WaPo's Incomplete Coverage of British Columbia's Carbon Tax

With word that Representative Chris Van Hollen (D-MD) is expected to soon introduce a new version of his cap-and-dividend carbon tax, the pitfalls over carbon pricing need to be brought into focus once again. Over on Ezra Klein's Wonkblog at the Washington Post, Brad Plumer authored a recent story purporting to consider the effects of British Columbia's carbon tax. For background, the Canadian province of British Columbia (BC) introduced a carbon tax on July 1, 2008 with the goal of reducing greenhouse gas (GHG) emissions. The tax was initially set at CAD$10 per tonne of carbon dioxide equivalent (CO2e), rising by CAD$5 per tonne CO2e each subsequent year up to its current (2012-2013) rate of CAD$30 per tonne CO2e.

Unfortunately, Plumer's coverage of BC's carbon tax was incomplete, and it only considered a problematic report from a pro-carbon tax group in Ottawa, Canada, entitled Sustainable Prosperity. In a follow-up study, my colleague and I looked in detail at the positive claims made by Sustainable Prosperity regarding BC's carbon tax, and we were unable to reproduce them.

As we note in our report, Sustainable Prosperity and other activist organizations have argued there is evidence that BC's carbon tax did not negatively impact the provincial economy while helping to reduce emissions. However, the data is not clear in this regard for two primary reasons. First -- and most importantly -- the available data record since enactment is generally very short. In some cases, indicators only have reliable data up to the end of 2009, or 1.5 years post-carbon tax implementation. Second, pre-existing time trends with non-stationary slopes are evident in various indicators both before and after tax implementation. Thus, differentiating carbon tax-induced changes in the post-implementation trendings (e.g., by econometric techniques) will be difficult (and potentially unreliable). Furthermore, even when econometric techniques are employed, it will be problematic to determine correlation-causation directionalities and to ensure that all appropriate input variables are considered.

Total and energy related GHG emissions in BC reached a maximum during 2001 and have been in subsequent decline. Transportation related GHG emissions peaked in 2004 and have been in subsequent decline. Per capita emissions in all three sectors were either stable or increasing up to 2004 and have been in subsequent decline. Rigorous regression trending could not be conducted on the post-carbon tax period because only two data points were available (i.e., 2009 and 2010) at the time of Sustainable Prosperity's reporting, and 2008 was a year in which the first half was untaxed while the second half was taxed. We also found that GDP normalized GHG emissions reveal no clear impacts of carbon tax introduction. Normalizing British Columbia's GHG emissions to final demand of energy use also reveals no clear carbon tax induced change in behaviour.

Consequently, we found no unequivocal evidence that the introduction of BC's carbon tax is leading to more GHG emission efficient economic production or to the use of less-GHG emission intensive energy sources beyond the temporal trends that existed prior to carbon tax implementation. Trends in passenger and freight transport energy intensity and residential building emission intensity also show no carbon taxation impacts, nor do net per capita gasoline and diesel oil sales. In contrast, BC's per capita net sales of diesel oil have been generally increasing since 1993, and the rate of increase appears to have accelerated since 2009.

Despite claims to the contrary, this absence of clear reductions in GHG emissions and related carbon-based energy use indicators due to carbon tax implementation in BC are consistent with the experience of various European nations which introduced carbon taxation during the 1990s. Denmark (1992), Finland (1990), the Netherlands (1990), Norway (1991), and Sweden (1992) have all had carbon taxes in place for two decades. No clear general changes in GHG emissions trendings either when compared to other developed nations without a federal carbon tax (e.g., Canada and the United States), or when compared to pre-carbon tax trendings, are evident.

When basic economic indicators are considered, BC's introduction of a carbon tax may have negatively impacted the provincial economy. Since 2008, BC has underperformed compared to the Canadian economy with regard to per capita GDP, personal income, and personal disposable income, as well as unemployment and employment rates.

Overall, and in contrast to the report featured in the Washington Post, we found no clear evidence over the short post-tax period of record demonstrating that the introduction of BC's carbon tax led to significant reductions in GHG emissions. Furthermore, there are suggestions that the implementation of this tax may have negatively impacted the province's economic performance relative to the rest of the nation.