British Columbia institutes a carbon tax, cuts income taxes, and everybody is happy. (If you are new to this blog and haven't heard me on this topic, click here.)
From the article itself:
... the levy required its proceeds to be recycled back to individuals and companies as cuts in income taxes. The new tax was initially set at C$10 ($10) per tonne of carbon-dioxide emissions, rising by increments of C$5 per year to C$30 in 2012. It seems to be working as planned. Since 2008 fuel consumption per head in the province has dropped by 4.5%, more than elsewhere in Canada. British Columbians use less fuel than any other Canadians. And British Columbians pay lower income taxes too.
I imagine someone is working on the natural experiment aspects of this policy.It should be possible to isolate the effect of the tax on consumption given the geographic differences in the tax, the changes in the tax over time and holding macro factors constant over time.
The new tax has not weakened the province’s economy, which has been boosted by high world prices for its commodity exports. Unemployment is slightly below the national average, and growth slightly higher. Because the tax started low and its rises were set out in advance, businesses had plenty of time to make plans to cut their carbon use.
Same here: the regional and macro effects of the carbon tax should be able to be isolated in an econometric model. An understanding of the impact might help inform the silly, political "job killing" debate.
... At C$25 per tonne, British Columbia’s tax already exceeds the price of carbon in Europe’s emissions-trading scheme. But it is still too low to prompt radical changes in behaviour: it adds just five cents to the price of a litre of petrol. Getting the most energy-intensive industries to make big cuts might take a tax four times as high. Even so, British Columbia has shown the rest of Canada, a country with high carbon emissions per head, that a carbon tax can achieve multiple benefits at minimal cost.
Back to the U.S.: the optimal $1/gallon tax would raise the price of a gallon of petrol by at least $0.75.