From January 1st this year, the Canadian province of Alberta is operating a ‘carbon levy and rebate’ scheme. You can read the details of it on their website, but here’s how it works in a nutshell:
- A levy is added to the cost of any fuel that contributes to climate change, adding a few cents to the price of petrol, diesel, and natural gas.
- All eligible households then get a rebate: $200 for the first adult, $100 for a spouse and $30 for each child.
- The levy will rise in future, incentivising people to use less fuel.
For most households, this won’t be expensive. In fact, six out of ten will end up better off, receiving more in the rebate than they paid in taxes – a bonus of around $20-$40 dollars. The less you drive, and the more efficient your home is, the less you will pay. If you don’t drive at all, the rebate will be a net gain.
Full rebates are paid to low and middle income households, with partial rebates paid to families earning over $95,000. There are a handful of exemptions to make sure that particular groups aren’t disadvantaged (farmers, small businesses), but the general aim is to incentivise Albertans to reduce their fuel consumption.
I like this idea. It cuts through the controversy of fuel taxes by giving the money back to ordinary people. You’re in control of how much this costs you – if you resent paying it, fit some insulation or downsize to a smaller car. As the website says:
Alberta’s carbon levy provides a financial incentive for families, businesses and communities to lower their emissions. Economists agree that a price on carbon is the most cost-effective way to reduce emissions. It drives innovation and changes behavior by encouraging individuals and businesses to become more energy efficient and shift away from higher emission fuels.
Could we do something similar in Britain? Unlike Alberta, we already have a pretty hefty fuel duty. It vanishes into government coffers, makes driving more expensive than in other countries and is generally resented. Originally it went up every year, but that led to protests in 2000 that brought the country grinding to a halt. Politicians have scored cheap points with the tabloids ever since by promising to end ‘the war on motorists’ and freeze fuel duty.
Britain’s escalating fuel duty made everyone really angry, but if it had been matched with a rebate it could have been a very different story. So why don’t we learn from Alberta and bring in a rebate? Fuel duty brought in £27 billion in 2015, enough to pay £400 to every man, woman and child in the country with a couple of billion to spare. Yes, that’s a slice of government revenue that we’d have to replace from elsewhere, but we don’t have to use all of it. We can add more to it. We ought to be able to think creatively about it.
What do you think? What have I missed? Post your refinements, hesitations, or criticisms below, and perhaps we can develop a policy idea between us.