Effects and burdens of a carbon tax scheme in Thailand

Abstract

This study examines how a 20% reduction in carbon emissions in Thailand by 2030—as pledged by Thailand’s Intended Nationally Determined Contributions (INDC) at the 21st Conference on Climate Change (COP21, Paris)—would cause economy-wide effects and burdens on Thai households. A carbon tax scheme is used to simulate such an outlook, given projected business-as-usual market conditions throughout the period. Overall, the simulation results show that a decline in social welfare and household consumption levels is influenced by higher commodity prices and lower primary factors: labor income or returns to capital. The scarcity of primary factors and the existence of social transfers have little influence on the reduction of carbon emissions. The simulation contains two circumstances: one without social transfers and the other with them. In the first case, the welfare effects are progressive when at least one of the two primary factors is inelastic but regressive when both are elastic. In other words, the less both primary factors are employed, the greater are the household burdens. In the second case, an across-the-board increase in existing social transfers helps alleviate the effects on the consumption of (and welfare needed for) lower-income households. Specifically, it is adequate to compensate for burdens placed on the poorest households but inadequate for others. To achieve its intended reduction with minimum burdens and effects placed on social welfare and distortions to income equality, the Thai government should facilitate full-factor employment and provide proper social transfers.