Assessing Macroeconomic Effects of a Carbon Tax as a Tipping Intervention in Economies Undergoing Coal Phase-Out: The Cases of Poland and Greece

Abstract

AbstractIntroducing carbon taxation could accelerate systemic change towards a decarbonised future. In this book chapter, we aim to test to which extent this policy can be considered a tipping intervention that can encourage fast green technological innovation and infrastructure development in coal and carbon-intensive regions (CCIRs) and how this policy affects the sectoral structure of the economy. We use a dynamic stochastic general equilibrium model (ΜΕΜΟ) to assess the impacts of implementing a carbon tax on GDP and unemployment in Poland and Greece. These two countries are currently phasing out coal. Our results show that carbon tax implementation significantly affects the macroeconomic indicators and may also lead to considerable labour market effects on sectors other than mining, such as the light industry and construction in Greece and energy-intensive and advanced manufacturing industries in Poland. We also discuss funding and recycling revenue mechanisms that could enable the successful implementation of a carbon tax. We conclude that it would be more reasonable to treat carbon tax as an additional political tool that must be combined with other interventions coordinated with an overall broader full-system transformation narrative rather than a single tool that can determine or ex-ante detect any future tipping point.