British Columbia Carbon Tax: What It Did and Why It Ended

This case study follows the British Columbia carbon tax from its surprise announcement to its repeal. We set out how it was designed, what the studies measured, what its critics claimed at the time, and where the evidence is weakest. We take no side on whether it was good policy.

Before 2008: a surprise from the budget speech

The tax came with little warning. The province's Finance Minister revealed it in her February 2008 budget speech, and it surprised the majority of residents. Only in the second half of 2007 had the government begun to hint that pricing pollution was possible.¹

British Columbia introduced the first comprehensive carbon tax in North America. By 2012, at $30 per tonne, it covered about three-quarters of the province's greenhouse gas emissions.⁴

The problem it aimed at was ordinary carbon dioxide from burning fossil fuels. The tax applies to emissions from burning fossil fuels, which accounted for 77 percent of provincial emissions. The rest came from farming and landfills (10 percent), leaks (9 percent) and non-combustion industrial processes (4 percent).¹

The logic of a carbon tax is simple. Burning fuel imposes a cost on others that the buyer does not pay, and a tax on the carbon content of the fuel puts that cost into the price, so every household and firm can decide how much to cut and where. The open questions were how big the response would be, who would bear the cost, and whether growth would suffer.

The 2008 design: a rising tax with every dollar returned

The Carbon Tax Act (https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/08040_01) took effect on July 1, 2008. The rate began at C$10 per tonne of carbon dioxide equivalent and rose by $5 every July 1 until it reached $30 in 2012.¹ At $10 per tonne the tax added 2.34 cents to a litre of gasoline, and at $30 it added 6.67 cents.¹ Gradual steps were meant to limit the cost of adjusting.

The second feature was revenue neutrality. The government promised to return all carbon tax revenue through cuts to personal and corporate taxes and through lump-sum payments. For a household earning $100,000, the average provincial income tax rate fell from 8.74 percent in 2007 to 7.72 percent in 2012. The general corporate rate fell from 12.0 to 10.0 percent, and the small business rate from 4.5 to 2.5 percent.¹

Targeting mattered. A low-income climate action tax credit paid $115.50 per adult and $34.50 per child, about $300 for a low-income family of four, the tax rates in the two lowest personal brackets were cut by five percentage points, and in the first year every resident received a one-time $100 dividend.² From 2011 northern and rural homeowners received a further benefit of up to $200.¹

The tax was not small in revenue terms. By Metcalf's account it collected over $1 billion annually, more than five percent of provincial tax collections, and added roughly one-fifth to the overall excise tax on gasoline.² The Carbon Tax Act is the legal base, and its gasoline rate schedule later set the repeal.⁶

1. February 2008The Finance Minister announces the revenue-neutral carbon tax in her budget speechSource 1 (opens the source in a new tab)
2. July 1, 2008Tax takes effect at C$10 per tonne of CO2 equivalentSource 1 (opens the source in a new tab)
3. July 1, 2009Rate rises to $15 per tonneSource 1 (opens the source in a new tab)
4. July 1, 2010Rate rises to $20 per tonneSource 1 (opens the source in a new tab)
5. July 1, 2011Rate rises to $25 per tonneSource 1 (opens the source in a new tab)
6. July 1, 2012Rate reaches $30 per tonneSource 1 (opens the source in a new tab)
7. 2018Rate stands at C$35 per tonne, scheduled to rise $5 a year to $50 in 2021Source 2 (opens the source in a new tab)
8. April 2019Federal rules, as described in 2019, require every province to price carbon; British Columbia's own tax countsSource 2 (opens the source in a new tab)
9. March 31, 2025Government introduces legislation to cut the consumer carbon tax to zeroSource 5 (opens the source in a new tab)
10. April 1, 2025Gasoline carbon tax rate falls from 17.61 cents per litre to zeroSource 6 (opens the source in a new tab)

The case against the carbon tax at the time

The tax was opposed from the start. By June 2008 the opposition New Democratic Party was running an Axe the Tax campaign. It said the tax was regressive, poorly designed and hurt public services, and also that it had little or no effect on climate change and was mainly symbolic.⁷

The NDP environment critic's email, quoted by Marc Lee, cited school districts that expected extra costs, though Lee noted in the comments that the Burnaby figure was about 0.6 percent of that board's budget. Burnaby schools estimated the carbon tax would cost them $1.2 million and Surrey council over $2 million.⁷ Its policy position was that emission pricing should be a tax at source aimed at large polluters, with consumers protected from paying twice.

The criticism came from inside the climate camp too. Marc Lee, an economist who supports a hybrid pricing system, answered that the NDP's two claims contradict each other, since a tax cannot be both a severe burden and merely symbolic. He added that the NDP itself endorsed emission pricing, and that all fossil fuels burned in the province were taxed, with gaps mainly for process emissions from cement and aluminum and for leaks from landfills and pipelines.⁷

Later evidence gave the geographic worry some support. In the Lawley and Thivierge household study, city residents cut their gasoline use while those in small towns and rural areas did not, which suggests that people with fewer alternatives paid the tax without changing behaviour.⁸

Later research raised a second set of concerns about industry. Murray and Rivers note that some emissions-intensive sectors face challenges under the tax.⁴ And a study of employment cited by Metcalf found the largest job loss in chemical manufacturing and the largest gain in health care, so jobs shifted rather than vanished.²

What happened to British Columbia carbon tax emissions and the economy

Two methods recur below. Difference-in-differences compares the change in British Columbia before and after 2008 with the change in provinces without the tax. Synthetic control builds a weighted blend of other provinces that tracked British Columbia closely before the tax, then asks whether British Columbia departed from that blend afterwards.

Measuring the effect is hard because British Columbia is a single province during a global recession. Researchers compare it with other provinces, or model what would have happened. A review of the early evidence, by Brian Murray and Nicholas Rivers, concludes the tax reduced emissions by between 5 and 15 percent, based on empirical and simulation models.⁴

Gilbert Metcalf of Tufts University, in a paper for the Brookings Institution (https://www.brookings.edu/wp-content/uploads/2019/03/On-the-Economics-of-a-Carbon-Tax-for-the-United-States.pdf), ran regressions across Canadian provinces for 1990 to 2016. Including all provinces, he found a treatment effect of -3.6 percent, imprecisely estimated. Dropping Alberta, Quebec and Ontario, which had their own carbon policies or renewable programs, the effect was -6.6 percent², and at a tax of $30 per tonne he estimated emissions fell 7.8 percent. He summarised the results as a 5 to 8 percent reduction since 2008.²

Gasoline is where the response is clearest. Nicholas Rivers and Brandon Schaufele found that the carbon tax cut gasoline demand by more than an equal rise in the market price would have, which they attribute to the tax being more visible.⁹ They estimate about 2.4 million tonnes less carbon dioxide from gasoline over the first four years, down from the more than 3.5 million tonnes in their 2013 working paper.¹

Two alternative explanations were tested. One is cross-border shopping, with drivers filling up in Alberta or Washington State. The authors cannot dismiss it entirely but find it implausible, since both places already had lower gasoline prices before the tax and over 95 percent of residents would have to drive more than two hours to reach Alberta. The other is vehicle programs: the province's SCRAP-IT retirement scheme covered about 18,000 vehicles, less than 1 percent of the more than 2 million passenger vehicles registered in the province.¹

Household data point the same way. Chad Lawley and Vincent Thivierge, controlling for transit improvements and cross-border shopping, found that a 5 cent per litre carbon tax reduced household gasoline consumption by 8 percent, and by 5 percent on their most conservative estimate. Households in Vancouver and other cities responded, while those in small towns and rural areas did not.⁸

The aggregate picture is less clear. Felix Pretis used difference-in-differences, synthetic control and a break-detection method and found the tax reduced transportation emissions, while aggregate CO2 declines are not yet statistically significant¹⁰.¹⁰ He concluded that current carbon prices may be too low to be effective so far.

too low to be effective

— Felix Pretis, University of Victoria, on carbon prices in British Columbia, Environmental and Resource Economics, 2022

The same early evidence produced a fiscal surprise. The 2013 working paper reports that the tax would collect $510 million less than expected over its first four years, a 16.7 percent shortfall, which the authors read as a larger demand response than the government anticipated.¹

Growth, jobs and who paid

On growth, Metcalf's estimates range widely. Without controls for the mix of industries the effect on provincial GDP is small and negative at -0.22 percent and imprecise. With controls, and with Alberta, Quebec and Ontario excluded, it turns positive, at 9.2 percent for 1990 to 2016, which is significant at the 10 percent level. He cautions that the estimates are imprecise and that readers should not lean too heavily on them, though he judges it fair to say GDP has not been adversely affected.²

On jobs, a study cited by Metcalf found a modest but statistically significant aggregate gain of about three-quarters of a percent annually.² On fairness, Beck and co-authors used an economy-wide model with households sorted into income deciles. They found the tax progressive even before the revenue was recycled, and the recycling scheme progressive as well, because welfare effects depend more on the source of a household's income than on its spending.¹¹

The 2025 repeal

On March 31, 2025 the province, in a government news release (https://news.gov.bc.ca/releases/2025FIN0014-000280), introduced legislation to cut the consumer carbon tax to zero from April 1, which removed about 17 cents per litre from fuel and about 15 cents per cubic metre from natural gas. It also cancelled the climate action tax credit, and the move aligned the provincial rate with the new federal rate.⁵ Large emitters remain under the province's output-based pricing system, and Energy and Climate Solutions Minister Adrian Dix pointed to heat pump rebates and energy-efficiency upgrades as continuing climate measures.⁵

The government gave its reasons. Finance Minister Brenda Bailey said the tax had become too politically divisive, and Premier David Eby said people should not have to choose between climate action and affording their bills.⁵ The government put the first-year fiscal impact of cancelling both the tax and the credit at $1.99 billion and estimated that the average family would have paid about $410 in 2025-26.

too politically divisive

— Brenda Bailey, B.C. Finance Minister, on the consumer carbon tax, March 31, 2025

The Carbon Tax Act's rate schedule shows the change in the law. For the year starting April 1, 2024, gasoline carried 17.61 cents per litre of carbon tax and natural gas 15.25 cents per cubic metre. From April 1, 2025, every fuel in the schedule carries a rate of zero.⁶