Jump to Main Content
The long and short run effects of British Columbia's carbon tax on diesel demand
- Bernard, Jean-Thomas, Kichian, Maral
- Energy policy 2019 v.131 pp. 380-389
- United Nations Framework Convention on Climate Change, business enterprises, carbon dioxide, carbon markets, diesel fuel, energy use and consumption, equations, fossil fuels, greenhouse gas emissions, mining, models, transportation, British Columbia
- 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.