Six Places

Where Carbon Pricing is Working

By Elizabeth Beale, Don Drummond, Brendan Frank, and Lindsay Tedds

Climate change will be an important part of the national conversation this fall. One part of Canada’s strategy to deal with climate change has been to put a price on carbon.

What’s a price on carbon? Glad you asked. It’s a charge on fossil fuels, the main drivers of climate change.

The charge is based on how much carbon pollution (a.k.a. the most widespread greenhouse gas) the fuel produces when it is burned. For example, a litre of diesel produces more carbon pollution than a litre of gasoline, so the carbon price is higher on a litre of diesel. This creates an incentive to conserve energy, or look for alternative sources.

If we want our climate to remain as stable as possible, economists overwhelmingly recommend we start by putting a price on carbon. The evidence shows that it can slow climate change in a way that’s best for the economy.

More to the point: carbon pricing works. It has for a long time.

Here are six places where carbon pricing has worked:

1. British Columbia

We don’t have to go far for our first example. British Columbia adopted a carbon tax in 2008 and hasn’t looked back. Its economy has grown at one of the fastest rates in Canada (the carbon tax didn’t cause this, but it sure doesn’t seem to have hurt the economy).

How it worked

B.C.’s carbon tax reduced the use of gasoline and natural gas by seven per cent per person. There’s even evidence that it spurred people to buy more fuel-efficient cars.

Key fact

B.C. used the revenues to cut income taxes and, more recently, to fund a broader range of programs, including green technology investments. It has some of the lowest income tax rates in Canada.

2. Northeastern United States

In 2009, 10 states, including New York and Massachusetts, worked together to put a price on carbon. They used the other type of carbon pricing: cap-and-trade. Their system is known as RGGI (Regional Greenhouse Gas Initiative), or "Reggie."

How it worked

Electricity producers started burning way less coal and started using more natural gas and renewable energy, which reduced greenhouse gas emissions.

Key fact

“Reggie” improved public health. Less coal meant less soot, and these states avoided more than US$5 billion worth of asthma attacks, hospital visits, chronic illnesses and premature deaths.

3. Sweden

Sweden has had a carbon tax since 1991. It started at €25 per tonne of greenhouse gases and is now €120 per tonne, the highest carbon tax in the world. Since implementing carbon pricing, Sweden’s economy has grown well above the European average.

How it worked

Businesses and homes started using less coal, gas and oil for heating, and started using biofuels instead. Sweden has reduced its greenhouse gas emissions by 25 per cent since 1995. Its carbon tax was a key contributor.

Key fact

Sweden wants to be carbon neutral by 2045 and will use pricing to help get there.

4. United Kingdom

The United Kingdom has had a bipartisan consensus on climate change for a long time. They introduced a carbon price in 2001 and gradually ramped it up over time.

How it worked

The carbon price completely transformed how the U.K. generates and uses electricity. Its emissions haven’t been this low since 1890, and studies point to carbon pricing as a key contributor.

Key fact

The U.K. got serious about carbon pricing in 2013. In 2012, the U.K. got 36 per cent of its electricity from coal. In 2018, it got six per cent of its electricity from coal.

5. Tokyo

Tokyo was the first city to put a price on pollution back in 2010. About 1,300 of its largest buildings pay a price on carbon.

How it worked

Building operators started massive upgrades and retrofits. The most common initiatives were the installation of high-efficiency furnaces and lights.

Key fact

Over 70 per cent of buildings met their 2020 targets by 2013.

6. European Union

Fighting climate change isn’t controversial in the EU. It has had a price on carbon for 15 years, fostered international co-operation and emphasized the need for collective action. The system applies to most of Europe’s large industrial facilities (manufacturing, power, etc.).

How it worked

It took a while to get working, but the EU’s system is finally humming along. It led to a direct increase in the number of low-carbon patents and innovations, and it’s slowly changing how the EU produces electricity.

Key fact

The EU’s carbon market is the largest in the world, but it will fall to No. 2 when China launches its carbon market in 2020.

Bonus: The United States (again)

Pricing has worked on pollutants other than carbon. Just ask acid rain. Oh wait, you can’t. We got rid of it by putting a price on it. In 1990, two conservative politicians, former prime minister Brian Mulroney and former U.S. president George H.W. Bush, agreed to address sulfur dioxide pollution, the main cause of acid rain. The U.S. did this by putting a price on sulfur dioxide.

How it worked

Power plants, the main source of sulfur dioxide emissions, responded quickly. They rerouted rail cars so they could burn coal with less sulfur content, and they invested in pollution scrubbers that pulled out sulfur before it left their smokestacks.

Key fact

By 2004, sulfur dioxide emissions had fallen by 36 per cent, even as coal-fired power grew by 25 per cent

The Bottom Line

Pollution pricing works. It’s working around the world. It’s working here in Canada.

A climate change plan without a price on carbon is like a house without a foundation. Sure, it can do the job, but you’ll take on a lot of unnecessary costs.

As long as we take the time to do it properly, carbon pricing can be a key part of the solution to climate change. And at a time when cost-of-living concerns are high, how we get there matters. Let’s lay the right foundation.


Abrell, J., Kosch, M., & Rausch, S. (2019). How Effective Was the UK Carbon Tax?-A Machine Learning Approach to Policy Evaluation. A Machine Learning Approach to Policy Evaluation. Center of Economic Research at ETH Zurich Working Paper, 19, 317.
Abt Associates. (2017). The Regional Greenhouse Gas Initiative (RGGI) Analysis. Retrieved from
Ackva, J. & Hoppe J. (2017). The Carbon Tax in Sweden. Prepared for Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and the European Climate Initiative. Retrieved from
Antweiler, W., & Gulati, S. (2016). Frugal cars or frugal drivers? How carbon and fuel taxes influence the choice and use of cars. SSRN. Retrieved from
Bernard, J. T., & Kichian, M. (2018). Carbon Tax Saliency: The Case of BC Diesel Demand. University of Ottawa.
Calel, R., & Dechezleprêtre, A. (2016). Environmental policy and directed technological change: evidence from the European carbon market. Review of economics and statistics, 98(1), 173–191.
Carlson, C., Burtraw, D., Cropper, M., & Palmer, K. L. (2000). Sulfur dioxide control by electric utilities: What are the gains from trade? Journal of political Economy, 108(6), 1292-1326.
Chestnut, L. G., & Mills, D. M. (2005). A fresh look at the benefits and costs of the US acid rain program. Journal of Environmental Management, 77(3), 252-266.
Congressional Research Service. (2019). Market-Based Greenhouse Gas Emission Reduction Legislation: 108th Through 116th Congresses. Retrieved from
Department for Business, Energy & Industrial Strategy. (2019). 2018 UK Greenhouse Gas Emissions, Provisional Figures. Retrieved from
Environmental Protection Agency (EPA). (2005). Acid Rain Program 2005 Progress Report. Retrieved from
European Commission. (2019). EU Emissions Trading System (EU ETS). Retrieved from
Eurostat. (2018). Greenhouse gas emissions statistics – emissions inventories. Retrieved from
The Guardian. (2017). UK carbon emissions drop to lowest level since 19th century, study finds. Retrieved from
Health and Environmental Alliance (HEAL). (2013). The Unpaid Health Bill: How coal power plants make us sick. Retrieved from
Johansson, B. (2000, June). Economic instruments in practice 1: Carbon tax in Sweden. In workshop on innovation and the environment, OECD, Paris (Vol. 19).
Hibbard, P. J., Tierney, S. F., Darling, P. G., & Cullinan, S. (2018). An expanding carbon cap-and-trade regime? A decade of experience with RGGI charts a path forward. The Electricity Journal, 31(5), 1-8.
Lawley, C., & Thivierge, V. (2016). Refining the Evidence: British Columbia's Carbon Tax and Household Gasoline Consumption.
Roppongi, H., Suwa, A., & Puppim De Oliveira, J. A. (2017). Innovating in sub-national climate policy: the mandatory emissions reduction scheme in Tokyo. Climate Policy, 17(4), 516-532.
Schmalensee, R., & Stavins, R. N. (2013). The SO2 allowance trading system: the ironic history of a grand policy experiment. Journal of Economic Perspectives, 27(1), 103-22.
Tokyo Metropolitan Government (TMG). (2012). The Tokyo Cap-and-Trade Program Results of the First Fiscal Year of Operation (Provisional Results). Retrieved from
Tokyo Metropolitan Government (TMG). (2019). Results of Tokyo Cap-and-Trade Program in the 8th Fiscal Year Covered Facilities Continue Reducing Emissions in Second Compliance Period. Retrieved from
Xiang, D., & Lawley, C. (2019). The impact of British Columbia's carbon tax on residential natural gas consumption. Energy Economics, 80, 206-218.
Zhou, Y. (2017). Three Essays on the Efficiency of Carbon Emission Trading Programs.