Abstract
This paper documents application of the Future Agricultural Resources Model (FARM) to stylized carbon tax scenarios specified by the Stanford Energy Modeling Forum (EMF). Model results show that the method of tax revenue recycling makes a difference. Either labor-tax, or capital-tax, recycling can reduce the welfare cost of a carbon tax policy relative to lump sum recycling. Of the two tax recycling options, reducing capital taxes provides the greater reduction in welfare costs. However, carbon tax revenues decline with stringent carbon dioxide (CO2) emission targets and the availability of a negative-emissions technology such as bio-electricity with CO2 capture and storage (BECCS). As BECCS expands, net carbon tax revenues peak and decline due to an offsetting subsidy for carbon sequestration, limiting the potential for labor- or capital-tax recycling to reduce welfare costs of a climate policy.
Highlights
The first meeting of Stanford Energy Modeling Forum study 32 (EMF-32) took place during October 2014 in Washington, D.C
Note: aThe 76% reduction scenarios are labeled as 80% reduction scenarios in the EMF-32 protocol, with an 80% reduction in net greenhouse gas emissions
We have used a CGE model to simulate carbon tax scenarios specified by the EMF-32 steering committee
Summary
The first meeting of Stanford Energy Modeling Forum study 32 (EMF-32) took place during October 2014 in Washington, D.C. Over the course of this study, “U.S Carbon Tax Scenarios”, three rounds of scenarios and meetings addressed the following questions:. . If the United States adopts an economy-wide carbon tax, how do the environmental and economic outcomes depend on how the government uses the revenue?. How do the outcomes of a U.S carbon tax depend on the initial tax rate and the rate at which the tax escalates? This is an Open Access article published by World Scientific Publishing Company. Further distribution of this work is permitted, provided the original work is properly cited
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