Firm responses to a carbon price: corporate decision making under British Columbia's carbon tax

Abstract

Top-down economic approaches theoretically show that placing a price on carbon can reduce emissions. Responses by firms to these policies, however, are less well understood and are critical for understanding the effectiveness of price-based carbon policy. This article provides an analysis of firm-level responses to the carbon tax in British Columbia (BC) through empirical research of grey literature, industry participation, and interviews with executives of major emitting firms in BC. The article highlights the empirical responses to the tax by firms, who experience difficulty in making low-carbon changes in response to fluctuating commodity prices, the low certainty of climate policy over temporal and spatial scales, and the political economy of implementing regional climate policy. It also highlights the importance of understanding firm-level responses as a complementary approach to macro-economic policy making on carbon pricing. The article shows the importance of engaging decision makers in corporations to understand how carbon is governed in light of emerging climate policy.Policy relevanceThis article is relevant to policy makers implementing carbon-pricing initiatives by illustrating the need to complement macroeconomic models with firm-level response analysis. It also demonstrates the key concerns of executives in a resource extractive economy and the ability of a carbon price, and the need for complementary technology funds and policy, to affect change in industrial emissions.