Comparing Provincial Carbon Emission Regulation Policies in Canada: Impacts on Greenhouse Gas Emissions, Production, and Labor Measures (2024)

Undergraduate: Pallavi Maladkar

Faculty Advisor: Klara Peter
Department: Economics

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Carbon emissions regulation policies have been instituted in several countries and sub-national regions within the last 35 years to force firms to reduce emissions. However, these policies have been accused of reducing economic growth. This research utilizes a difference-in-differences model with two-way fixed effects to explore how carbon taxes, credit systems, and cap-and-trade systems instituted across 13 Canadian provinces from 2004-2022 impact emissions and economic outcomes (GDP, employment, hours worked, and earnings). Estimates demonstrate that, in general, none of the policies lower emissions at significant levels or hurt the economy overall. Carbon taxes have slight negative effects on GDP and earnings. Cap-and-trade systems have no effects on economic outcomes. Extending the model shows that the policies effectively target the highest-emitting economic sectors and the most emission-intensive industries. Cap-and-trade systems are more effective at accomplishing this than carbon taxes while also allowing for economic growth in less emission-intensive industries and reducing emissions directly rather than through decreased economic activity.