B.C.'s carbon tax, which took effect July 1, added 2.34 cents to the price of a litre of fuel. (CBC)

B.C.'s controversial carbon tax will hit low-income families harder as it rises each year, according to a new report released by the Canadian Centre for Policy Alternatives on Thursday.

Marc Lee, the senior economist for the think-tank, said that low-income people are seeing a small benefit now, but by 2010 poor families will pay more to the government than they do today, while the wealthiest 20 per cent of British Columbians will actually pay less.

"That's a major problem in terms of the overall fairness of the system," Lee told CBC News.

B.C.'s carbon tax, which took effect July 1, adds 2.34 cents to the price of a litre of gasoline, along with a similar tax applied to all fossil fuels.

Lee calculated how much people at various income levels pay under the carbon tax and what they'll get back in income tax cuts and credits over a three-year period, and called his conclusions "a perverse result."

"It's the highest-income families that actually have the largest carbon footprints, because of greater air travel, larger houses, more cars," said Lee.

"I generally think carbon taxes are a good idea. It makes sense to tax activities that are essentially causing great harm to the planet, and to people," said Lee.

"The concern with carbon taxes is around fairness, and making sure that low-income families who aren't causing the problem, don't get hit more than high-income families, who are the ones causing the problem," said Lee.

To make the carbon tax fair, Lee said the province needs to use more of that revenue to help low-income families by raising the low-income tax credit, rather than for tax cuts that help the wealthy most.

Income determines benefits

To do the study, the CCPA divided households into five groups by annual income, from the lowest 20 per cent, with an average income of $15,498 per year, to the highest 20 per cent with an average income of $143,280 a year.

Economist Marc Lee from the Canadian Centre for Policy Alternatives says B.C.'s carbon tax will get progressively worse for low-income families. (CBC)

The analysts then calculated the carbon tax each group would pay and tax cuts or tax credits it would receive for three years: 2008-09, 2009-10, 2010-11.

During that period the carbon tax is scheduled to increase from $10 per tonne of carbon emissions to $30 per tonne, as the province cuts income and business tax rates with the revenue.

B.C.'s carbon tax is revenue neutral for the government according to the legislation. Whatever money flows into government coffers must go out in the form of income tax cuts, business tax cuts, and tax credits for low-income families.

The idea behind it that is polluters pay more over time, while those who cut their use of carbon-based fuels will pay less.

But the CCPA found the low income tax credit doesn't keep pace with the increases in the carbon tax, rising only once in this time from $100 to $105, while the carbon tax rises 50 per cent in the summer of 2009 alone.

Meanwhile the tax cuts tied to the carbon tax keep increasing over time, meaning the wealthy, who generally pay more taxes through both income and business taxes, will get the most benefits from revenue returned from the carbon tax, according to the CCPA.

"For the lowest-income quintile of British Columbians, the carbon tax and recycling system is modestly progressive in 2008-09, but becomes regressive by 2010-11," concluded the report.

"The bottom 20 per cent of B.C. families, by income, will have an average net gain of $38 in the first year, but a net loss of $47 by 2010-11," it said.

"By comparison, the top 20 per cent of B.C. families will have an average net gain in the first year of $62, and an even bigger net gain of $311 by 2010-11 — even though richer families usually have a much larger carbon footprint," it said.

The report recommend dropping the revenue neutral policy for the carbon tax, and using half the revenue to fund a larger low-income tax credit, and the other half of the revenue to fund government programs such as public transportation to cut carbon emissions.