The Effect of Carbon Tax on Farm Income: Comment
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The Effect of Carbon Tax on Farm Income: Comment Peter Slade1 · Patrick Lloyd‑Smith1 · Tristan Skolrud1 Accepted: 21 July 2020 © Springer Nature B.V. 2020
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. Keywords Carbon tax · Farm-level impacts · Difference-in-differences · British Columbia
1 Introduction Olale et al. (2019), hereafter OYOL, use a difference-in-differences approach to assess the impact of a carbon tax on farm income and expenses in the Canadian province of British Columbia (BC). They find the carbon tax was associated with a substantial decrease in farm income—reducing total net farm income by 12 cents for every dollar of revenue. In this comment, we raise four substantive concerns relating to (1) the data used in OYOL, (2) the parallel trends assumption that underlies their difference-in-differences model, (3) their binary treatment of the carbon tax, and (4) oversimplifications in their theoretical model. To our knowledge, OYOL are the first to assess the impact of carbon taxes on farm income using observational data—previous work analyzing this relationship relied on equilibrium modelling (Meng 2015; Schneider and McCarl 2005). The relationship between 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. Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1064 0-020-00497-y) contains supplementary material, which is available to authorized users. * Peter Slade [email protected] 1
Department of Agricultural and Resource Economics, University of Saskatchewan, 51 Campus Dr, Saskatoon, SK S7N 5A8, Canada
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carbon taxes and farm incomes is an important and increasingly contentious issue, perhaps nowhere more so than in Canada, where a nationwide carbon price floor was enacted in 2019. The national carbon policy is quite similar to BC’s carbon tax, which was introduced almost a decade earlier in 2009. Despite significant exemptions for the agricultural sector, the national carbon policy has come under intense criticism from Canadian farmers (Agricultural Producers Association of Saskatchewan 2019; Binkley 2019; Briere 2017). OYOL’s results imply that a nationwide carbon tax would have almost entirely eliminat
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