Abstract
Olale et al. (Environ Resour Econ 605–623, 2019) argue that the introduction of a carbon tax substantially reduced farm income in the Canadian province of British Columbia. In this comment, we raise serious concerns with their data, empirical methods, and theory. Most importantly, Olale et al. (2019) assume that the difference in farm income between British Columbia and the rest of Canada would have remained constant over time without the introduction of the carbon tax. We provide evidence that this is unlikely to be true and show that their results disappear when we account for differential trends. We conclude that the estimates in Olale et al. (2019) do not represent the effect of a carbon tax on farm income.
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Notes
According to OYOL, the ratio of total net farm income-to-receipts in the rest of Canada (not including BC) was 0.123 between 2009 and 2015. They estimate that the carbon tax reduced ratio of total net farm income-to-receipts by 0.116.
In panel B of Tables 4 and 5, OYOL claim to have 34 observations. However, in their regressions they include observations from the year 2008 twice. Hence, the number of unique observations in their regressions is actually 32.
The number of farms is taken from tax filing data, which includes unincorporated farms earning over $10,000 per year and incorporated farms earning over $25,000 per year.
Yields are taken from from Census Agricultural Region 7 which covers northwestern Alberta (Statistics Canada 2019f).
A further complication with OYOL’s approach is that BC’s carbon tax may have affected farm costs or revenues in other provinces, for example by raising the cost of exporting grain and other commodities through west coast ports. However, we expect that these effects are likely to be relatively small.
Greenhouse producers received a $7.6 million rebate on the carbon tax in 2012 and in 2013 received a permanent 80% rebate for natural gas and propane purchases. Beginning in January of 2014, farm fuel (gasoline and diesel) were also exempted from the carbon tax.
The average annual values of the carbon tax are $5 in 2008, $15 in 2009, $25 in 2010, and $30 thereafter.
The effect of the carbon tax on input and output prices is further complicated by the fact that carbon tax revenues were redistributed through reductions in personal and business tax rates (Murray and Rivers 2015). Yamazaki (2019) demonstrates that this tax recycling had a significant impact on manufacturing productivity. It is possible that productivity gains elsewhere in the agricultural supply chain could be passed along to farmers. Though we suspect that these general equilibrium effects would likely have trivial impacts on the prices of farm inputs, which are not generally produced in British Columbia.
In the long-run, a carbon tax might encourage farms to alter their long-term assets in order to reduce emissions, though it is unclear how this would impact interest and depreciation expenses.
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We thank Edward Olale and Emmanuel Yiridoe for sharing their data and code. Helpful comments were received from Richard Gray, Véronique Maltais, Brandon Schaufele, and Jacob Wells.
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Slade, P., Lloyd-Smith, P. & Skolrud, T. The Effect of Carbon Tax on Farm Income: Comment. Environ Resource Econ 77, 335–344 (2020). https://doi.org/10.1007/s10640-020-00497-y
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DOI: https://doi.org/10.1007/s10640-020-00497-y