Does carbon pricing policy influence carbon emission intensity? New Evidence from Canadian Provinces

Exploring the role of carbon pricing policy in reducing carbon emission intensity remains an urgent and ongoing debate among academics and practitioner communities. Unlike the prior research relying on a single-factor indicator for carbon emission intensity with inadequate attention to endogeneity issues, this study investigates the influence of carbon pricing policy on Canadian provinces’ carbon emissions over the sample period 2000-2022. The study makes a novel contribution by developing a theoretically grounded empirical model to mitigate the risk of biased estimates from a single-factor indicator while allowing for heterogeneity and addressing the issue of endogeneity in its production SFA (stochastic frontier analysis) settings. The study’s SFA results reveal that carbon pricing policy significantly influences the level of the province's carbon emissions by reducing carbon inefficiency. Furthermore, economic growth mitigates carbon emissions intensified by an increase in the amount of capital equipment and energy consumption. On the other hand, multi-factor carbon emission efficiency exhibits significant variations across Canadian provinces. Thus, it is a worthy recommendation for Canadian policymakers to align the use of advanced equipment with carbon emission reduction targets.