Carbon and competition: lessons from BC’s agriculture sector

Back in 2012, the BC government gave greenhouse growers a hefty carbon-tax exemption, with the justification that the tax was unfairly hurting the industry’s competitiveness. But new research suggests there was no justification for this move; the industry was doing just fine


So what’s going on here? Do BC’s greenhouse growers really deserve to get a break from a tax everyone else needs to pay? Or is this just an example of an industry successfully lobbying government for a handout? 

This story really illustrates the kinds of conflicts we deal with as a province trying to balance environmental sustainability and economic development. Because we value both concepts so highly, it’s troubling when they come into conflict. As the first region in North America to impose a carbon tax, BC sets an example in how it deals with these kinds of issues. So let’s see how we’re doing.


The case for exempting agriculture

Let’s start off with the basic case for a carbon-tax exemption. Does it make sense to exempt some industries from the tax and not others?

The short answer is yes. It has been well established that it can be counter-productive to expose certain industries to regional environmental taxes and regulations. The rationale is that if an industry is both an intense emitter of emissions and also highly exposed to trade, exposing them to carbon pricing can cause more harm than good.

The logic goes that raising the costs in these industries too much will persuade them to relocate to other regions where they don’t have to pay. This winds up hurting the region that’s trying to reduce emissions, rewarding regions that aren’t, and it fails to reduce any emissions in the end.

And so, designers of environmental regulations have generally found that there’s a good reason to grant exemptions to what they call emissions-intensive, trade-exposed industries. 


So what about BC agriculture?

The BC greenhouse growers made their case to government that they fit in this category. They are stuck in a relatively emission-intensive business, and they compete with growers in the US and Mexico who aren’t affected by carbon taxes.

Environmental groups raised concerns that providing exemptions to greenhouse growers would lead to other industries demanding similar favours, weakening BC’s carbon tax. And now a climate-change research group has published a new report suggesting that the carbon tax was never really hurting BC farmers in the first place.

The study, produced through the UVic-based Pacific Institute for Climate Solutions (PICS), looked at the years 2008 to 2011, when the agriculture industry was paying the full carbon tax. They asked: How did the industry perform during these years? Is there any evidence that the tax was harming them?

The short answer is no. After looking at the question a couple different ways, using more and less sophisticated statistical techniques, the report’s authors conclude that there is no clear evidence that the BC agriculture sector overall was harmed by the carbon tax, which suggests that exemptions for the industry are not appropriate.

That said, the authors are admirably forthright about the limitations of their study. First of all, they only had four years to look at: 2008 to 2011, which isn’t a very long time if you’re looking for big structural changes in an industry (such as BC greenhouses closing their doors to relocate to other regions). Also, they used data for the whole agriculture industry, not just the greenhouse growers who got the tax exemptions. It’s plausible that the carbon tax was in fact harming greenhouse growers but evidence of this was simply undetectable when looking at the whole agriculture industry. 


Lessons about carbon and competition

Overall, this story demonstrates the kinds of issues that come up when something like a carbon tax is applied to natural-resource industries in a small, open, trade-dependent region like BC.

As a former business journalist, I am automatically suspicious of any industry group claiming they need a tax break. But I also recognize that sometimes these claims are legitimate. Carbon-tax exemptions to energy-intensive, trade-dependent industries are based on sound logic.

The big problem is figuring out which industries qualify and which don’t. The limitations of the PICS study really are quite significant (and credit goes to the authors for acknowledging these limitations clearly). It seems to me that there might be a compelling story of BC greenhouses being pressured out of the province by the carbon tax, but it’s just hard to see the evidence in the data. Given more time, maybe that story would become clear.

But that doesn’t help policy makers. They can’t sit by and wait for years of data to build up before they decide what to do. They can’t wait for a BC industry to collapse in the face of tax-advantaged competitors and then determine that, “You know what, maybe we should have given them a tax break.”

My assessment (and I’m no expert when it comes to the greenhouse business) is that greenhouse growers in BC make a reasonable case that they should be exempt from paying at least some of the carbon tax. That argument is not out of left field. And if the BC government decides to take a precautionary approach to protect this industry from the possibility of unfair competitive conditions, that’s a fair call.

That’s not to say that every industry that wants one should get a tax exemption. It has to be based on a sound argument that supports the purpose of the policy: which in this case is reducing greenhouse-gas emissions without unduly hurting BC’s business competitiveness. 

And on that issue, the PICS study has a positive message. Looking at the whole agriculture industry between 2008 and 2011, it seems that BC’s policy of raising taxes on carbon emissions and lowering other taxes did not harm business competitiveness. And that’s a significant accomplishment on the part of both government and industry.


Peter Severinson is the research director for Resource Works. Follow on Twitter: @pseverinson

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