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

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 large statistically significant reductions 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 large and 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.

Automated summary

By using various methods including difference-in-differences and synthetic control, the study shows that the introduction of North America's first major carbon tax has reduced transportation emissions but hasn't led to significant reductions in overall CO2 emissions. The study proposes a new method to evaluate policy effectiveness and finds that carbon pricing and trading schemes in other provinces are not detected as significant interventions. Instead, closures and efficiency improvements in untaxed provinces have resulted in reduced emissions. Overall, the study suggests that existing carbon taxes may be too low to have a significant impact.