Is a Carbon Tax Enough?

Support for carbon taxes has increased over the recent years. How much of an impact they may have had on CO2 emissions is less clear, but further research is helping to understand what role they might play in mitigating climate change.

In a new study published in Environmental and Resource Economics, researcher Felix Pretis looks to British Columbia (BC) to determine how their 2008 carbon tax has fared. Using a range of methods, the study shows that while the tax has led to a significant reduction in transport emissions, it has not ‘yet’ led to large statistically significant reductions in aggregate CO2 emissions. It is likely that the tax rate is too low to have a noticeable overall impact.

Beyond the evaluation of the carbon tax, the study proposes a new approach to detect effective policy interventions – rather than simply evaluating a known policy, the author introduces a method to find significant changes in emissions which can subsequently be attributed to potential causes. Results of this analysis demonstrate that neither carbon pricing nor trading schemes in other provinces are detected as large and statistically significant interventions. Instead, closures and efficiency-improvements in emission-intense industries in untaxed provinces have reduced emissions.

Nevertheless, the effect the tax has had on lowering CO2 emissions within the BC transport sector implies it does have an important part to play, especially given transportation is the largest polluting sector in the region. Evidence suggests that one such impact has been the reduction of gasoline demand.

What is clear from these findings is that carbon pricing alone is not enough to achieve a substantial reduction in emissions. Instead a multitude of policy mixes are necessary, particularly ones targeting sensitive intervention points, to effectively mitigate the global impacts of climate change.

  Felix Pretis, Co-Director, Climate Econometrics

  Angela Wenham, Communications and Project Manager, Climate Econometrics