Given the ongoing polarization over the effectiveness of carbon taxes to move the needle on greenhouse gases (GHGs), it makes sense to look to British Columbia, now that it has had 10 years of experience with carbon taxation. Since BC implemented a carbon tax in 2007 on most fossil fuel emissions, GHGs have trended up and down, settling in 2017 at about 2007 levels. In recent years, BC’s GHGs grew almost 5 percent between 2015 and 2017. These levels have led some people to assert carbon taxes are ineffective.

But high levels of economic growth have meant the carbon tax has had to work hard to keep GHGs in check. Without the carbon tax, BC GHGs would be much higher today.

To help explain BC’s emissions trends, we get nerdy and use a decomposition method called the Kaya Identity to examine historical data to parse the main drivers of BC emissions since 2007. This method allows changes in GHGs to be disaggregated into measurable indicators of the underlying drivers.

For example, research in 2007 found that Canada’s high reliance on oil and gas production, cold weather and large geography all conspire to make GHG reductions more challenging relative to those of other OECD countries.  Significant gains in energy efficiency in Canada between 1995 and 2010 were found in 2016 to be partially offset by more personal and freight transportation activity and the shift to more energy-intensive oil and gas extraction. Globally, the slowdown in global GHGs was linked in 2017 to less coal use in China and the United States, while the explosive growth in renewable electricity generation has done less to drive global GHGs than energy efficiency or economic factors.

Applying a similar method to BC data, we track three drivers that help explain BC’s GHG emission trends:

  • The economic activity effect, which is the contribution of economic activity to emissions. For example, more natural gas production and construction in BC leads to more emissions. Typically, this effect is measured using economic metrics such as gross domestic product, tonnes of cement produced or natural gas production, vehicle kilometres travelled or the square footage of buildings.
  • The energy intensity effect, which is the quantity of energy use per unit of economic activity. Typically, the energy intensity of the economy is falling at some rate in time due to the adoption of more energy-efficient equipment. But also driving the energy intensity are the relative prices of energy commodities, with price increases driving the deployment of more energy-efficient equipment that lowers the energy intensity of the activity. Policy also drives energy intensity through, for example, mandating more energy-efficient furnaces or vehicles, as is the case with Canada’s light-duty vehicle regulations.
  • The emissions intensity effect, which is the emissions per unit of energy consumed and an indication of the decarbonization of the energy mix. Policy here has a big impact, with this indicator being a good proxy for efforts by governments to decarbonize. For example, Ontario’s coal-fired electricity phase-out shows a significant drop in the emissions intensity of electricity generated as natural gas, which is lower-emitting per unit of energy, replaces higher-emitting coal.

To explore these drivers of BC emissions, we use historical GDP, energy and emissions data from 2007, the year the BC carbon tax was implemented, to 2017, the last year for which provincial GHGs are reported. Each of the drivers of BC’s GHGs is discussed here:

A fast-growing economy drove more GHGs. The economist will tell you it is the counterfactual that matters, or what would GHGs have been without the carbon tax? And the counterfactual in BC really matters. In British Columbia under 10 years of an economy-wide carbon tax, the economy expanded 24 percent, or 2.15 percent annually (figure 1). In Canada, only Manitoba grew more over the same period. This means the carbon tax had to work harder to keep emissions down, countering more emissions from more economic activity that is related to more energy demand in buildings, transport, construction and industry.

Based on the Kaya decomposition applied to the BC data, the high level of economic activity in BC contributed 21 percent more GHGs between 2007 and 2017, totalling 13.2 megatonnes of the 62 megatonnes emitted in 2017 (figure 2).

Energy use is climbing slower than economic activity, adding less GHGs due to energy efficiency gains. BC energy demand has been decreasing significantly for residential, manufacturing, commercial and institutional use and is relatively flat for transportation. Two sectors that have increased energy demand are the mining and oil and gas extraction sector (about 50 percent higher) and the agricultural sector (100 percent higher). The net effect is a 1.7 percent increase in total energy use since 2007, despite an economy growing 24 percent.

Since 2007, BC’s economy has become more energy efficient, with the energy use per unit of GDP falling 18 percent, the most of any province over the 10-year period. BC continues to produce more with less energy, which means energy productivity is climbing.

Using the Kaya decomposition, we estimate improved energy efficiency decreased BC GHGs by 16 percent, or 10.1 megatonnes since 2007 (figure 2).

Emissions in energy used have been falling since 2007 while the GHG intensity of the economy has fallen rapidly since 2007. BC GHGs were below 2007 levels before 2016 and have since increased to 2007 levels. Annually, GHGs jump around, with annual growth negative in 4 of the last 10 years for which we have data. Still, with a growing economy and declining emissions, the historical data indicate that BC’s GHG intensity per unit of GDP, a leading indicator of decarbonization success, fell 19 percent since 2007. Different economic sectors have very different emissions intensities, and it matters where economic growth occurs. Emissions-intensive natural gas production in British Columbia grew 61 percent between 2007 and 2017 while oil production grew 39 percent. These high-emissions-intensive sectors have muted improvements in emissions intensity from other sectors in BC’s economy.

Using the Kaya decomposition, we estimate the emissions in the energy used have fallen by 5 percent since 2007, reducing BC’s GHGs by 3 megatonnes (figure 2).

Decomposing the underlying drivers of GHGs helps to explain BC’s overall emissions trend. In BC, these drivers have had a big effect in both increasing and reducing emissions. High economic growth compared with the rest of Canada coupled with more growth in emissions-intensive sectors like oil and natural gas meant that the carbon tax and other carbon policies had to work harder to keep down 13 megatonnes of new GHGs. Offsetting this increase was 13 megatonnes less of GHGs due to improved energy efficiency and less GHGs in energy used, with a net-effect flat total GHGs since 2007.

The next time someone argues carbon taxes have not worked in BC, remind them BC’s economy has expanded like gangbusters since the carbon tax was implemented, and that the carbon tax has had to work hard to keep up with the GHG Joneses.

Photo: Shutterstock by Yuttana Contributor Studio.

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Dave Sawyer
Dave Sawyer is the founder of EnviroEconomics and is principal economist at the Canadian Institute for Climate Choices.
Seton Stiebert
Seton Stiebert is a senior associate with EnviroEconomics and has more than 15 years of experience working on climate change policy.

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