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The carbon tax experience - a cautionary tale

In 1996, Denmark went on to hit industrial producers with a $15 per tonne carbon tax, initially neutralized by cuts in payroll taxes. What happened? By 1998, manufacturers started shutting their doors due to high energy prices, and overall Danish carbon tax revenues started to fall along with manufacturing jobs. At the same time, the cost of government programs rose significantly. The government's solution incredibly was to - wait for it - subsidize electricity to select manufacturers and raise income taxes by lowering the income threshold on the country's top marginal rate. By 2001, with economic growth hovering at one- seventh-of-one-percent, Danes making over CAD$50,000 paid 59 per cent of their income in taxes and had to cope with record electricity prices. The entire debacle led to a change of government that year, with the incoming government promising a tax freeze, followed by a tax reduction - including those taxes on energy.

The Danish experience with carbon taxes is instructive for British Columbians soon to be walloped by carbon taxes of our own.

The B.C. government is expecting to extract $1.8 billion in carbon taxes by 2010, but then - after shuffling through a few bureaucrats hands - miraculously reappear in the form of lower personal and business taxes, coupled with rebates.

"Revenue neutral" claims aside, the Danish experience suggests much higher fuel costs and greenhouse gas (GHG) reductions coming in the wake of manufacturing job losses.

Denmark first imposed carbon taxes on non-business energy consumption in 1991. Those taxes were marketed as "revenue-neutral."

Between 1994 and 1998, carbon taxes added 30 per cent to government revenues and were initially used to cut corporate income taxes and pay for wind turbine subsidies.

In 1996, Denmark went on to hit industrial producers with a $15 per tonne carbon tax, initially neutralized by cuts in payroll taxes.

What happened?

By 1998, manufacturers started shutting their doors due to high energy prices, and overall Danish carbon tax revenues started to fall along with manufacturing jobs.

At the same time, the cost of government programs rose... more [truncated due to possible copyright]  

The Danish experience with carbon taxes is instructive for British Columbians soon to be walloped by carbon taxes of our own.

The B.C. government is expecting to extract $1.8 billion in carbon taxes by 2010, but then - after shuffling through a few bureaucrats hands - miraculously reappear in the form of lower personal and business taxes, coupled with rebates.

"Revenue neutral" claims aside, the Danish experience suggests much higher fuel costs and greenhouse gas (GHG) reductions coming in the wake of manufacturing job losses.

Denmark first imposed carbon taxes on non-business energy consumption in 1991. Those taxes were marketed as "revenue-neutral."

Between 1994 and 1998, carbon taxes added 30 per cent to government revenues and were initially used to cut corporate income taxes and pay for wind turbine subsidies.

In 1996, Denmark went on to hit industrial producers with a $15 per tonne carbon tax, initially neutralized by cuts in payroll taxes.

What happened?

By 1998, manufacturers started shutting their doors due to high energy prices, and overall Danish carbon tax revenues started to fall along with manufacturing jobs.

At the same time, the cost of government programs rose significantly.
The government's solution incredibly was to - wait for it - subsidize electricity to select manufacturers and raise income taxes by lowering the income threshold on the country's top marginal rate.

By 2001, with economic growth hovering at one- seventh-of-one-percent, Danes making over CAD$50,000 paid 59 per cent of their income in taxes and had to cope with record electricity prices. The entire debacle led to a change of government that year, with the incoming government promising a tax freeze, followed by a tax reduction - including those taxes on energy.
Did all this hardship reduce Denmark's per capita greenhouse gas emissions?

Yes.

Overall, greenhouse gas emissions fell by a whopping 10 per cent between 1990 and 2005.

But the country's manufacturing employment dropped by 25 per cent!
The carbon tax did a great job of hurting the economy and making people poorer. It didn't do as great a job reducing GHG emissions.

Think about this.

Gordon Campbell's goal is to reduce the province's greenhouse gas emissions by 40-million tonnes by 2020.

Most of British Columbia's greenhouse gas emissions come from transportation.

So putting a tax on fossil fuels like gasoline and diesel makes sense.
Yet, the current carbon tax policy is expected to reduce GHG's by only 3-million tonnes - or 7 per cent of the total -- by 2020.

Where's the other 93 per cent coming from?

Moreover, if the price of reducing 3-million tonnes is $1.8-billion, what will the additional cost to families be to reduce 37-million tonnes more?

Nothing - according to the government - because it's all "revenue neutral."
Let's examine that. The most recent budget reduced the bottom two income tax rates such that a two-income family of four earning $90,000 can expect to save $85 in 2008.

Yet that same family can expect to pay an additional $100 in gasoline tax and another $35 for home heating.

Then there's an increase in the cost of goods and services transported by almost any mode coupled with B.C. Hydro rate increases and a host of lost economic opportunities.

Oh sure, it may be "revenue neutral" for some - but certainly not all.
If you're a two-income family on the go with active kids, get ready to pay more, lots more!

The lessons of Denmark (and fuel poverty strategies in the United Kingdom written about previously by this author) are a harbinger of what's to come.
Gordon Campbell - cheered on by radical environmentalists and business groups alike - has no mandate to impose such a policy.

Alarmist propaganda notwithstanding the earth is not melting, but our standards of living soon will - at least in Copenhagen their learning from their mistakes. Maybe we could too.

 


Source: http://www.westcoaster.ca/m...

MAR 12 2008
https://www.windaction.org/posts/13802-the-carbon-tax-experience-a-cautionary-tale
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