Case study on the effectiveness of carbon pricing estimating the impact of carbon tax on natural gas demand [in] British Columbia

Abstract

British Columbia’s carbon tax was implemented in July 2008 at the rate of $10 per tonne of carbon. It increased for four consecutive years and reached $30 per tonne of carbon. The rate of carbon tax is based on the carbon intensity of the fossil fuels. The second biggest source of primary energy in North America, natural gas, is subject to 5.7 cents/cubic metre of carbon tax in the province of British Columbia. In this study, we adopt a difference-in-differences technique to examine whether or not the BC’s carbon tax has impacted natural gas consumption in commercial and residential sectors in BC, where it is primarily used for space heating. We assemble a monthly panel data from Statistics Canada and Environment Canada spanning from Jan 1990-Dec 2013 for six provinces: Quebec, Ontario, Manitoba, Saskatchewan, Alberta, and British Columbia. While the coefficient for carbon tax is insignificant in residential sector, we find the elasticity of carbon tax for natural gas to be -0.35 in commercial sector.