Carbon Tax Saliency: The Case of B.C. Diesel Demand

Maral Kichian

Cahiers de recherche CREATE from CREATE

Abstract: In 2008, the government of the province of British Columbia broke new ground in North America by introducing a revenue-neutral carbon tax on fossil fuels. The initial rate was set at $10/ton of CO2 which was then increased annually by $5 increments to reach $30/ton in 2012. We focus on monthly diesel use which is mostly related to commercial activities. Our objective is to measure user reaction to the new tax. Exploiting the sample time series properties, we study the long run reaction via a cointegration equation, linking diesel use, its total price, and income, and the short run reaction using an error correction model (ECM). Carbon tax saliency is interpreted as a short run phenomenon that shows up in the dynamic adjustment of the ECM. We find that the long run total price elasticity estimate of diesel demand is -0.52 and that the short run tax saliency effect is statistically significant. However, the total reaction is small relative to CanadaÕs commitment to decrease GHG emissions by 30% in 2030 relative to 2005 levels.

Keywords: diesel demand; carbon tax; tax saliency (search for similar items in EconPapers)
JEL-codes: H23 Q41 Q58 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:lvl:creacr:2018-01

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