GHG emissions and BC's carbon tax

As part of the ongoing debate over the impacts of carbon taxation in British Columbia, Christopher Ragan, an associate professor of economics at McGill University, has written an opinion piece in one of Canada's national newspapers, the Globe and Mail, wherein he discusses the benefits of a uniform commitment to carbon pricing across the nation, using B.C. as a case study:

As in British Columbia, a carbon price can be revenue neutral, with every dollar of revenue returned to the economy through reductions in personal and corporate income taxes. Since 2008, the province has reduced its per-capita GHG emissions.

British Columbia introduced its carbon tax on July 1, 2008 at $10 per metric ton of carbon dioxide and increased the tax by $5 per tonne in each of the next four years, reaching its current level, $30/tonne, in July 2012.

It is true, as Professor Ragan states, that B.C. has reduced its per capita GHG emissions since 2008, but that is not telling the whole story about what has happened in the province.

In the period from 2004 through 2007 before carbon taxation, B.C.'s per capita GHG emissions were decreasing rapidly at an average rate of about 0.47 tonnes carbon dioxide equivalent per person per year.  Then, halfway through 2008, carbon taxation was brought in.  Since 2008 is a transition year with half under the pre-carbon tax regime and half under the post-carbon tax regime, we leave it out of the analysis, since the relative impacts of the pre-tax declining trend versus any post-tax effects cannot be reliably separated.

What happened starting in the first full calendar year of carbon taxation (2009) is telling.  Since 2009, the rate at which per capita GHG emissions were decreasing has itself drastically declined to just 0.03 tonnes carbon dioxide equivalent per person per year.

In other words, B.C.'s per capita GHG emissions were declining 16-fold (that is not a typo) before the province brought in carbon taxation than after carbon pricing was enacted.  Surely this must cause some pause for thought among the community arguing that B.C.'s carbon taxation scheme was highly effective at lowering GHG emissions...?

And if you look closely at the graph above, it is clear that the tiny declining trend in post carbon tax per capita GHG emissions is driven entirely by the small decline that took place between 2009 and 2010.  After 2010, B.C.'s per capita GHG emissions have been increasing.

Keep in mind that the province's carbon tax was progressively increased by $5/tonne each year from 2008 through 2012.  So if the tax was very effective at lowering emissions, we should have observed the complete opposite trend to what actually took place.  Namely, as the tax continued to be increased, emissions should have been declining year after year – perhaps even at an ever more rapid pace.

Instead, what we saw was that as the carbon tax was implemented and increased, not only was the declining pre-tax trend in per capita GHG emissions massively reduced, but it was rather quickly reversed, such that the province's per capita GHG emissions have now been increasing for the last four years of available data.

If the pre-carbon tax trend for declining per capita GHG emissions had continued, B.C.'s 2013 emissions would have been about 12.5 tonnes/person.  Instead, after the carbon tax was brought in, the level of emissions has stabilized at 14 tonnes/person – suggesting an ineffective policy.

To recap, if the criterion for a successful carbon tax scheme is to reduce per capita GHG emissions (which the carbon tax proponents argue it most definitely is), then the rate of decline in per capita GHG emissions must be more rapid after the tax than it was before the tax.  In B.C., the results are opposite of this basic requirement, illustrating a failed policy initiative.

When normalized to economic growth (i.e., GHGs per unit of GDP), we see the same issues.  B.C.'s economy was decarbonizing far more rapidly before the carbon tax than after.  In the five-year pre-carbon tax period from 2003 through 2007, the carbon intensity per unit GDP declined 18%.  In the same length post-carbon tax period since 2009, it has declined only 8%.

B.C.'s scheme has been held up as a model carbon tax on the international stage, and many jurisdictions throughout the United States and Canada are watching how it performs.  In order to make rational evidence-based policy decisions, it is thus critical that the real impacts of the tax be discussed in the media – and they are not as positive as the boosters suggest.

As part of the ongoing debate over the impacts of carbon taxation in British Columbia, Christopher Ragan, an associate professor of economics at McGill University, has written an opinion piece in one of Canada's national newspapers, the Globe and Mail, wherein he discusses the benefits of a uniform commitment to carbon pricing across the nation, using B.C. as a case study:

As in British Columbia, a carbon price can be revenue neutral, with every dollar of revenue returned to the economy through reductions in personal and corporate income taxes. Since 2008, the province has reduced its per-capita GHG emissions.

British Columbia introduced its carbon tax on July 1, 2008 at $10 per metric ton of carbon dioxide and increased the tax by $5 per tonne in each of the next four years, reaching its current level, $30/tonne, in July 2012.

It is true, as Professor Ragan states, that B.C. has reduced its per capita GHG emissions since 2008, but that is not telling the whole story about what has happened in the province.

In the period from 2004 through 2007 before carbon taxation, B.C.'s per capita GHG emissions were decreasing rapidly at an average rate of about 0.47 tonnes carbon dioxide equivalent per person per year.  Then, halfway through 2008, carbon taxation was brought in.  Since 2008 is a transition year with half under the pre-carbon tax regime and half under the post-carbon tax regime, we leave it out of the analysis, since the relative impacts of the pre-tax declining trend versus any post-tax effects cannot be reliably separated.

What happened starting in the first full calendar year of carbon taxation (2009) is telling.  Since 2009, the rate at which per capita GHG emissions were decreasing has itself drastically declined to just 0.03 tonnes carbon dioxide equivalent per person per year.

In other words, B.C.'s per capita GHG emissions were declining 16-fold (that is not a typo) before the province brought in carbon taxation than after carbon pricing was enacted.  Surely this must cause some pause for thought among the community arguing that B.C.'s carbon taxation scheme was highly effective at lowering GHG emissions...?

And if you look closely at the graph above, it is clear that the tiny declining trend in post carbon tax per capita GHG emissions is driven entirely by the small decline that took place between 2009 and 2010.  After 2010, B.C.'s per capita GHG emissions have been increasing.

Keep in mind that the province's carbon tax was progressively increased by $5/tonne each year from 2008 through 2012.  So if the tax was very effective at lowering emissions, we should have observed the complete opposite trend to what actually took place.  Namely, as the tax continued to be increased, emissions should have been declining year after year – perhaps even at an ever more rapid pace.

Instead, what we saw was that as the carbon tax was implemented and increased, not only was the declining pre-tax trend in per capita GHG emissions massively reduced, but it was rather quickly reversed, such that the province's per capita GHG emissions have now been increasing for the last four years of available data.

If the pre-carbon tax trend for declining per capita GHG emissions had continued, B.C.'s 2013 emissions would have been about 12.5 tonnes/person.  Instead, after the carbon tax was brought in, the level of emissions has stabilized at 14 tonnes/person – suggesting an ineffective policy.

To recap, if the criterion for a successful carbon tax scheme is to reduce per capita GHG emissions (which the carbon tax proponents argue it most definitely is), then the rate of decline in per capita GHG emissions must be more rapid after the tax than it was before the tax.  In B.C., the results are opposite of this basic requirement, illustrating a failed policy initiative.

When normalized to economic growth (i.e., GHGs per unit of GDP), we see the same issues.  B.C.'s economy was decarbonizing far more rapidly before the carbon tax than after.  In the five-year pre-carbon tax period from 2003 through 2007, the carbon intensity per unit GDP declined 18%.  In the same length post-carbon tax period since 2009, it has declined only 8%.

B.C.'s scheme has been held up as a model carbon tax on the international stage, and many jurisdictions throughout the United States and Canada are watching how it performs.  In order to make rational evidence-based policy decisions, it is thus critical that the real impacts of the tax be discussed in the media – and they are not as positive as the boosters suggest.