Evaluating Carbon Tax Policy: Methodological Reassessment of a Natural Experiment

Abstract

Heralded as the grand experiment in carbon tax policy, the Canadian province of British Columbia was at the forefront of North American environmental policy when it implemented a carbon tax in 2008. Despite being well-lauded in the literature, new data seems to suggest that CO2 emissions and fossil fuel consumption have in fact risen in recent years. We test the effectiveness of the policy change using a synthetic control analysis and fou nd that, contrary to theoretical logic about carbon taxes, CO2 emissions and gasoline consumption rose in British Columbia relative to the synthetic control. However, we do find there to be a reduced share of economic activity in the energy industry following the policy change. We attribute positive preliminary fi ndings in the literature to the correlation of the policy with the 2008-2009 global recession, and suspect that the shortcomings of this noble policy change are likely due to the contemporary inelastic demand for fossil fuel usage.