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The Effectiveness of Revenue-Neutral Carbon Taxes

Author

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  • Younes Ahmadi

    (Department of Economics. University of Calgary, Canada)

  • Akio Yamazaki

    (National Graduate Institute for Policy Studies, Japan)

Abstract

This paper investigates the effectiveness of carbon taxes in the manufacturing sector by examining British Columbia's revenue-neutral carbon tax. We theoretically demonstrate that the magnitude of plants'exposure to the policy monotonically increases with its emission intensity. Using detailed confidential plant-level data, we directly exploit the variations in plants'emission intensity to isolate the emission effect of the policy. We find that the carbon tax lowers emission by 2 percent. Furthermore, we find that the policy had a positive output effect, suggesting that the carbon tax encouraged plants to produce more with less energies. These findings are possibly due to the revenue neutrality of the policy, especially through the reduction of the corporate income taxes. It incentivized plants to invest in both energy-saving and productivity-enhancing technologies.

Suggested Citation

  • Younes Ahmadi & Akio Yamazaki, 2020. "The Effectiveness of Revenue-Neutral Carbon Taxes," GRIPS Discussion Papers 19-36, National Graduate Institute for Policy Studies.
    • Handle: RePEc:ngi:dpaper:19-36
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