THE CLEANBC INDUSTRIAL INCENTIVE PROGRAM, OUTPUT-BASED REBATING AND CARBON LEAKAGE

Abstract

This paper aims to investigate the impact of different types of carbon pricing and rebate systems on firm incentives and carbon leakage. I estimate this impact by developing a theoretical model that compares the outcomes from a standard carbon tax without a rebate to the outcomes from introducing two different types of rebate mechanisms. These mechanisms include the CleanBC Industrial Incentive Program (CIIP) and an output-based rebate. In comparison to the standard carbon tax, I find that each rebate mechanism lowers the equilibrium price of output and, therefore, increases equilibrium output, while also mitigating carbon leakage. In this respect, I find that the output-based rebate produces the greatest impact followed by the CIIP. However, the CIIP results in a lower level of emissions intensity compared to the output-based rebate.