamic devices purchased for use on commercial motor vehicles.
There are some exemptions to
the new tax; emissions resulting from industrial processes such as the
production of oil, gas, aluminum and cement, as well as emissions from landfill
and other sources, will not be subject to the tax. The budget states that it is
“technical measurement issues” that create a challenge to including these in
the tax base, and the variability of emissions from facility to facility. More
importantly, many of these industries will likely be subject to the cap and
trade system or other greenhouse gas (GHG) emissions reductions measures now
under development.
The B.C. government took a tentative but still brave step
with the introduction of this new tax. By keeping competitiveness in mind as it
developed its plan, it dodged what could have been a very negative reaction
from industry and the public at large.
Federal environment minister John Baird has rejected the
idea of a carbon tax, but it will be interesting to see how other provinces
respond to B.C.’s move.
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