Carbon pricing with regressive co-benefits: evidence from British Columbia’s carbon tax

This paper assesses the air quality and environmental equity impacts of the carbon tax introduced in the Canadian province of British Columbia in 2008.

The author finds that the carbon tax has reduced PM2.5 (fine particulate) emissions by between around 5 and 11%. The precise degree of reduction varies from place to place, with larger reductions in areas with lower rates of pre-existing pollution, lower population density, lower material deprivation, and higher income.

While all areas experience substantial positive co-benefits from the carbon tax in terms of reduced air pollution hazard rates, quantified at CA$198 per capita, the results imply a widening of the pre-existing environmental justice gap. This dynamic shows one element of how a carbon tax can be regressive in terms of the distribution of its impacts across society, which policymakers can seek to redress through careful policy design.

Key points for decision-makers

  • There are likely to be major co-benefits for improving air quality deriving from carbon taxation, which they may partially or fully offset the costs of change climate mitigation.
  • It is essential to incorporate the monetary value of realised air quality improvements into cost-benefit analyses of carbon taxes in order to correctly calibrate them and enhance their attractiveness, yet the environmental justice implications are often overlooked. This can potentially hinder public support for climate policy.
  • The air quality improvement of 5.2–10.9% measured in British Columbia following the introduction of the carbon tax in 2008 has been driven by reductions in fuel demand and by people switching away from private vehicles, mainly to public transport.
  • The impacts, including knock-on positive effects on health, have been greatest in less polluted, less densely-populated and better-off neighbourhoods.
  • These results highlight the fact that a carbon tax can exacerbate pre-existing spatial variations in pollution and health, where poorer areas are worse affected.
  • Instruments can be designed to attenuate these inequitable effects in advance of deploying carbon pricing, to limit potentially regressive consequences.
  • The author also calculates the monetary gains from the co-benefits for health of the tax. With a median estimate of CA$198 per capita, the health gains are large and comparable to the rebates offered to low-income families in British Columbia to mitigate the impact of the tax on their disposable income.