Evaluating the economic impact of carbon tax: A case study of British Columbia
University of New Brunswick
The province of British Columbia enacted North America's first comprehensive carbon tax in 2008. The tax which covers about 75% of all greenhouse gas emissions in the province has generally been characterized as a successful exercise due to its resulting environmental benefits. To shed a new light on the economic impact of BC’s carbon tax this paper attempts to answer the following research questions; (1) What is the impact of BC’s carbon tax on the provincial GDP? and (2) Can the variation in GDP be explained by technological innovation? Results from impulse response analysis as well as variance decomposition analysis confirm no significant impact of the tax on provincial GDP from July 2008 – December 2019. Rather the evidence presented in this paper suggests that putting a price on emissions could potentially lead to a redirection of the economy towards more emissions-friendly investments.