Alberta carbon tax should be truly revenue neutral: University of Calgary report
School of Public Policy study suggests lowering other taxes to avoid economic damage
A new study from the University of Calgary has praise for the Notley government's proposed new carbon tax.
However, it does suggest making the tax fully "revenue neutral" to avoid any economic distortions.
The NDP government announced its new climate change policies on Nov. 22. The plan includes a tax on carbon emissions of $20 per tonne starting on Jan. 1, 2017, increasing to $30 per tonne in 2018.
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A study from the U of C's School of Public Policy concludes the tax should be effective in reducing overall emissions.
The report, written by Sarah Dobson and Jennifer Winter, states a carbon tax is simple and transparent so it's the best choice for the province's new climate change strategy.
"Essentially we're trying to correct a bad behaviour and so the easiest way to do it is to change the price," said Winter. "People think twice about the Hummer instead of buying a Prius, for example."
Premier Rachel Notley has indicated the carbon tax will be "revenue neutral" but, instead of being offset by cuts to other taxes, the revenue generated will go toward compensation to industry and rebates to individual Albertans.
However, Winter said once the rebates and subsidies are paid out, the remaining revenue could be recycled in the form of reduced corporate and personal taxes, and doing so would offset the additional burden and economic distortions the tax would create.
$5.9B a year projected
The study finds a $30-per-tonne tax will generate $5.9 billion in annual revenues based on current emissions that would be taxable.
The study also concludes that the former PC government's carbon levy failed because it didn't succeed in substantially reducing the growth of Alberta's emissions.
The authors say data shows the province's emissions went from 249 million tonnes in 2007 (when the levy was introduced) to 267 million tonnes in 2013. That's down slightly from what is estimated would have happened to emissions levels without the levy.