Karen Bubna-Litic* and Nathalie J. Chalifour** Are climate change policies fair to vulnerable communities? The impact of British Columbia's carbon tax and Australia's carbon pricing policy on indigenous communities This paper compares carbon pricing policies in British Columbia and, Australia in order to identify differences between carbon taxes and emissions trading schemes (ETS) from a fairness perspective. We examine how taxes and trading systems impact indigenous communities in both jurisdictions. While the regressivity of carbon pricing is a critical part of any fairness assessment, we argue that socioeconomic and cultural factors must also be taken into consideration. We discuss the importance of accompanying carbon pricing with policies that mitigate not only distributional impacts, but also additional impacts. These may be funded by the revenue generated by the policy or by other sources of government revenue. We argue in favour of devoting at least some portion of revenues generated by the instruments to climate change mitigation, versus tax cuts, since vulnerable communities are often disproportionately impacted by climate change. We conclude that carbon pricing policies have the potential to be designed in a way that is fair to indigenous communities. The devil is in the details. Both ETS and carbon taxes have cost implications for disadvantaged groups such as indigenous peoples, but they can both be designed in a way that compensates fairly for these impacts. Ultimateiy it is a political choice. Les auteures comparent tes politiques d'établissements des prix du carbone en Coiombie-Britannique et en Austraiie afin de déterminer, d'une perspective d'équité, les différences entre les taxes sur le carbone et les programmes d'échange de droits d'émission. Les auteures étudient tes incidences des taxes et des programmes d'échange sur les collectivités autochtones en ColombieBritannique et en Australie. Même si le caractère régressif de la tarification du carbone est un élément critique de toute évaluation du caractère équitable, les auteures avancent qu'il faut également prendre en considération tes facteurs socio-économiques et culturels. Elles discutent de l'importance de jumeler la tarification du carbone à des politiques qui atténuent non seulement les • impacts répartitifs, mais égaiement tes autres impacts. Ces poiitiques pourraient être financées par tes recettes des politiques mêmes ou par d'autres sources de recettes pubiiques. Les auteures plaident pour que soit consacrée à ce financement une partie au moins des recettes provenant des Instruments d'atténuation des effets du changement climatique, au lieu d'une réduction des impôts, puisque les collectivités vulnérables sont souvent celles qui souffrent te plus des incidences du changement climatique. Elles concluent qu'ii est possible de donner aux politiques de tarification du carbone une orientation équitabie envers les collectivités autochtones. Mais il faut porter une attention particulière aux détaiis : tant les programmes d'échange de droits d'émission que les taxes sur le carbone ont des conséquences financières pour les groupes défavorisés comme les peuples autochtones, mais il est possibie de faire en sorte qu'ils offrent une indemnisation équitable pour ces impacts. Au bout du compte, le choix est un choix politique. Karen Bubna-Litic, Associate Professor, School of Law, University of South Australia. Dr Nathalie J Chalifour, Associate Professor, Faculty of Law, University of Ottawa (Canada). 128 The Dalhousie Law Journal Introduction I. Background and context 1. Indigenous communities and climate change 2. Deflning fairness 3. Fairness in carbon taxes and emission trading schemes a. .Regressive impacts b. Procedural fairness c. Revenue use II. The analytical framework 1. Design 2. Cost implications 3. Impact of complementary policies 4. Impact of outcome (effectiveness in reducing GHG emissions) III. Case studies A. BC carbon tax . 1. Design a. Scope b. Rate c. Policies for revenue use 2. Co.si implications . • a. Direct and indirect costs b. Regressive impacts c. Socio-economic/cultural challenges of adapting to increased costs i. Remoteness ii. Housing iii. Employment in impacted sectors 3. Impact of complementary policies a. Policies regarding use of revenue b. Exemptions and other mitigation policies B. Emissions trading in Australia 1. Design of the ETS a. Scope b. ./îate . • c. Policies for revenue use Are climate change policies fair to vulnerable communities? 129 2. Cost implications a. Direct and indirect costs b. Regressive impacts c. Socio-economic/cultural challenges of adapting to increased costs i. Remoteness ii. Housing iii Employment in impacted sectors 3. Impact of complementary policies a. Policies regarding revenue use h. Exemptions and other mitigation policies IV. Discussion Conclusion Introduction One of the thomiest issues in the climate change debate is the tension between those countries and communities who are the most vulnerable to climate change' and those who bear the greatest responsibility for creating the problem.^ Relatively less attention is devoted to considering how vulnerable populations within developed countries are impacted by 1. The poorest communities in developing countries form the most vulnerable group to the impacts of climate change. Stricken with the burden of poverty, their lack of education, and resources, both fmancial and informational, these communities are the least able to adapt to the effects of climate change. See Benjamin J Richardson et al, eds. Climate Law and Developing Countries—Legal and Policy Challenges for the World Economy (Williston, Vermont: Edward Elgar, 2009); ML Parry et al, eds. Climate Change 2007—Impacts, Adaptation and Vulnerability: Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge: Cambridge UP, 2007), online: IPCC _[IPCC,_/mpacte, Adaptation and Vulnerability]. The Intergovernmental Panel on Climate Change (IPCC) has identified low-lying developing states and coastal settlements in developing countries, such as the mega-deltas of Asia and Africa, as the most vulnerable populations to the impacts of climate change. See Parry, ibid at "Summary for Policymakers." The World Health Organisation (WHO) estimates that climate change has caused 140,000 deaths worldwide annually between 1970 and 2004. The major causes of death are malaria, malnutrition, diarrhoeal diseases, air pollution, and flooding. World Health Organization, Fact Sheet: Climate Change and Health (January 2010), online: WHO . 2. Most developing countries have a much smaller carbon footprint than developed countries. The 23 richest countries, which are home to only 14% of the world's population, produce 40% of the world's total emissions. This inequity has prompted experts working on climate change to call this phenomenon the world's largest regressive tax, with the poorest paying for the behaviour of the rich. World Resources Institute, "Climate Analysis Indicators Tool 7.0" (2010), online: WRI . 130 The Dalhousie Law Journal climate change, including policies aimed at its mitigation.^ When nations decide to implement carbon pricing policies to reduce greenhouse gas (GHG) emissions, how are the impacts of these policies distributed? Are they creating undue hardship for vulnerable communities? Are they fair policies? . We attempt to shed light on these questions by examining some of the most vulnerable communities" in two of the most prosperous nations— indigenous communities in Australia and Canada. Our choice of study countries is reflective of our respective expertise. We chose to study indigenous communities because these communities are expected to face a disproportionate burden from the impacts of climate change' and are disadvantaged from a socioeconomic perspective.* Our paper investigates whether these groups face an additional burden when mitigation policies, through carbon pricing, are introduced into these jurisdictions. The two carbon pricing policies that have garnered the most attention in research and practice are carbon taxes and emissions trading (ETS). These two policies are frequently examined for their efficacy, efficiency, comprehensiveness, and impacts on competitiveness, among other factors, and they are often compared with one another in an ongoing debate about instrument choice and design.' While there are numerous 3. Kirk Smith, "The IPCC: Impressions from a Foot Soldier" (Speech delivered to the United Nations Association, International House, University of California, Berkeley, 24 October 2008); Peggy M Shepard & Cecil Corbin-Mark, "Climate Justice" (2009) 2:4 Environmental Justice 163. 4. We have used terms such as "vulnerable," "marginalized," and "disadvantaged" somewhat interchangeably in this paper. While we appreciate the breadth of these terms, their individual meanings, and the theoretical and nomenclatural debates they might each engender, we have opted not to define them precisely. We use the terms to refer generally to a given population's vulnerability to a variety of risks (social, physical, financial) and their underprivileged socioeconomic status. We also do not wish to suggest that all members of a group are disadvantaged. There is great variability and we wish to avoid victimizing the members of any group. For further reading on the meaning of these terms, see these examples of articles discussing their meanings in the context of health issues: Reann G LeBlanc, "Definitions of Oppression" (1997) 4 Nursing Inquiry 257; Anne Fink, "Toward a New Definition of Health Disparity: A Concept Analysis" (2009) 20:4 Journal of Transcultural Nursing 349; JH Flaskerud & BJ Winslow, "Conceptualizing vulnerable populations in health-related research" (1998) 47:2 Nursing Research 69. 5. \PCC, Impacts, Adaptation and Vulnerability, supra note \. 6. We substantiate this point in Part II: 1 and in the case studies. 7. See, e.g.. National Round Table on the Environment and the Economy, Achieving 2050: A Carbon Pricing Policy for Canada—Technical Report (Ottawa: 2011), online: nrtee ; Paul Ekins & Terry Baker, "Carbon Taxes and Emissions Trading" (2001) 15:3 J of Econ Surveys 325. Are climate change policies fair to vulnerable communities? 131 studies considering the distributional impacts of carbon taxes,^ there is relatively little discussion about the overall faimess of these policies' and even less analysis comparing the distributional aspects and faimess of the two approaches. In other words, few researchers are evaluating whether one policy is fairer and why. At first this may seem surprising given that a principal theme of the climate change debate has been how the costs and burdens of meeting Kyoto Protocol targets can be shared in a manner that is fair to all nations and affected groups.'" There are, however, many explanations for the paucify of research offering direct comparisons of the faimess of carbon taxes and emissions trading systems. The faimess of a carbon tax or emissions trading system depends largely on its design." Since these policy instmments are relatively recent, and researchers may perceive theoretical research on the question to be of limited value, the 8. See, e.g., Gilbert Metcalf, Apama Mathur & Kevin Hassett, Joumal of Economic Surveys Distributional ¡mpacts in a Comprehensive Climate Policy Package (July 2011) online: National Bureau of Economic Research ; Mette Wier et al, "Are COj Taxes Regressive? Evidence fi-om the Danish Experience" (2005) 52 Ecological Economics 239; Simon Dresner & Paul Ekins, "The Distributional Impacts of Economic Instmments to Limit Greenhouse Gas Emissions from Transport" (London: Policy Studies Institute, 2004), online: PSI ; Margaret Walls & Jean Hanson, "Distributional Aspects of an Environmental Tax Shift: The Case of Motor Vehicle Emissions Taxes" (1999) 52:1 National Tax Joumal 53; David Anthoff & Riehard SJ Toi, "On Intemational Equity Weights and National Decision-Making on Climate Change" (July 2010) 60:1 Joumal of Environmental Economics and Management 14; Amy C Christian, "Designing a Carbon Tax: The Introduction oftheCarbon-Bumed Tax (CBT)" (1991-1992) 10 UCLA J Envtl L& Pol'y 221; Mark Brenner, Matthew Riddle & James K Boyee, "A Chinese Sky Trust? Distributional Impacts of Carbon Charges and Revenue Recycling in China" (2007) 35:3 Energy Policy 1771; Hamilton & Cameron, "Simulating the Distributional Effects of a Canadian Carbon Tax" (1994) XX:4 Canadian Public Policy - Analyse de Politiques 385; Stefan Speck, "Energy.and Carbon Taxes and Their Distributional Implications" ( 1999) 27:11 Energy Policy 659; Henrik Klinge Jacobsen, Katja Birr-Pedersen & Mette Weir, "Distributional Implications of Environmental Taxation in Denmark" (2003) 24:4 Fiscal Studies 477. 9. See Marc Lee & Toby Sänger, Is B. C. 's Carbon Tax Fair? An ¡mpact Analysisfor Different Income Levels (Vancouver: CCPA, 2008), online: CCPA at II [Lee & Sänger]; For a brief discussion on faimess see Lawrence H Goulder & Ian WH Parry, "Instmment Choice in Environmental Policy" (2008)2:2 Review of Environmental Economics and Policy 152 at 164-166. Nathalie J Chalifour, "A Feminist Perspective on Carbon Taxes" (2010) 21:1 CJWL 169. 10. There is an emerging body of literature on elimate justice that includes discussions of faimess in the context of intemational negotiations for climate policy. For instance, see Eric A Posner & Cass R Sunstein, "Justice and Climate Change," Discussion Paper 2008-04 (Cambridge, MA: Harvard Project on Intemational Climate Agreements, 2008); Richard SJ Toi et al, "Distributional Aspects of Climate Change Impacts" (2004) 14:3 Global Environmental Change 259; Sonja Klinsky & Hadi Dowlatabadi, "Conceptualizations of Justice in Climate Policy" (2009) 9:1 Climate Policy 88. See also Donald A Brown et al. White Paper on the Ethical Dimensions of Climate Change (Philadelphia: Pennsylvania State University, Rock Ethics Institute, 2006-2007), online: Rock Ethics Institute . 11. For instance, see Grant Boyle, "A Review of Emerging GHG Emissions Trading in North America: Fragmentation or Progress?" (2008) 46:1 Alta L Rev 173 at 198-199. 132 The Dalhousie Law Journal opportunity for research on the faimess of actual policies has only recently arisen. A related explanation is that there is great diversity in the design of existing and proposed carbon pricing policies, including hybrid "tax and trade" plans, rendering it difficult to conduct a straightforward evaluation of the distributional impacts or faimess of one policy versus another. Another explanation for the lack of research in this area may be the absence of an established methodology or conceptual framework within which to undertake such an assessment. As an assessment of faimess must, in our view, take into account more than tax incidence or financial cost, and the required methodology is complicated; it requires drawing from numerous disciplines, including law, economics, psychology, sociology, and others, to evaluate factors such as location, cultural habits, and lifestyle. An added complication is that most authors tend to write in support of either carbon taxes or emissions trading; therefore, their analyses may emphasize the faimess (or unfaimess) of one method without devoting the same attention to the other. As Matthew Hennessey aptly observes: "what's the difference between taxing carbon emissions and a marketbased system of cap and trade?...Which is fairer? It depends who you Despite the numerous challenges involved in conducting this type of analysis, we attempt in this paper to contribute to the climate justice debate as well as the literature on the faimess of environmental policies by comparing the faimess of carbon taxes and emissions trading schemes using two case studies. The carbon tax case study, based on British Columbia's carbon tax,'^ offers insights for jurisdictions opting for taxation. Australia passed the Clean Energy Legislation Package 2011 and it came into force on 1 July 2012. This legislation puts a fixed price on carbon for three years, with plans to transition the tax into an ETS as of 1 July 2015. We have opted to analyse the ftiture Australian ETS scheme in order to illustrate the difference in impacts upon indigenous communities between an ETS and a carbon tax. Although based on a number of assumptions relating to design,'" the ETS case study showcases lessons for Australia's transition into an ETS in 2015 as well as other jurisdictions designing an ETS. Both 12. Matthew Hennessey, "Cap and Trade vs Carbon Tax" in Policy Innovations for a Fairer Globalization (19 November 2007), online: Carnegie Council [Hennessey]. 13. British Columbia is also pursuing a cap and trade system in collaboration with the Westem Climate Initiative (planned for launch in 2012); however, this paper limits the scope of analysis to the carbon tax policy already in place. 14. As some features of the future ETS have not yet been detailed, our discussion will include some assumptions based on the former Carbon Pollution Reduction Scheme, which are likely to carry over into the new scheme. Are climate change policies fair to vulnerable communities? 133 case studies can, of course, be used to inform policy-makers in the design of hybrid systems. Our analysis by no means exhausts all aspects of the faimess question; it is a modest attempt to begin examining this important question through a comparative approach, hopefully paving the way for future research. This paper has been stmctured to allow for a close analysis of context and a full exposition of two case studies using our own analytical framework. Part II looks at the impacts of climate change on indigenous communities and offers some thoughts about what faimess is and how we defme this multi-faceted, complex concept for the purposes of the paper. Part III sets out a framework of analysis to enable a comparison of carbon pricing policies to better understand how they impact upon disadvantaged groups. In Part IV we use this framework to examine the faimess of British Columbia's carbon tax and Australia's proposed ETS regime with respect to the indigenous communities in the respective jurisdictions. Part V analyses what these two case studies show about the relative faimess of taxes and trading, and offers some thoughts about how the faimess of carbon pricing policies can be evaluated and what factors are most important in this exercise. We conclude in Part VI. 1. Background and context 1. Indigenous communities and climate change While the impacts of climate change will vary based on a wide range of factors, those in our society who are already more vulnerable, such as indigenous communities, are at greater risk of being impacted.''There are many reasons for this including: their close relationship with the environment, their reliance on the land and sea for subsistence purposes, the fact that they are more likely to inhabit areas of more severe impact sueh as coastal regions, often have lower socioeconomic status, are more socially marginalized, and have less access to quality health care services.'* 15. IPCC, Impacts, Adaptation and Vulnerability, supra note 3. See also a quotation from Professor Lesley Hughes, co-author of the Climate Commission Report, The Critical Decade—Climate Change and Health: "Climate change will also disproportionately affect those people in our society that are already more vulnerable—so the elderly, those with existing heart and kidney disease, children, people in remote communities and especially indigenous communities": Interview of Leslie Hughes by Tony Eastly, ABC News (30 November 2011) online: . 16. Christopher Furgal & Jacinthe Seguin, "Climate Change, Health, and Vulnerability in Canadian Northem Aboriginal Communities" (2006) 114:12 Environmental Health Perspectives 1964, online: National Center for Biotechnology Information . 134 The Dalhousie Law Journal Indigenous populations often lack the economic and technical resources available to non-indigenous communities to respond to the social and environmental challenges of climate change. These challenges include the increased costs resulting from climate change policy, the potential for decreased availability of water and food, decreased security and availability of housing, and adverse health effects. These challenges are exacerbated by a lower economic standard of living and less access to education and training in indigenous communities.'^ Many indigenous communities also live in physically isolated, fragile, and harsh environments.'^ In Australia, the population of remote and very remote areas is made up of 25% of the indigenous population and 2% of the non-indigenous population." Living remotely can increase vulnerability' to the impacts of climate change; for example, it is expected that climate change will lead to greater frequency of extreme weather events^" and emergency responses can be slow to reach remote indigenous communities. Active land management, such as controlled buming, can go some way towards alleviating the impact of extreme weather events, but in remote areas, there are often too few people to respond with these practices. In Australia, for example, isolated communities may have limited infrastmcture and limited support from early warning devices.^' 17. For details about income levels, see Part IV Case Studies. For details on education and training, see Productivity Commission Report—Overcoming Indigenous Disadvantage Key Indicators 2011, Online: Australia
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