The effect of environmental taxes and economic growth on carbon emission in G7 countries applying panel kink regression

Abstract

This research aims to investigate an apposite point (threshold point) for environmental tax levels in the business sector, especially in the instance of power plants in order to effectively reduce carbon emissions. The G-7 countries have been focused upon panel kink regression data from 1994 to 2020. Their findings denote that increasing environmental tax rates substantially reduced carbon emissions when the tax rate is set below the optimal point, and that implementing environmental policy through environmental taxation mechanisms has the potential for incentives for various economic sectors, particularly power plants, to reduce carbon emissions. However, after the G-7 governments implement a high tax rate on carbon activity they are likely to face the opposite effect, resulting in an increase in carbon emissions as a result of high company taxes (power plants). This high tax implementation will likely have an effect on their income. Due to the lack of any incentives, businesses have elected not to reduce carbon emissions, because less expenses will provide them with greater benefits.