A Tale of Two Taxes: The Fate of Environmental Tax Reform in Canada

Abstract

AbstractPolicy makers who embrace market‐based approaches to environmental regulation, typically eschew carbon taxes in favor of the political advantages of cap and trade, which offers lower visibility of costs to consumers and the opportunity to allocate valuable permits freely to industry. Against this backdrop, the article examines two surprising proposals for carbon taxes, by the government of British Columbia (BC) and by the federal Liberal Party of Canada. Both reflected a triumph of party leaders' normative “good policy” motives over “good politics.” The BC tax alone succeeded first because it was adopted by a party already in government. Second, the onset of a recession before the next elections shifted voters' attention to the economy, which advantaged the BC Liberals but disadvantaged their federal counterparts. However, proposals for carbon taxes were unpopular in both jurisdictions, offering a cautionary tale concerning the fate of politicians' normative commitments absent electoral backing.