Carbon pricing works—even if emissions are still rising

Climate and Energy

An old, debunked argument against carbon taxes has flared up recently: If total emissions aren’t falling, the tax must not be working. Let’s quash that myth. We at the Ecofiscal Commission and others have written extensively and consistently on this subject (see here, here, here). Without new policies, emissions have been trending up. But bending that curve is the first step toward reducing emissions in absolute terms, and new, additional evidence seems to be popping up every week supporting the same conclusion: in jurisdictions trying out carbon pricing, emissions are lower than they would have been without that policy.

What would have happened

Measuring the effectiveness of carbon pricing—like all good policy analysis—requires isolating the impacts of the policy. Otherwise we can come to false conclusions about cause and effect.

If emissions are still rising, how fast would they have been rising without a carbon price? What sectors are emissions rising in? Are emissions falling in other sectors? Are there other policies that the carbon price is interacting with?

The presence or absence of a carbon tax will influence the answers to all of these questions. Of course, the design of the carbon price itself matters as well. How high is the price? Is it scheduled to rise over time? What sectors does it cover?

The truth is a little more complicated than something you can fit in a tweet.

Bending the curve

We don’t have to deal in hypotheticals. We have a growing number of economic analyses that do isolate the impacts of carbon pricing from other factors, using the same robust statistical approaches that we rely on for many other types of economic analysis. These analyses have clearly showed that carbon prices influence the choices of businesses and households and thus the emissions they generate, even at low prices.

Recently, both carbon pricing proponents and opponents have singled out British Columbia. It has Canada’s oldest carbon tax, but its emissions have been rising lately.

Several studies that assessed the impacts of BC’s carbon tax in its early years found a measurable effect on emissions. They also identified specific sectors where the carbon tax was making an impact—vehicle fuel economy and natural gas consumption in the private sector, to name a few. The bottom line: Study after study shows that emissions in BC are lower than they would have been without the carbon tax. (You can read more on those studies here).

Analyses in other countries draw similar conclusions—Sweden, for example, has the highest carbon tax in the world, and its emissions are falling in absolute terms. But even in the early days, before the price seriously ramped up, researchers found that emissions were still lower that they would have been without the modest carbon tax.

The higher carbon prices are, the more changes in behaviour we’ll see. But at any price, they will help to bend the emissions curve down.

A question of stringency

More aggressive carbon pricing policies will have bigger impacts. That’s true across the board. Carbon prices in Canada are currently between $20 and $40 per tonne. No one is suggesting that carbon prices in this range will do the trick.

The fact that carbon prices in Canada are quite modest doesn’t mean they’re not working. It does mean they need to be higher to do more than slow the growth of GHG emissions, and eventually drive absolute emissions reductions.

Follow the evidence

Carefully studying the impacts of climate policies is difficult. Declaring that climate policies don’t work because we’re not seeing dramatic results overnight is easy. Doing so without evidence is easier still.

When we apply the logic to other policy issues, it all starts to look a little silly. If a tax on tobacco is implemented and we still have new smokers, it doesn’t mean the tax isn’t deterring some people from smoking. If a neighbourhood installs new stop signs and collisions are still occurring, it doesn’t mean the stop signs aren’t helping to prevent collisions. If the government implements a series of cost-saving health care measures, and health care costs are still rising in absolute terms, it doesn’t mean the new measures aren’t helping to cut costs.

In every other policy debate, we care about the counterfactual. We care about the specific impacts of a specific policy. In 2019 especially, let’s extend that courtesy to carbon pricing.

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