Refining the Evidence: British Columbia's Carbon Tax and Household Gasoline Consumption

Abstract

The impact of carbon prices on consumer behavior is a central element in current policy debates dealing with mitigation of greenhouse gas emissions. In this article, we examine the impact of British Columbia’s carbon tax on household consumption of gasoline for private automobile use. Our use of household-level data on gasoline expenditures allows us to control for several factors that influenced gasoline demand during our study period, including local public transit improvements and increased cross-border shopping in Washington State. Overall, our results suggest that a 5 cent per litre carbon tax reduced gasoline consumption by 8%. We find that households residing in Vancouver and other cities responded to the carbon tax, whereas households in small towns and rural areas did not respond. We perform several sensitivity analyses accounting for carbon leakage and the potential that the carbon tax was not fully passed through to the retail price of gasoline. Even our most conservative lower bound estimate suggests that a 5 cent per litre carbon tax reduced gasoline consumption by 5%.

Keywords: Carbon Tax, Household Survey, Gasoline Demand, Carbon Leakage

JEL Classification: H23, Q58