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Canada is cutting its carbon tax. The Seattle Chamber of Commerce says it won't cut gas prices.

About the Author
Todd Myers
Vice President for Research

Last year, during the campaign to repeal the state’s tax on CO2 emissions, Rachel Smith, the President of the Seattle Metropolitan Chamber of Commerce, told the Seattle Times editorial board eliminating that tax might not reduce gas prices.

She told them, “There’s no guarantee that it’s going to reduce gas prices. This isn’t a gas tax.” She went on to say that nothing in the initiative required prices to go down.

As I noted at the time, that statement demonstrated “either a lack of understanding of basic economics or is evidence that she is willing to risk her credibility for the sake of a political talking point.” The belief that prices only change when laws require them to is a strange thing for the head of a Chamber of Commerce to believe. It is also profoundly uninformed.

As anyone who has filled their tank after waiting in a long line at Costco understands, there is incredible price competition for gasoline. It is why every gas station prominently displays their prices. If a station charges more than other local stations, they will lose business. Average prices for gas rise and fall daily because they are extremely sensitive to those competitive forces. I shouldn’t have to explain this to the head of a business organization.

To test whether Smith actually believed this, I offered a bet that if the CO2 tax was repealed, Washington’s gas prices would fall compared to Oregon’s price. Not surprisingly, she refused to bet, indicating she knew her claim was nonsense. Unfortunately, the initiative failed to pass and now Washington residents are paying about 40 cents more per gallon as a result.

However, we now have a chance to test her claim.

On April 1, Canada will be eliminating the carbon tax for consumers which is currently $80 per metric ton of CO2, which is 70 cents per gallon of gas and about 19 cents per liter (or litre as they say).

We can test to see if Canada’s carbon tax impacts gas prices. After all, as Smith noted, it isn’t a “gas tax” and there is nothing that requires gas stations to lower their price.

I again offer my bet. I predict the cost of gas in Canada will fall by about 58 cents per gallon over the next couple of weeks, adjusted for the world price of oil. There is always some uncertainty in how prices adjust because supply chains take time and there are other factors, but a 58 cent per gallon decline would be obvious.

The bet is $50 to the charity of the winner’s choice. My charity is Plastic Bank which works to reduce the amount of plastic pollution in the ocean.

I will let you know if she takes the bet.

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