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The long and short run effects of British Columbia's carbon tax on diesel demand

Jean-Thomas Bernard () and Maral Kichian

Energy Policy, 2019, vol. 131, issue C, 380-389

Abstract: 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.

Keywords: Diesel demand; British Columbia carbon tax; Greenhouse gas policy (search for similar items in EconPapers)
JEL-codes: Q41 Q58 H23 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:enepol:v:131:y:2019:i:c:p:380-389