Quebec Taxes Carbon

Quebec

has a carbon tax:

The tax, believed to be the first of its kind in Canada, will tax 0.8 cents

on every litre of gas sold in Quebec and will raise about $200-million a year

to finance the province’s green plan to reduce greenhouse gases.

The province will also slap a tax of 0.9 cents on each litre of diesel sold.

The plan was created to help Quebec reach its Kyoto protocol targets, which

is to reduce greenhouse gas emissions to 1990 levels by 2012.

I’ll do the conversion so you don’t have to: 0.8 Canadian cents per liter works

out at 2.85 US cents per gallon. By global gasoline-tax standards, this is tiny,

and will almost certainly have zero impact on gasoline consumption. And the

gasoline tax is going to account for over a third of Quebec’s total carbon-tax

revenues. So the chances of this carbon tax having any appreciable effect on

demand for carbon are slim indeed.

This is why countries need a three-pronged approach if they’re going to effectively

reduce their carbon emissions. A gasoline tax does make quite a lot of sense,

but a cap-and-trade system is better for other carbon emitters. And finally,

regulation is necessary too, as Quebec

knows:

By year-end, the government will unveil emission regulations requiring manufacturers

of light-duty vehicles sold in Quebec to meet the so-called California standard

for greenhouse gas emissions beginning in 2010. The California standard will

result in reducing greenhouse gas emissions for new vehicles by between 25

per cent and 30 per cent by 2016, according to government projections.

Quebec’s carbon tax, then, isn’t really Pigovian, because it isn’t large enough

to noticeably reduce carbon emissions. But it’s a good start, since it’s always

easier to increase a "sin tax" than it is to implement one initially.