That hated carbon tax. Our first reaction to any mention of a carbon tax is: “Oh no! Another government scheme to waste my hard earned money and blaming it on shaky science”. However, on a closer inspection, a carbon tax can actually improve your financial condition, believe it or not, and I will present a hypothetical case on how that can happen. It doesn’t matter if you “believe in” the science of climate change or not, you can make money on this.
This can be a pretty passionate subject. I was recently discussing a carbon tax with someone passionately against it and anything to do with climate change science. When I began to put forth the ideas in this post and I hardly got past my first sentence and my words were being shouted over. I’m glad you, my reader, has gotten this far and I promise this post has nothing to do with the science of climate change! 🙂
Most important of all, a carbon tax has to be “revenue neutral”. That is, whatever a government raises in a new carbon tax, they must reduce an equal amount of taxes elsewhere. Taxes are not always meant to raise money for government spending waste. Often, they are implemented to change behaviour (which is why we shouldn’t have an income tax because we shouldn’t penalize people for working). In BC Canada, the government is claiming that their carbon tax is revenue neutral, although they haven’t done a good job in explaining how citizens are getting tax benefits elsewhere. In this case, I am going to use a general sales tax reduction as the offsetting tax in a carbon tax on electricity in a hypothetical example.
Here is how it can work as an example:
The government adds a 50% carbon tax to electricity. That raises an average monthly electrical bill from about $140/month to $210/month, about $70/month extra. Then they lower sales tax such that based on the average family spending, they pay $70/month less in sales taxes. So far so good. No harm, no foul. Some people will lose a bit, some will gain a bit depending on their peculiar power usage and regular spending.
Here is where it gets better. The average householder, being a rational person, suddenly realizes that they are paying far too much for electricity and decides to take action. The first thing they will look at is conservation….cutting usage. It can be done. We cut our home usage by 28% over a short period of time without any lifestyle changes. See
So already the consumer is better off. Cut your $210/month power bill by 28% and you are $58.80/month ahead. But there is more. Now look at installing solar panels to cut your draw on the system. A system that costs you about $100/month for interest and depreciation should bring your remaining power bill of about $150/month close to $zero. Now you are another $50/month ahead! So a carbon tax just made the rational householder nearly $100/month richer, or $1200/year…..and that is tax free income!
There is one more broad benefit. The consumer will spend or invest that $1200/year. That will create new jobs and new revenues for government, allowing government to provide further tax relief or improve services, hopefully not wasting it away.
No need for the science of a carbon tax…..just the numbers!