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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
  • 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 & Maral Kichian, 2021. "The Impact of a Revenue-Neutral Carbon Tax on GDP Dynamics: The Case of British Columbia," The Energy Journal, , vol. 42(3), pages 205-224, May.
    • Handle: RePEc:sae:enejou:v:42:y:2021:i:3:p:205-224
    DOI: 10.5547/01956574.42.3.jber
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    References listed on IDEAS

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    1. Bernard, Jean-Thomas & Kichian, Maral, 2019. "The long and short run effects of British Columbia's carbon tax on diesel demand," Energy Policy, Elsevier, vol. 131(C), pages 380-389.
    2. Christiane Baumeister & James D. Hamilton, 2019. "Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks," American Economic Review, American Economic Association, vol. 109(5), pages 1873-1910, May.
    3. Lutz Kilian & Daniel P. Murphy, 2014. "The Role Of Inventories And Speculative Trading In The Global Market For Crude Oil," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(3), pages 454-478, April.
    4. Yamazaki, Akio, 2017. "Jobs and climate policy: Evidence from British Columbia's revenue-neutral carbon tax," Journal of Environmental Economics and Management, Elsevier, vol. 83(C), pages 197-216.
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    Cited by:

    1. 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.
    2. Hensel, Jannik & Mangiante, Giacomo & Moretti, Luca, 2024. "Carbon pricing and inflation expectations: Evidence from France," Journal of Monetary Economics, Elsevier, vol. 147(C).
    3. Morão, Hugo, 2024. "The impact of carbon policy news on the national energy industry," Energy Economics, Elsevier, vol. 134(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.

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