As an example, consider a province that implemented a policy in a given year that resulted in a significant reduction in emissions relative to all other provinces. However, a researcher may not be aware of this policy and is therefore not able to estimate a conventional difference in difference model or a synthetic control model. The proposed approach assesses each time period for each province as a potential therapeutic intervention in which significant interventions are maintained and not significantly removed from the model (at a predetermined significance level p, which determines the false positive rate). After identifying the people in whom fractures occur as well as estimated pause data, fracture detection requires subsequent attribution of detected interventions. If the timing coincides with previously unknown political intervention, it can provide evidence of its effectiveness. Of course, if this policy had been common knowledge, it could have been tested in a traditional difference-in-difference (or synthetic control) approach. The national results mask subnational differences, mainly due to regional differences in energy production and consumption. Rural communities are likely to face larger increases in energy costs than urban dwellers, as low population density is typically associated with higher per capita energy demand for transport, heating and cooling. How do we reconcile the lack of a fiscal effect on total emissions with the existing evidence of a significant decline in gasoline demand in British Columbia? To answer this question, I turn to sector-level emissions data, which break down CO2 emissions from transport (transp.); stationary combustion sources (statEnergy); fugitive emissions from coal, oil and gas extraction (fugit.); industrial processes (industry) agriculture (agriculture); and waste treatment (waste). The emission series are plotted together in Figure 3. Fugitive emissions (which represent only a small fraction of total emissions, about 3% in 2016) are used here as a placebo test, as they are completely exempt from tax. Greenhouse gas emissions in agriculture are excluded, as are emissions of non-fossil greenhouse gases, such as industrial processes and landfills, so we expect little (if any) impact in the agricultural and industrial sectors.
Various representatives and senators in the U.S. Congress have proposed in recent years a bill that approves a federal carbon tax: Since the beginning of his term, President Biden has indicated that he wants to pursue an ambitious climate agenda. On his first day in office, he reaffirmed the United States` commitment to the Paris climate agreement and called on the authorities to review a series of climate-related (de)regulations enacted by the Trump administration. A week later, he signed the executive order to address the climate crisis, which outlined a “whole-of-government” approach to climate change mitigation and response. And in April, he announced a new U.S. emissions reduction goal: halving emissions from 2005 to 2030. To further allay concerns about differences between differences between a single unit covered, I examine the impact of introducing the carbon tax with synthetic controls (Abadie and Gardeazabal, 2003; Abadie et al., 2010). This approach is suitable for a single treated region and relaxes the parallel trend assumption (difficult to verify) underlying the difference in differences by constructing a synthetic (estimated) version of the treated region and then comparing the synthetic (untaxed) region with the region observed under the tax. The approach is interesting in the case of a single treated area, but the small number of control regions means that inference is less easy in synthetic control.
I use the permutation test (Abadie et al. 2010), where each control region is treated as a placebo and a placebo intervention was assigned when the carbon tax was introduced in 2008. I then compare the difference between observed British Columbia and synthetic British Columbia with the difference in each placebo region using the ratio of mean RMS prediction errors before and after treatment. Nevertheless, the construction of p-values based on observed deviations from the placebo permutation study is only marginally significant here, since only 9 untreated regions are available. In other words, the difference between observed and synthetic BC can only be compared to a maximum of 9 placebo regions. Synthetic control is implemented here with the R-synth package (Abadie et al. 2011). The majority of carbon tax emission reductions occur in the energy sector, where competitive markets, a relatively small number of commercial players, and a range of clean energy technologies allow for significant and immediate emission reductions. Change in CO2 emissions at the space network level of 1 degree between the after-tax average (2008-2012) and the pre-tax average (1970-2007). The upper field shows the change in aggregate CO2 emissions, the lower field shows the change in CO2 emissions from transport. British Columbia (B.C.), where a carbon tax was introduced in 2008, is depicted with grey dotted outlines Carattini S, Kallbekken S, Orlov A (2019) How to Win Public Support for a Global Carbon Tax. Nature 565:289-291 In summary, without a domestic carbon price, the United States cannot introduce a credible tax to adjust carbon limits.
The most cost-effective way to reduce greenhouse gas emissions is through market-based approaches that put a price on carbon. The two most discussed approaches are a cap-and-trade system and a carbon tax. By putting a price on greenhouse gas emissions, the second approach is the introduction of an emissions trading system (ETS, also known as a “cap and trade” system) for carbon emissions. This system limits carbon emissions to a certain level for a group of companies or industrial installations, and then issues emission allowances based on that level. Companies must be eligible for each tonne of carbon they want to emit, either directly from the government or by trading with each other. Under an ETS, the price of carbon fluctuates according to market demand for emissions, but the total amount of emissions is known. In Canada, British Columbia and Alberta use carbon taxes as part of their strategies to reduce emissions and encourage investments in energy efficiency and renewable energy. British Columbia was the only province in Canada to operate under its own carbon tax system, although the Canadian government introduced a federal carbon tax in 2019 (which is not part of the sample analyzed here), and two other provinces have taken significant formal steps to reduce emissions in the sample available here:Footnote 4 Alberta uses a carbon price for industrial emitters greater than one (introduced in 2007), and Quebec operates on a cap-and-trade system (introduced in 2013, which appears to have resulted in some emissions reductions measured at the plant level, see Hanoteau and Talbot, 2019).