A sequential input–output framework to analyze the economic and environmental implications of energy policies: Gas taxes and fuel subsidies

Abstract

Listen

Translate article

A novel generic sequential input–output framework is developed to model the economy-wide changes in resource consumption and environmental emissions as a result of combined applied energy policies, e.g. taxes for non-renewables and subsidies for renewables. Many input–output analyses are based on a single period analysis. However, in the case of analyzing the effects of multiple policy interventions over time, the input–output table reflecting the state of the economy before the energy policy was introduced cannot be used for analyzing the economic effects of another policy intervention in the next time period since the monetary and physical transaction of commodities have already been affected. To show the efficacy of the proposed method, a case study is developed that introduced a gasoline tax and earmarks the revenues to subsidize biofuel production in the subsequent time period in the United States. In order to assess the change of environmental indicators after sequential policy interventions, Ecologically-based Life Cycle Analysis (ECO-LCA) inventories which include data on resource consumption, emissions, ecosystem goods and services related to the U.S. economic sectors are adopted. The environmentally extended input–output framework is ideally suited to model the interlinkages between a range for environmental indicators and detailed structural economic information at the sector level for the analysis of energy policies. The proposed framework can be utilized as a tool for leveraging the energy and environmental policy trade-off decisions which consider the impacts to resource consumption and environmental emissions. Our results show that, if a share of the gasoline tax revenue is reinvested to subsidize biofuel production, economy wide resource consumptions and emissions from the fossil fuel related supply chains will decrease. However, ecosystem goods and services such as soil erosion, water consumption for agricultural and livestock, cropland, nitrogen deposition along with the emissions such as nitrous oxide and ammonia will increase in short term as a consequence of the price drop and the increased demand for biofuels. This emphasizes the importance of focusing on a wide range of environmental outcomes and unintended side effects when introducing a specific environmental policy.