Does a Carbon Tax Reduce CO2 Emissions? Evidence From British Columbia

Abstract

Using difference-in-differences, synthetic control, and introducing a new break-detection approach I show that the introduction of North America’s first major carbon tax has reduced transportation emissions but not ‘yet’ led to a statistically significant reduction in aggregate CO2 emissions. Proposing a new method to assess policy based on breaks in difference-in-differences using machine learning, I demonstrate that neither carbon pricing nor trading schemes in other provinces are detected as statistically-significant interventions. Instead, closures and efficiency-improvements in emission-intense industries in untaxed provinces have reduced emissions. Overall, the results show that existing carbon taxes (and prices) are likely too low to be effective in the time frame since their introduction.

Keywords: Carbon Tax, CO2 Emissions, Regulation, Break Detection