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BC Carbon Tax - is it working?

April 21, 2022

Q & A  interview with environmental economist, Felix Pretis.

Felix Pretis, assistant professor in the Department of Economics, authored a paper on the first assessment of whether the carbon tax in British Columbia (North America’s first carbon tax) has reduced CO2 emissions. The paper appears in the journal Environmental and Resource Economics.

Q.1. Is the BC carbon tax working to reduce C02 emissions?

 The BC carbon tax has reduced transportation CO2 emissions, however, the effect on total emissions remains negligible. Total emissions is, however, what matters for the climate. In other words, total CO2 emissions have not fallen significantly in response to the introduction of the carbon tax. These results are derived by comparing the response of CO2 emissions in BC to untaxed control provinces.

 Q2. If not, please explain why it is not working the way legislators thought it would?

 We know that increasing the price of something will reduce its demand, what the results of this study tell us is that the carbon price is not high enough to be effective in reducing emissions on a large scale. Particularly as we need to move towards net zero emissions.

Q3. What changes would need to occur for the carbon tax to be more effective?

Given the already high coverage of the tax (in BC around 70% of CO2 emissions are covered), the tax needs to be increased substantially in order to achieve significant emission reductions. Alternatively, complementary policies (such as command and control measures) have to be pursued more aggressively. Carbon pricing is an important tool in addressing CO2 emissions, however, as the results show it is clearly no panacea.

Q.4. Are there examples of a carbon tax working well to reduce C02 emissions?

In a related working paper, we show that the change in emissions in response to the introduction of carbon pricing is hard to quantify (i.e. pin down), but our estimates there show that a global carbon price in excess of $250 dollars per ton of CO2 (with 100% of emissions covered) might lead to emission reductions consistent with the targets laid out in the Paris agreement.

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