General equilibrium analysis of economic and environmental effects of carbon tax in a developing country: case of Thailand

Abstract

The study analyzed the economic and environmental consequences of a carbon tax in Thailand using a static general equilibrium model. Various carbon tax rates ranging from US$10/tC to US$40/tC were considered with two alternative revenue recycling schemes: (1) recycling of tax revenue to households through a lump-sum transfer, and (2) using the revenue to finance cuts in the existing income tax. A key finding of the study was that the economic impact of the carbon tax (e.g., reductions in welfare, gross domestic product, gross output) are affected by revenue recycling schemes, but the environmental impact (i.e., reduction in CO2, SO2, and NOx emissions) are almost unaffected. Moreover, at each tax level the cost of the carbon tax (i.e., welfare loss) was less when the tax revenue was used to finance cuts in existing income tax rates than when the revenue is recycled to households through a lump-sum transfer. In addition, the study found that a carbon tax would reduce SO2 emissions in higher proportions than the CO2 emissions in Thailand.