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The long and short run effects of British Columbia's carbon tax on diesel demand

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  • Bernard, Jean-Thomas
  • Kichian, Maral

Abstract

In 2008, the government of the province of British Columbia (B.C.) broke new ground in North America by introducing a revenue-neutral carbon tax on fossil fuel use. The rate was initially set at $10/ton of CO2 and then raised annually by increments of $5 to reach $30/ton in 2012. We measure the impact of the tax on diesel users; these are primarily businesses involved in heavy industries, mining, construction, and commercial transportation, and they represent 18.2% of B.C. fossil fuel emissions. Based on a cointegration equation and a related error-correction model, we find that, over 2008–2016, the combined long and short run carbon tax impact has resulted in an average of 5.85 cent/litre increase at the pump, and a reduction of 1.24 L in monthly per capita diesel consumption. The average annual reduction amounts to 1.3% of B.C. 2008 diesel emissions and 0.2% of total emissions in the province in that same year. This decrease is relatively modest when we consider Canada's Paris Agreement commitment to reduce GHG emissions by 30% by the year 2030.

Suggested Citation

  • Bernard, Jean-Thomas & Kichian, Maral, 2019. "The long and short run effects of British Columbia's carbon tax on diesel demand," Energy Policy, Elsevier, vol. 131(C), pages 380-389.
    • Handle: RePEc:eee:enepol:v:131:y:2019:i:c:p:380-389
    DOI: 10.1016/j.enpol.2019.04.021
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    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Environmental and Natural Resource Economics > Climate economics > Ex-post evaluation of climate policy > Carbon taxes

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    3. Tikoudis, Ioannis & Mebiame, Rose Mba & Oueslati, Walid, 2023. "Projecting the fuel efficiency of conventional vehicles: CAFE regulations, gasoline taxes and autonomous technical change," Energy Policy, Elsevier, vol. 183(C).
    4. Mónica Meireles & Margarita Robaina & Daniel Magueta, 2021. "The Effectiveness of Environmental Taxes in Reducing CO 2 Emissions in Passenger Vehicles: The Case of Mediterranean Countries," IJERPH, MDPI, vol. 18(10), pages 1-13, May.
    5. Johan Lilliestam & Anthony Patt & Germán Bersalli, 2021. "The effect of carbon pricing on technological change for full energy decarbonization: A review of empirical ex‐post evidence," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 12(1), January.
    6. Tovar Reaños, Miguel A., 2020. "Initial incidence of carbon taxes and environmental liability. A vehicle ownership approach," Energy Policy, Elsevier, vol. 143(C).
    7. Sileci, Lorenzo, 2023. "Carbon pricing with regressive co-benefits: evidence from British Columbia’s carbon tax," LSE Research Online Documents on Economics 121047, London School of Economics and Political Science, LSE Library.
    8. Harju, Jarkko & Kosonen, Tuomas & Laukkanen, Marita & Palanne, Kimmo, 2022. "The heterogeneous incidence of fuel carbon taxes: Evidence from station-level data," Journal of Environmental Economics and Management, Elsevier, vol. 112(C).
    9. Boqiang Lin & Zhijie Jia, 2020. "Supply control vs. demand control: why is resource tax more effective than carbon tax in reducing emissions?," Palgrave Communications, Palgrave Macmillan, vol. 7(1), pages 1-13, December.
    10. Johan Lilliestam & Anthony Patt & Germán Bersalli, 2022. "On the quality of emission reductions: observed effects of carbon pricing on investments, innovation, and operational shifts. A response to van den Bergh and Savin (2021)," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 83(3), pages 733-758, November.

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    More about this item

    Keywords

    Diesel demand; British Columbia carbon tax; Greenhouse gas policy;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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