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Carbon Tax Saliency: The Case of B.C. Diesel Demand

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  • Maral Kichian

Abstract

In 2008, the government of the province of British Columbia broke new ground in North America by introducing a revenue-neutral carbon tax on fossil fuels. The initial rate was set at $10/ton of CO2 which was then increased annually by $5 increments to reach $30/ton in 2012. We focus on monthly diesel use which is mostly related to commercial activities. Our objective is to measure user reaction to the new tax. Exploiting the sample time series properties, we study the long run reaction via a cointegration equation, linking diesel use, its total price, and income, and the short run reaction using an error correction model (ECM). Carbon tax saliency is interpreted as a short run phenomenon that shows up in the dynamic adjustment of the ECM. We find that the long run total price elasticity estimate of diesel demand is -0.52 and that the short run tax saliency effect is statistically significant. However, the total reaction is small relative to CanadaÕs commitment to decrease GHG emissions by 30% in 2030 relative to 2005 levels.

Suggested Citation

  • Maral Kichian, 2018. "Carbon Tax Saliency: The Case of B.C. Diesel Demand," Cahiers de recherche CREATE 2018-01, CREATE.
    • Handle: RePEc:lvl:creacr:2018-01
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    File URL: https://www.create.ulaval.ca/sites/create.ulaval.ca/files/Publications/create2018-1-bernardkichian.pdf
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    References listed on IDEAS

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    1. John Coglianese & Lucas W. Davis & Lutz Kilian & James H. Stock, 2017. "Anticipation, Tax Avoidance, and the Price Elasticity of Gasoline Demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 32(1), pages 1-15, January.
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    Cited by:

    1. Ott, Laurent & Weber, Sylvain, 2022. "How effective is carbon taxation on residential heating demand? A household-level analysis," Energy Policy, Elsevier, vol. 160(C).

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    More about this item

    Keywords

    diesel demand; carbon tax; tax saliency;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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