How Do Carbon Taxes Affect Emissions? Plant-Level Evidence from Manufacturing

Younes Ahmadi (), Akio Yamazaki and Philippe Kabore ()
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Younes Ahmadi: University of Calgary
Philippe Kabore: University of Ottawa

Environmental & Resource Economics, 2022, vol. 82, issue 2, No 1, 285-325

Abstract: Abstract This paper investigates how carbon taxes affect emissions by examining British Columbia’s revenue-neutral carbon tax in the manufacturing sector. We theoretically demonstrate that carbon taxes can achieve emission reductions while increasing production. Recycling carbon tax revenues to lower corporate income tax rates encourages investments, allowing plants to emit less per unit of output. Using detailed confidential plant-level data, we evaluate this theoretical prediction by exploiting the treatment intensity through plants’ emission intensity. We find that the carbon tax lowers emissions by 4 percent. Furthermore, we find that the policy had a positive output effect and negative emission intensity effect, suggesting that the carbon tax encouraged plants to produce more with less energy. We provide initial evidence showing how a revenue-neutral carbon tax may achieve emission reductions while stimulating the economy.

Keywords: Carbon tax; Energy; Revenue-recycling; Manufacturing emission (search for similar items in EconPapers)
JEL-codes: H23 L6 Q5 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s10640-022-00678-x

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