The BC Carbon Tax and the Manufacturing Sector: Insights on study design and inferential strength

Posted on Monday, March 16, 2015

Blog Post

On March 3rd the Institute of the Environment in partnership with Sustainable Prosperity hosted a seminar with PhD student Akio Yamazaki. As a student in the Master’s of Environmental Sustainability program I was keen to attend and hear about Mr. Yamazaki’s research concerning the effects of the BC carbon tax on the manufacturing sector. Though his study was incredibly interesting it was more the discussion that ensued between IE faculty members concerning his results which created enthusiastic debate.

The Research Question

Mr. Yamazaki’s initial research question asked, “How did British Columbia’s imposition of a carbon tax in 2008 affect the competitiveness of firms in the manufacturing sector?”

Mr. Yamazaki’s conclusions were mixed and according to Dr. Nicholas Rivers not reflective of what is currently being observed provincially. Mr. Yamazaki was optimistic in that his results (though contentious) were informative in progressing his doctoral research. While discussing the way in which Mr. Yamazaki could progress in his research, two questions were posited…

1. Competition

Dr. Findlay questioned that if the intent of the study was to demonstrate the effect of a carbon tax on "competitiveness", then the person conducting the study should (in his opinion) describe how they determined the degree to which two firms are competing – if they are. The measurement endpoints suggested by Mr. Yamazaki (exports, revenues, employment, etc.) are, plausibly, related to firm performance. They are not, in themselves, actual measures of competition. Consequently, the analysis presented by Mr. Yamazaki reflects more-so on firm performance while allowing no inference about competition.

2. Causal inference

It was also suggested in the presentation that a change in firm performance (rather than competition) was the consequence of the BC tax. Dr. Findlay in addition to Dr. Rivers, and Dr. Heyes suggested ways in which the causal inference of the study could be improved upon by increasing its inferential strength. Two obvious ways this might be achieved include: (a) restrict the study to firms that have annual performance data (over the same period, preceding and following the implementation of the tax) for at least two plants, one in BC (the impact), and one not in BC (the control), so one has, in effect, a Before-After Control/Impact (BACI) study design.

Additionally, to increase inferential strength Mr. Yamazaki should "ordinate" firms concerning the extent to which their performance is anticipated to be affected by the tax. An example offered by Dr. Findlay included the ordination of firms in the energy sector versus service sector. The prediction being that the "effect" of the tax will be greater in the former compared to the latter. This would increase the study’s inferential strength as it includes at least one more prediction of the impacts of the BC carbon tax on the manufacturing sector.

I’m interested to see future research conducted by Mr. Yamazaki as I’m sure the insight he gained from faculty feedback was as interesting and thought provoking as I thought it to be.

Mallory Coles graduated from McMaster University with an H.B.Sc. in Geography and Environmental Science. She is currently completing her Master’s with a focus on energy requirements of TransCanada’s proposed Energy East pipeline.

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