Comparison – Canadian and SA carbon tax regimes

03 April 2017

The BC regime is characterized by a simplified tax with a range of compensatory mechanisms, designed to make the tax “revenue-neutral.

The BC regime is characterized by a simplified tax with a range of compensatory mechanisms, designed to make the tax “revenue-neutral.” The BC government has applied the tax across all economic sectors, collecting tax primarily at the wholesale or distribution level; while the RSA regime concentrates on the industrial-commercial sectors, imposing taxation on emissions from a specified list of activities and has developed a complex set of allowances to mitigate the burden of carbon taxation in the first phase of implementation—the purpose of the allowances being to achieve a soft landing of the tax for industrial sectors).
In this article, we have provided a brief comparative description of these two regimes and the approach used by the relevant governments, and we have suggested some important lessons for the development of carbon taxation regimes in other countries.
I. British Columbia
BC was the first jurisdiction in the world to implement a carbon tax, in 2007. From the outset, BC’s tax was meant to be “revenue-neutral”, in that individuals and entities affected by the tax would be compensated through reductions in other kinds of taxes, e.g. income and sales tax, or by compensatory grants. The price charged per tonne of carbon dioxide equivalent (tCO2e) was set to increase, from an initial rate of C$10 to C$30 in 2012. Critically, there has been no increase since 2012.
The tax currently produces revenues of upwards of C$1 billion per year. 1
The most significant characteristic of the BC carbon tax is that it is extracted at the wholesale point, i.e. it is levied against distributors of fossil fuels, not end-users (the exception to this is natural gas, which is taxed at the retail level). However, for purposes of making the tax as transparent as possible, government maintains an updated list of the actual cost of the tax as a fraction of the per-liter cost to the consumer.
Of equal importance, government is responsible for tracking the revenue neutrality of the tax. This is done through a relatively simple exercise: the BC government estimates each year its expected carbon tax revenues for the next three years, and enacts tax cuts or other measures which should in principle reduce the tax burden on individuals and businesses by an equivalent amount.
In practice, BC’s tax cuts have more than canceled out the revenues collected from the carbon tax, making it slightly “revenue negative” for the government. 2
According to one expert:.....

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