With cities and towns around the province staring him down over the carbon tax, B.C. Premier Gordon Campbell  has finally blinked.

Campbell told the Union of B.C Municipalities convention in Penticton that the government will set up a program to refund the money cities and towns pay in the tax, if they sign a deal promising to become carbon neutral by 2012.

Campbell says he's not backing down on the tax, but what he's trying to do is ensure that people aren't double taxed.

The B.C. New Democratic Party says it's an admission by the Premier, that his tax won't work.

Introduced in July, the provincial carbon tax levies a 2.4 cents per litre tax on gasoline and a similar tax on all carbon-based fuels sold in the province.

NDP leader Carole James says Campbell is feeling the heat over the tax and is trying to patch things up. She also said he is using taxpayers dollars to fix the problem.

But in pledging refunds, Campbell appears to be reacting to pressure from municipalities, which have done their calculations and see significant increases in costs. They reacted with a resolution demanding that the province do something to mitigate those costs.

By crunching the numbers, municipalities recognize that he tax will impact the budget for the fleets of trucks operated by public works departments.

It will also affect the costs of running emergency vehicles too. In a city the size of Surrey, for example, swimming pool heating costs would go up by an estimated $500,000. But in every community, no matter how small, there is a similar impact.

Apparently the Premier has been listening, because on Wednesday, he told the convention in Penticton that cities and towns will be fully refunded, but only if they sign on to the Premier's climate action charter and a commitment to be carbon neutral by 2012.

It's a goal that's viewed by many communities as unrealistic and unaffordable.

"We just wanted the Premier to scrap the tax," said Enderby City Councillor Beryl Ludwig.

And the NDP says Wednesday's announcement by the Premier shows his carbon tax plans are beginning to unravel.

The grants announced Wednesday will also be available to school districts.

Meanwhile, critics wonder who will be next to demand similar treatment, and whether the Premier will have to make further concessions over an unpopular tax.

With a report by CTV British Columbia's Kent Molgat and The Canadian Press.