Evaluating carbon tax policy: A methodological reassessment of a natural experiment

Heralded as the grand experiment in carbon tax policy, the Canadian province of British Columbia was on the forefront of North American environmental policy when it implemented a carbon tax in 2008. Despite being well-lauded in the literature, new data suggests 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 find that, contrary to the theoretical intuition about carbon taxation, 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.

Automated summary

Heralded as a groundbreaking experiment in carbon tax policy, the Canadian province of British Columbia implemented a carbon tax in 2008. However, new data suggests that CO2 emissions and fossil fuel consumption have actually increased in recent years. Using synthetic control analysis, we find that contrary to theoretical expectations, CO2 emissions and gasoline consumption rose in British Columbia compared to the synthetic control, but there was a reduced share of economic activity in the energy industry.