Canada’s new carbon tax in line with TSSEF mechanisms

CANADA: A carbon surcharge tax that actually increases disposable income is being introduced starting spring January 2019. According to a report on the Guardian Website, the tax will be introduced at a fairly low level and be raised at regular intervals until 2022.

The tax starts at $20 a ton and will rise to $50 a ton. The starting price will mean a 16.6 cent per gallon surcharge on gasoline.

One key component of the federal carbon tax is that it’s revenue-neutral, similar to policy proposals TSSEF submitted to the Nordic Council of ministers. All the taxed money will be distributed back to the provinces from which they were generated. The provinces will in turn rebate about 90% the revenues back to individual taxpayers. The rebates are anticipated to exceed the increased energy costs for about 70% of Canadian households.

TSSEF along with many other proponents of this mechanism mean that the advantages of taxing in this way provide a faster route to decarbonising society.

Basic characteristics

These three characteristics of a carbon pricing mechanism were suggested by TSSEF board member Anders Höglund back in the 1980s.

  • A surcharge on existing fees or taxes to ease administration costs
  • Payed back to citizens, divided equally
  • Starting low, raised regularly giving the market time to adapt
  • Applied as far up in the supply chain as possible

Many benefits

  1. As a large majority of people get more money in their pockets – and the large polluters pay more but probably can afford to pay more, the solution is equitable and popular.
  2. The surcharge increases over time allows the market to adapt in its own time, making investment in low carbon alternatives more manageable.
  3. Compared to other forms of taxation, the solution is revenue- neutral meaning that the charge does not take money out of the economy.

The Foundation envisages that this kind of economic mechanism be applied to other market failures like the resource waste generated from the linear economy and the loss of ecological function of forests and other eco-systems including a dividend to save the Baltic Sea.

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Article category “flexible pollution dividends”.

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