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What is Taxed — the Carbon Tax Base

The tax base is made up of those items that are subject to tax. For the carbon tax, the purpose is to effectively tax all of the GHG emissions in BC from the combustion of fossil fuels that are captured in the National Inventory Report.1 In practice, this means that the tax base includes all of the fossil fuels:

  • purchased for use in the province, or
  • used by those importing or producing the fuel.

The tax base includes fossil fuels used for transportation by individuals and in all industries, including the combustion of natural gas to operate pipelines, as well as road, rail, marine and air transportation. As well, the tax base includes fuel used to create heat for households and industrial processes, such as producing cement and drying coal.

There are some exemptions to minimize administrative and compliance costs, such as small sealed containers of fuel. The chart shows the 2007 GHG emissions resulting from the burning of the main types of fossil fuel used in British Columbia. Natural gas, gasoline, diesel fuel and coal and coke account for 96 per cent of emissions from the combustion of fossil fuels in British Columbia. Other fossil fuels include propane, light and heavy fuel oil, aviation gasoline, aviation turbo fuel and kerosene.

The only fuel types not included in the tax base are those that are not “fossil fuels.” These are generally referred to as biomass fuels or biofuels, which include firewood, wood-waste, ethanol, bio-diesel and bio-heating oil.2 Under the international protocol used for the National Inventory Report, the CO2 produced from the combustion of biomass is not included in the inventory because the carbon released by combustion was first drawn from the atmosphere by the plants through photosynthesis. Fuels that include both fossil fuel and biomass fuel, such as blended gasoline and ethanol, will only be subject to tax on the fossil fuel content of the fuel.

Chart.

Certain fuel uses are not subject to tax. These exemptions, such as for inter-jurisdictional commercial marine and aviation purposes and fuel to be exported, are needed to ensure that the tax applies only to combustion and thus emissions produced in BC. The province is taking responsibility for the emissions in our province that are included in the inventory but recognizes that other jurisdictions will need to introduce their own GHG reduction policies. Thus, neither the emissions released elsewhere to produce fuel imported to BC or the emissions released elsewhere from burning fuel exported from BC are included in the tax base. The intention is to effectively tax the emissions from burning fossil fuels within the province.

The fossil fuels included in the tax base account for about 70 per cent of British Columbia’s total current GHG emissions. Other emissions, including those resulting from industrial processes such as production of oil, gas, aluminum and cement, as well as emissions from landfills and other sources, will not be subject to the tax initially. More work is needed to determine whether emissions from other sources should be subject to the carbon tax. There are technical measurement issues with these other GHG emissions, many of which are created during the production process and vary considerably from facility to facility. Also, many of these emissions will be subject to the cap and trade system or other GHG reduction measures under development. Further work will be needed to ensure the carbon tax is appropriately integrated with these other measures.


1  A full description of what emissions are measured under the Kyoto Protocol is found in the National Inventory Report, 1990–2005: Greenhouse Gas Sources and Sinks in Canada, November, 2007 (http://www.ec.gc.ca/pdb/ghg/inventory_report/2005_report/tdm-toc_eng.cfm)
2  Hydrogen is another potential fuel that is neither a fossil fuel or a biomass fuel. When and if hydrogen becomes generally used as a fuel type, it will not be subject to the carbon tax because its use does not generate any GHGs.
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