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BC: Carbon Tax No Success Story

July 26, 2013
BC: Carbon Tax No Success Story

When it comes to the B.C. carbon tax, we’re used to reading skewed statistics,

You can’t blame the pro carbon tax side: they are desperate to prop up their pet project at all costs, so they see everything through green tinted glasses.

But the latest “report” from Stewart Elgie’s Sustainable Prosperity “thinktank” is off the Richter scale when it comes to silliness. I could write volumes on this, but instead I’ll quote from two pieces by individuals who no one would consider friends of the Canadian Taxpayers Federation – former NDP MLA David Schreck and anti-HST and NDP backroom guru Bill Tieleman.

Schreck ripped Sustainable Prosperity during the election campaign. From his blog post:

Sustainable Prosperity, as can be seen from its September 2012 submission to BC's carbon tax review, is a strong advocate for the carbon tax. In June 2012 it produced a research report titled British Columbia's Carbon Tax Shift: The First Four Years which formed the basis of the figures cited by Wood and reinforced by the CBC. It qualified its report:

"It should be noted that, while the data presented below may be useful in showing a correlation between fuel use (or GHG emissions) and the BC carbon tax, they cannot show conclusively that the carbon tax shift is what caused any difference in BC's performance. More detailed study will be required to better determine the specific effects of the carbon tax shift - particularly economic modeling analysis."

It is actually much worse than not showing conclusively because when one digs into the data they do not consistently show better (reduced fossil fuel use) performance for BC. Since the publication of the report, data up to January 2013 has become available. In calendar year 2012, for the fuels examined by the report, consumption in Canada declined by 6.0% while consumption in BC increased by 2.7%. Between 2011 and 2012, Canada's population increased by 1.1% while BC's population increased by only 0.9%, so adjusting for population makes the situation worse for the argument put forward in the report. 

The Sustainable Prosperity report looked at per capita consumption of a collection of fossil fuels: butane and butane mixes, naphtha specialties, motor gasoline, stove oil/kerosene, diesel fuel oil, light & heavy fuel oils, petroleum coke, and still gas. Data for consumption of those fuels are available in Statistics Canada's CANSIM table 134-0004. Data can be selected for domestic sales of various fuels by province measured in cubic meters. I don't know what you get when you add a cubic meter of butane to a cubic meter of motor gasoline but that is the way the report analyzed the data, adding the volumes sold of the various fuels and then converting the totals to cubic meters per person before calculating percentage changes from 2008 to 2011 and comparing those percentages between Canada and BC. Motor gasoline represents approximately 52% of the total volume of the mix of fuels for both Canada and BC; diesel represents 34% for Canada and 39% for BC. The different mix in the combination of fuels is just one of the conceptual problems in the report. 

BC's carbon tax became effective July 1, 2008 at a price of $10 per tonne. It increased by $5 per year until July 1, 2012 when it reached $30 per tonne. That works out to 6.67 cents per litre for gasoline. With gas at over $1.35 per litre, the carbon tax is about 5% of the price. Most studies of the effect of price changes on fuel consumption show that fuel is price inelastic, meaning that a 1% increase in price produces less than a 1% drop in demand; however, Sustainable Prosperity would have us believe that adding 5% to the price produced a 17% drop in demand. If that were true, it would be earthshaking economic news. Of course, a good rule when doing any calculation is to double check if the results appear completely out of line with what should be expected. Part of the problem with the report might be that they didn't wait until the carbon tax reached $30 per tonne in 2012 before rushing to publish. In 2012 relative to 2011, on a per person basis, consumption of the bundle of fuels decreased by 6.8% for Canada but only by 0.7% for BC. In other words, even the crude data don't support the report, let alone issues that arise due to not having an economic model. 

Had the Sustainable Prosperity report been peer reviewed and published in a reputable journal, these errors might have been avoided, but the report is self-published by an advocacy group.

Tieleman looked at the latest “report” from Sustainable Prosperity and found even more issues. From his blog post:

What is clear is that Sustainable Prosperity has cherry-picked numbers that appear to justify its arguments in favour of the Carbon Tax.  Note that it is using "per capita" consumption not actual consumption.

Here's the biggest single factor - and major target - for the Carbon Tax - the gas you use in your car, truck or motorcycle.

As you can see below from easily available Statistics Canada data, BC's gas consumption has dropped by a minuscule 26.2 thousand cubic metres since 2008. 

You can also see that gasoline consumption was higher in 2011 than in 2008 by a small margin - despite the Carbon Tax being at almost full strength by that point!

Most importantly, you cannot see an 18% drop in gas consumption, or it would have fallen by a massive 860.66 thousand cubic metres!

Here's the data:

Motor Gasoline consumption - British Columbia in thousands of cubic metres, from Statistics Canada:

2012 - 4,503.6 
2011 - 4,536.8
2010 - 4,695.7
2009 - 4,636.0
2008 - 4,529.8

2007 - 4,629.9
2006 - 4,581.5

There's another major factor at play - the international oil market and its effect on gasoline prices in BC. The folks at BCGasPrices.com have very useful charts on historical gas prices in this province.

If you look at their 5-year chart you will find that gas prices have skyrocketed from a low of 77 cents a litre in November 2008 to current rates in July 2013 of 140 cents a litre - a whopping 63 cent a litre difference - or almost 10 times the total of BC's current 7 cent a litre Carbon Tax.

BC gasoline price per litre:

November 2008 - $0.77

July 2013 - $1.40

So if consumption did go down - even if slightly - it's far more attributable to huge price increases than to the Carbon Tax.

And, as an added bonus, here's an excerpt from an American blog ripping the same report:

Total and energy related GHG emissions in BC reached a maximum during 2001 and have been in subsequent decline. Transportation related GHG emissions peaked in 2004 and have been in subsequent decline. Per capita emissions in all three sectors were either stable or increasing up to 2004 and have been in subsequent decline. Rigorous regression trending could not be conducted on the post-carbon tax period because only two data points were available (i.e., 2009 and 2010) at the time of Sustainable Prosperity's reporting, and 2008 was a year in which the first half was untaxed while the second half was taxed. We also found that GDP normalized GHG emissions reveal no clear impacts of carbon tax introduction. Normalizing British Columbia's GHG emissions to final demand of energy use also reveals no clear carbon tax induced change in behaviour.

Consequently, we found no unequivocal evidence that the introduction of BC's carbon tax is leading to more GHG emission efficient economic production or to the use of less-GHG emission intensive energy sources beyond the temporal trends that existed prior to carbon tax implementation. Trends in passenger and freight transport energy intensity and residential building emission intensity also show no carbon taxation impacts, nor do net per capita gasoline and diesel oil sales. In contrast, BC's per capita net sales of diesel oil have been generally increasing since 1993, and the rate of increase appears to have accelerated since 2009.

When basic economic indicators are considered, BC's introduction of a carbon tax may have negatively impacted the provincial economy. Since 2008, BC has underperformed compared to the Canadian economy with regard to per capita GDP, personal income, and personal disposable income, as well as unemployment and employment rates.

I always come back to three facts on the carbon tax. 1. If it is so good, why has no other jurisdiction adopted it? 2. If it is so great and working so well, why have the BC Liberals announced a five-year freeze, noting its negative impact on the economy? 3. When will Vancouver elites realize there is a whole province past the Lower Mainland that is struggling mightily with this tax?

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