Economic Effects of a Tax Policy to Reduce Greenhouse-Gas Emissions in Brazil

Abstract

Brazil has proposed to reduce emissions by 37% below 2005 levels in 2025, and for indicative purposes, to further reduce it by 43% in 2030, following the agreement of COP-21 in Paris. This study seeks to investigate the macroeconomic effects if Brazil adopts a GHG emissions tax to meet the carbon reduction commitment and to simulate the thesis of "double dividend". A neoclassical growth model with the introduction of environment and fiscal policy was used. A tax rate on CO2 emissions of US$ 100.00/tCO2e would be enough to meet Brazil´s target of emission reduction. The double dividend hypothesis was observed in Brazil’s case and the best results occur when capital income tax is reduced.