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Refining the evidence: British Columbia’s carbon tax and household gasoline consumption

The impact of carbon prices on consumer behavior is a central element in current policy debates dealing with mitigation of greenhouse gas emissions. We examine the impact of British Columbia's carbon tax on private automobile gasoline use. We control for several factors that influenced gasoline demand during our study period, including local public transit improvements and increased cross-border shopping. Our results suggest that a 5 cent per litre carbon tax reduced gasoline consumption by 8%. We find that households residing in Vancouver and other cities responded to the carbon tax, whereas households in small towns and rural areas did not respond. We perform several sensitivity analyses. Even our most conservative lower bound estimate suggests that a 5 cent per litre carbon tax reduced gasoline consumption by 5%.

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Energy Specializations: Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation; Energy Efficiency – Transportation End-use

JEL Codes: D12: Consumer Economics: Empirical Analysis, D11: Consumer Economics: Theory, Q21: Renewable Resources and Conservation: Demand and Supply; Prices, Q41: Energy: Demand and Supply; Prices, L71: Mining, Extraction, and Refining: Hydrocarbon Fuels, Q20: Renewable Resources and Conservation: General, Q42: Alternative Energy Sources, Q54: Climate; Natural Disasters and Their Management; Global Warming, C51: Model Construction and Estimation

Keywords: Carbon tax; gasoline consumption; price elasticity of gasoline demand; heterogeneous responses; carbon leakage

DOI: 10.5547/01956574.39.2.claw

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Published in Volume 39, Number 2 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.