Carbon pricing pass-through: Evidence from Ontario and Quebec's wholesale gasoline markets

Governments in Ontario and Quebec, two Canadian provinces, have required their fuel distributors to participate in carbon markets and to buy allowances covering their greenhouse gas emissions. The resulting carbon pricing can impose an indirect tax on gasoline retailers through the higher wholesale price they pay. This paper's goal is to measure carbon pricing pass-throughs in Ontario and Quebec's wholesale gasoline markets. Although carbon pricing pass-throughs are uniform within each province, they are higher in Ontario where over-shifting is observed. Higher (lower) levels of pass-throughs in Ontario (Quebec) might be explained by less (more) competitive wholesale gasoline markets. •Carbon pricing pass-through is found to be higher in Ontario than in Quebec.•Higher pass-through is linked to less competitive markets.•There is evidence of over-shifting in Ontario.•Carbon pricing pass-through is uniform within each province.