The Effect of Carbon Taxes on Agricultural Trade

Abstract

This study evaluates the implications of an existing carbon tax on international trade in the agricultural sector. Applying uniformly to all fossil fuels combusted within its borders, the province of British Columbia unilaterally introduced a carbon tax on July 1, 2008. In 2012, the province granted an exemption from the tax to certain agricultural sectors. Using commodity‐specific trade flows and exploiting cross‐provincial and intertemporal variation, we find little evidence that the carbon tax is associated with any meaningful effects on agricultural trade despite the sector being singled out as “at risk” by the provincial government. Our findings suggest that there is not compelling evidence to support exempting the agricultural sector from the tax. Discussion of potential policy remedies to address the tax's potential effects on firm profitability and international competitiveness is also included.

A template for the world: British Columbia’s carbon tax shift

“…have recently shown for example that BC's carbon tax has had no discernible impact, positive or negative, on the export of agricultural products from BC. 24 When considered collectively, the data now available at both the macro (pan-Canadian) and provincial sectoral levels confirm that, as designed and applied, British Columbia's now permanent carbon-emissions taxation program has not produced economic harm. In fact, the carbon tax may well have been a factor in stimulating significant growth in recent years in the energy-related high technology sector in the Province.…”

Carbon tax and revenue recycling: Impacts on households in British Columbia

“…4 The remaining emissions are non-combustion emissions from agriculture, land-use change, and industrial processes. 5 This changed in BC's 2012 and 2013 budgets, in which the greenhouse sector and the rest of the agriculture sector, respectively, were granted partial exemptions to the carbon tax (Rivers and Schaufele, 2014). We do not model these exemptions in the current paper.…”

“…Empirical studies to date focus on questions related to the political process related to the passing of the regulation (Harrison, 2012) or the policy's environmental effectiveness (Elgie, 2012;Rivers and Schaufele, 2012;British Columbia, 2012b) and its economic effects (Rivers and Schaufele, 2014). These studies suggest that the tax has had a modest impact on the level of greenhouse gas emissions in the province, and do not report negative economic impacts.…”

Impacts of Carbon Prices on Indicators of Competitiveness

“…The absence of any evidence suggesting that the CCL accelerated plant exit is an encouraging complement of the analysis. Rivers and Schaufele (2014) investigate the impact of the carbon tax 7 in the Canadian province British Columbia (BC) on the competitiveness of the agricultural sector. Using a difference-in-differences design, the authors compare agricultural trade flows in all Canadian provinces between 1990 and 2011, before and after the introduction of the tax in 2008.…”

“…While the two commitments together account for only 1% of combustion emissions and carbon tax revenues, nonetheless the form of concessions undermines the carbon price signal in both cases (Harrison 2013). The exemptions were introduced against the background that the agricultural sector has been classified as an "at-risk" industry due to perceived difficulties in adapting to the carbon tax by decreasing fuel use in the short run (Rivers and Schaufele, 2014). Comparing other highly-traded goods from BC to agricultural goods, Rivers and Schaufele (2014) find that the latter do stand out as neither particularly fossil fuel intensive, nor particularly trade intensive.…”