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The Impact of a Revenue-Neutral Carbon Tax on GDP Dynamics: The Case of British Columbia

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  • Jean-Thomas Bernard and Maral Kichian

Abstract

We study the impact over time of revenue-neutral-designed carbon taxes on GDP in the Canadian province of British Columbia (B.C.). The tax is broad-based, and all rate hikes and their timings were pre-announced. Our time series approach accounts for these pre-announcement effects, as well as for the possible saliency of the tax. Estimated impulse response functions and statistical comparisons of GDP dynamics in the presence and (counterfactual) absence of carbon taxes lead to the same result. Overall, revenue-neutral carbon taxation has no significant negative impacts on GDP. Our setup also allows us to examine the extent of the carbon tax pass-through into energy prices. We find that pass-through is complete. We conclude that implementing revenue-neutral carbon taxation contributes to lowering harmful greenhouse gases into the atmosphere without hurting the economy.

Suggested Citation

  • Jean-Thomas Bernard and Maral Kichian, 2021. "The Impact of a Revenue-Neutral Carbon Tax on GDP Dynamics: The Case of British Columbia," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 205-224.
    • Handle: RePEc:aen:journl:ej42-3-bernar
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    Cited by:

    1. Morão, Hugo, 2024. "The impact of carbon policy news on the national energy industry," Energy Economics, Elsevier, vol. 134(C).
    2. Arcila, Andres & Baker, John D., 2022. "Evaluating carbon tax policy: A methodological reassessment of a natural experiment," Energy Economics, Elsevier, vol. 111(C).
    3. Kumbhakar, Subal C. & Badunenko, Oleg & Willox, Michael, 2022. "Do carbon taxes affect economic and environmental efficiency? The case of British Columbia’s manufacturing plants," Energy Economics, Elsevier, vol. 115(C).
    4. Jingyi Guo & Ling Wang, 2024. "Spatiotemporal Variations in Gross Ecosystem Product and Its Relationship with Economic Growth in Ecologically Vulnerable Watershed Areas: A Case Study of Yongding River Basin," Sustainability, MDPI, vol. 16(21), pages 1-20, October.
    5. Kramer, Niklas & Lessmann, Christian, 2023. "The Effects of Carbon Trading: Evidence from California’s ETS," MPRA Paper 116796, University Library of Munich, Germany.
    6. Dorian Carloni & Terry Dinan, 2021. "Distributional Effects of Reducing Carbon Dioxide Emissions With a Carbon Tax: Working Paper 2021-11," Working Papers 57399, Congressional Budget Office.
    7. Jan Ditzen & Francesco Ravazzolo, 2022. "Dominant Drivers of National Inflation," Working Papers No 08/2022, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    8. Jannik Hensel & Giacomo Mangiante & Luca Moretti, 2023. "Carbon pricing and inflation expectations: evidence from France," ECON - Working Papers 434, Department of Economics - University of Zurich.
    9. Diego R. Känzig & Maximilian Konradt, 2024. "Climate Policy and the Economy: Evidence from Europe’s Carbon Pricing Initiatives," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(3), pages 1081-1124, September.
    10. Jannik Hensel & Giacomo Mangiante & Luca Moretti, 2023. "Carbon Pricing and Inflation Expectations: Evidence from France," CESifo Working Paper Series 10552, CESifo.

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    JEL classification:

    • F0 - International Economics - - General

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