We've just finished crunching the numbers to see how British Columbia’s pioneering carbon tax shift performed in its first five years. Check out our oped in the Globe and Mail and follow this blog series, where we tackle the biggest questions about the policy.
Brought in as part of an ambitious plan to reduce greenhouse gas emissions by 33% by 2020, the carbon tax is BC's main weapon in the fight against climate change. Its goal is to drive down the burning of fossil fuels, which are the main source of greenhouse gas emissions (GHGs).
How successful has it been? We now have five years of data to answer that question. (For more on our research methods see here.)
Since 2008, when the carbon tax came in, BC's use of fuels covered by the tax has fallen by a remarkable 16.1%. To put that improvement in context, Canada's Kyoto target was to reduce GHGs by 6% over a 20 year period.
A key question (that I often get asked) is how can we know if BC's drop in fuel use was mainly due to the carbon tax? For starters, let's be clear that the analysis we’ve done does not allow us to conclude that the fuel use changes were caused solely by the carbon tax; that would require a much more lengthy, complex economic analysis (which is underway). However, what we can do is examine some of the other likely potential causes (where there is available data) to see if they can explain the decline. The more we can rule out other plausible explanatory factors, the more confident we can be that the carbon tax was the major driver of these changes. Let's review some of the potential suspects:
Some have argued that BC's drop in fuel use was partly due to the economic decline from 2008-10. That is no doubt one factor. But other provinces went through a similar economic downturn (or worse, in Ontario’s case), so comparing them with BC can help us to isolate how much that downturn affected BC's carbon results.
From 2007/8 to 2012/13, fossil fuel use in the rest of Canada increased by 3%, as the table above shows, while BC saw a sharp decline. In other words, BC's fuel use went down by 19.1% in five years compared to the rest of Canada since the carbon tax came in. This indicates that the economic downturn is not the reason for BC’s major drop in fuel use.
Others have suggested that the explanation is BC motorists fueling up across the border in Washington, where gas is cheaper. It is true that cross-border traffic between BC and Washington has increased substantially since 2008. This was due mainly to the high value of the Canadian dollar from 2009-13, not the carbon tax (few motorists would incur the time and cost of driving to the US just to save a few dollars on a tank of gas). However, it is quite likely that many of the BCers who crossed the border for general shopping purposes did also fill up their tanks.
Two researchers have estimated how much effect this factor had on fuel purchasing in BC. Both the Sightline Institute and Andy Skuce concluded that it probably was responsible for a 1-2% drop in BC fuel buying – a small fraction of the 16% overall decline witnessed since 2008.
This estimate makes sense, when you consider that motor gasoline is just one of the many fuels covered by the carbon tax. In fact, our research reveals that there has been a decline in every type of fuel covered by BC’s policy since it came into effect, relative to the rest of Canada (see the chart below). It is safe to say that people were not crossing the border to fill up their home heating oil tanks, or to buy natural gas – so cross-border shopping can only explain a very small part of BC's dramatic drop in fuel use since the carbon tax.
Another argument I have heard is that BC already had lower fuel use than the rest of Canada before the tax shift, so the post-2008 results simply reflect this pre-existing trend. To test this claim, we looked at the data back to the year 2000. The chart below shows that, yes, BCers did use less fuel than the rest of Canada before 2008 (largely because their energy comes from carbon-free hydro power). But BC’s fuel use was actually rising slightly (by 1.1%/year) compared to the rest of Canada's from 2000-2008. After July 1 2008, BC's fuel use has fallen by an average of 4% per year compared to the rest of Canada – a big change, since the carbon tax took effect.
By examining other potential explanations, and finding they don’t apply, we can be more confident that the carbon tax was a major cause of the dramatic drop in BC’s fuel use since 2008. The evidence also demonstrates that this dramatic reduction didn't come from one or two major changes (like Ontario closing its coal plants); it resulted from many different types of fuel-saving decisions. Households did things like switch to more fuel efficient cars, use transit more, or better insulate their homes. Businesses did things like switch to cleaner fuels or adopt more fuel-efficient technologies. A steadily-rising carbon price provided an economy-wide incentive for people and firms to find innovative ways to lower their carbon footprints.
Today, we're starting to see the result. Earlier this week, B.C.’s announced that it met its 2012 target for reducing greenhouse gas emissions. It's safe to say the carbon tax played a meaningful role in that achievement.
That's good news, not only for B.C., but for all of us. It shows this tool works: making it more expensive to burn fossil fuels means we'll burn them less. In the fight against climate change, that is one powerful proof point.
To learn more about the results of the B.C. carbon tax, including its environmental, economic, and political impacts, follow the series:
The true story of how B.C’s carbon tax is working
Did the carbon tax shift burden or buoy B.C’s economy?
Is B.C’s carbon tax shift a silver bullet solution?
Is there a cure for carbon price phobia?
Appendix: A Note on Research Methods