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The Effect of Carbon Tax on Farm Income: Evidence from a Canadian Province

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Abstract

British Columbia (BC) introduced North America’s first carbon tax in 2008. An analysis of the impact of the BC carbon tax is of interest to various stakeholders in the jurisdiction where the tax was implemented. Other Canadian provinces and other countries contemplating a carbon tax policy are looking for insights on how to optimize potential positive and negative consequences. Given that government agri-environmental policies often emphasize farm-level support and environmental performance, there is interest in understanding the farm-level impacts of the carbon tax. The effect of the BC carbon tax on farm income and related production cost variables is investigated. Panel data from 2000 to 2015 are analyzed using both tabular and econometric approaches of the difference-in-difference method. The results indicate that the carbon tax is associated with a decline in net farm income-to-receipts ratios ranging between 8 and 12 cents per dollar of farm receipts. The analysis for costs-to-receipts ratios suggest that the carbon tax is directly related to higher commercial feed costs, farm labour costs, interest costs, and depreciation costs. Results of the regression analysis indicate that all the carbon tax effects are highly statistically significant. These findings can inform policy discussions about carbon tax effects on farmers.

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Notes

  1. Carbon tax rate is expected to increase in the future by varying amounts, depending on the jurisdiction in Canada. For example, the BC carbon tax was set initially at CAD$10 tonne−1 CO2-e in 2008, and rose annually by CAD$5 to CAD$30 tonne-1 in 2012, and has since remained at that level with no planned increases in the near future. By comparison, Alberta launched a province-wide carbon tax at CAD$20 tonne-1 in January 2017, and expected to rise to CAD$30 tonne-1 on January 1, 2018. Similarly, under the proposed Pan-Canadian Framework on Clean Growth and Climate Change, carbon price will increase gradually from CAD$10 tonne-1 of CO2-e emissions in 2018, rising by CAD$10 annually to CAD$50 tonne−1 by 2022.

  2. The outcome variables (i.e., farm income and production cost data) were available for only the 10 Canadian provinces but not for the three Territories. As a result, “other provinces” excludes the Territories.

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Authors and Affiliations

  1. Department of Economics, University of New Brunswick, PO Box 4400, Fredericton, NB, E3B 5A3, Canada

    Edward Olale

  2. Department of Business and Social Sciences, Faculty of Agriculture, Dalhousie University, Truro, NS, B2N 5E3, Canada

    Emmanuel K. Yiridoe

  3. Department of Forestry and Natural Resources, College of Agriculture, Food and Environment, University of Kentucky, 730 Rose Street, Lexington, KY, 40546-0073, USA

    Thomas O. Ochuodho

  4. Department of Economics, and Faculty of Forestry and Environmental Management, University of New Brunswick, PO Box 4400, Fredericton, NB, E3B 5A3, Canada

    Van Lantz

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  1. Edward Olale
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  2. Emmanuel K. Yiridoe
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  3. Thomas O. Ochuodho
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  4. Van Lantz
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Correspondence to Emmanuel K. Yiridoe.

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Appendix

Appendix

See Table 6.

Table 6 Definitions of variables used in the analysis1
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Olale, E., Yiridoe, E.K., Ochuodho, T.O. et al. The Effect of Carbon Tax on Farm Income: Evidence from a Canadian Province. Environ Resource Econ 74, 605–623 (2019). https://doi.org/10.1007/s10640-019-00337-8

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