Carbon Revenue Research Articles

Direct measurement forest carbon protocol: a commercial system-of-systems to incentivize forest restoration and management

Forest carbon sequestration offsets are methodologically uncertain, comprise a minor component of carbon markets and do not effectively slow deforestation. The objective of this study is to describe a commercial scale in situ measurement approach for determination of net forest carbon sequestration projects, the Direct Measurement Forest Carbon Protocol™, to address forest carbon market uncertainties. In contrast to protocols that rely on limited forest mensuration, growth simulation and exclusion of CO2 data, the Direct Measurement Forest Carbon Protocol™ is based on standardized methods for direct determination of net ecosystem exchange (NEE) of CO2 employing eddy covariance, a meteorological approach integrating forest carbon fluxes. NEE is used here as the basis for quantifying the first of its kind carbon financial products. The DMFCP differentiates physical, project and financial carbon within a System-of-Systems™ (SoS) network architecture. SoS sensor nodes, the Global Monitoring Platform™ (GMP), housing analyzers for CO2 isotopologues (e.g., 12CO2,13CO2, 14CO2) and greenhouse gases are deployed across the project landscape. The SoS standardizes and automates GMP measurement, uncertainty and reporting functions creating diverse forest carbon portfolios while reducing cost and investment risk in alignment with modern portfolio theory. To illustrate SoS field deployment and operation, published annual NEE data for a tropical (Ankasa Park, Ghana, Africa) and a deciduous forest (Harvard Forest, Petersham, MA, USA) are used to forecast carbon revenue. Carbon pricing scenarios are combined with historical in situ NEE annual time-series to extrapolate pre-tax revenue for each project applied to 100,000 acres (40,469 hectares) of surrounding land. Based on carbon pricing of $5 to $36 per ton CO2 equivalent (tCO2eq) and observed NEE sequestration rates of 0.48 to 15.60 tCO2eq acre−1 yr−1, pre-tax cash flows ranging from $230,000 to $16,380,000 across project time-series are calculated, up to 5× revenue for contemporary voluntary offsets, demonstrating new economic incentives to reverse deforestation. The SoS concept of operation and architecture, with engineering development, can be extended to diverse gas species across terrestrial, aquatic and oceanic ecosystems, harmonizing voluntary and compliance market products worldwide to assist in the management of global warming. The Direct Measurement Forest Carbon Protocol reduces risk of invalidation intrinsic to estimation-based protocols such as the Climate Action Reserve and the Clean Development Mechanism that do not observe molecular CO2 to calibrate financial products. Multinational policy applications such as the Paris Agreement and the United Nations Reducing Emissions from Deforestation and Degradation, constrained by Kyoto Protocol era processes, will benefit from NEE measurement avoiding unsupported claims of emission reduction, fraud, and forest conservation policy failure.

How Durable is a Lockbox for Carbon Tax Revenue?

How Durable is a Lockbox for Carbon Tax Revenue?

Green Growth and the Right to Energy in India

In this paper, we propose an Energy Policy with Equity (EPE) for India, which will fundamentally change the energy mix of the Indian economy towards clean, green energy and will guarantee universal access to formal sources of energy like electricity, up to a certain amount. Any carbon mitigation strategy needs to alter India’s dependence on fossil fuels, requiring a systemic overhaul of its energy mix. Implementing a carbon tax will mitigate emissions and mobilise revenue. While part of this carbon tax revenue could be used to change the energy mix, the other part could be used for an in-kind transfer of free energy, up to a limit, beyond which it becomes fully chargeable from the first unit consumed. This we call the Right to Energy programme. We find that in order to implement this programme and also to meet the global carbon reduction goals, the necessary tax would be $60.4 per metric ton of carbon dioxide. The free entitlement of fuel and electricity per household comes out to be 2268 kWh per annum, and there is an annual universal travel pass of $17.9 per person for use in public transport.

Carbon tax and energy programs for buildings: Rivals or allies?

Carbon tax is among the most intensively discussed topics in energy research and policy nowadays, but the question of using carbon tax revenue for environmental and energy policy purposes has received little attention so far. Currently the revenue generated from carbon tax has different usage in the countries worldwide, with only one quarter used for environmental and sustainable energy purposes. Against this background we study whether it can be advisable to use carbon tax revenue for financing energy efficiency and renewable energy (EERE) programs. Based on the case study of Switzerland, we demonstrate that such a policy approach could not only allow to achieve additional reduction of CO2 emissions, but also considerable net benefits to household sector with regard to reduction of heating costs, while having rather low program costs for individual households.

Employing the CGE model to analyze the impact of carbon tax revenue recycling schemes on employment in coal resource-based areas: Evidence from Shanxi

Whether or not the carbon tax is conducive to alleviating the pressure on employment reduction in coal resource-based areas is a subject worthy of in-depth study. We take the province of Shanxi, a typical coal resource-based area in China, as an example, and use the dynamic computable general equilibrium (CGE) model to simulate the impact of carbon tax on employment under various carbon tax revenue recycling schemes. We disaggregate the employment effect into demand effect, cost effect, factor-shift effect, and investment-pull effect to analyze the transmission path of the influence of carbon tax on employment. The results show that the carbon tax is conducive to alleviating the pressures on employment reduction in coal resource-based areas. Compared with the scenario of no carbon tax revenue recycling, the pressures on employment reduction under the scenario where carbon tax is returned to residents or enterprises in different forms, are allayed. More into detail, carbon tax has the least inhibiting effect on industry employment in case that tax revenue is returned to residents in the form of transfer payment. In addition, there is a prominent difference in the transmission path through which the carbon tax promotes employment, that is, the single effect, or the combination of demand effect, cost effect, factor-shift effect, and investment-pull effect. However, the carbon tax would obstruct employment principally through the demand effect.

Agency, inequality, and additionality: contested assemblages of agricultural carbon finance in western Kenya

ABSTRACT Harnessing literatures on the political ecologies of agrarian change and carbon offsetting, this article presents a case study of a high-profile agricultural carbon finance initiative: the Kenya Agricultural Carbon Project. Despite project claims regarding ‘triple win' outcomes for livelihoods, sustainability, and climate mitigation, the annual mean carbon revenue reported in our sample is 0.33 US dollars per household and year. Contextualizing the (in)significance of these payments, we argue that emerging initiatives for leveraging agricultural carbon finance increasingly risk necessitating a denial of farmers’ endogenous agency, as well as their embeddedness in both regional and global political ecologies of agrarian change.

Estimation of carbon credits of fishing boat diesel engine running on diesel-ethanol-bio-diesel blends with nano alumina doped ceria-zirconia

Carbon credits are a tradable permit scheme under United Nations Framework Convention for Climate Change (UNFCCC) which gives the owner the right to emit one metric tonne of carbon-dioxide equivalent. They provide an efficient mechanism to reduce the greenhouse gas emissions by monetizing the reduction in emissions. This reduction in emissions of fishing boat diesel engine such as CO, CO2 and NOX from the values of diesel was converted into carbon credits for diesel-ethanol-bio-diesel blends with nano additives. These blends with nano additives such as alumina doped ceria-zirconia provides an excellent opportunity for mitigation of Green House Gas (GHG) emission and reducing global warming for fishing boat diesel engines. A study was undertaken to calculate Global Warming Mitigation Potential (GMP) and thereby earning carbon credit from running the engine using diesel-ethanol-bio-diesel blends with nano additives. The reduction in global warming should encourage policy makers to promote ethanol to combat climate change and integration of carbon revenues will help the fishing industry. The study reveals that, carbon credits were estimated as Rs 72626.42 per tCO2 for the blends with nano additives as per the norms of the Kyoto protocol.

Carbon Taxation: A Tale of Three Countries

Carbon pricing is considered by most economists as a central dimension to any climate policy. It is assumed to bring simple, transparent, and cost-effective means to change investment and consumption behaviors. The most straightforward method is carbon taxation, but its implementation is more complex. This study provides a comparative analysis of carbon taxation in three countries—Sweden, Canada, and France—aimed at drawing lessons for the future of carbon taxation. Comparing the experience of the three countries reveals that carbon taxes, once in place, do have the intended effect. In this sense, they work well. However, the analysis also reveals very different situations in terms of advances, difficulties, and results, which highlights the need to carefully consider the social and political conditions for the acceptance and effective implementation of such economic instruments. Against this background, the comparative analysis yields four main insights that deserve further research from economics and social scientists: the ability to combine pure economic instruments and other regulation or policies and measures; the management of lobbies and vested interests; the identification of a clear strategy for the recycling of the carbon revenues, whether earmarked or not; and finally, the importance of these three dimensions of carbon taxes in the new settings of zero net emission policies.

Cash transfers for pro-poor carbon taxes in Latin America and the Caribbean

Carbon taxes are advocated as efficient fiscal and environmental policy tools, but they have proven difficult to implement. One reason is that carbon taxes can aggravate poverty by increasing prices of basic goods and services such as food, heating and commuting. Meanwhile, cash transfer programmes have been established as some of the most efficient poverty-reducing policies used in developing countries. We quantify how governments could mitigate negative social consequences of carbon taxes by expanding the beneficiary base or the amounts disbursed with existing cash transfer programmes. We focus on Latin America and the Caribbean, a region that has pioneered cash transfer programmes, aspires to contribute to climate mitigation and faces inequality. We find that 30% of carbon revenues could suffice to compensate poor and vulnerable households on average, leaving 70% to fund other political priorities. We also quantify trade-offs for governments choosing who and how much to compensate.

Valuing Carbon Sequestration to Finance Afforestation Projects in China

Afforestation programs have huge potential to store carbon, thereby contributing to mitigate climate change. However, the voluntary acceptance by landowners crucially depends on their economic outcome. We (i) assess the carbon sequestration potential of afforestation projects in various Chinese regions by comparing different tree species, project durations and regional particularities, (ii) analyze the costs and benefits of tree species used for timber and fruit production as well as bamboo, and (iii) compare them with alternative crops under different climatic and economic conditions. Finally, we calculate the minimum compensation required by farmers to convert cropland to forests assuming a joint production of timber or fruits and carbon sequestration. No compensation is needed when cropland with relatively low revenues is to be converted. In contrast, compensation payments must be high for converting land used for cash crops, such as sugarcane. For fruit trees, the amount of carbon sequestered is low, but selling fruits and nuts is quite profitable. Consequently, in most cases there is no compensation needed. The minimum price per carbon credit decreases with increasing project duration because more carbon is stored per hectare, and in consequence, the required payments per credit are lower. This does not hold for fast-growing trees like eucalyptus and poplar, for which the minimum price increases with extended project duration. Bamboo shows a high carbon sequestration potential, and becomes economically more attractive by including carbon revenues. Carbon credits can often compensate the opportunity costs of alternative land uses, except for afforestation on highly productive cropland. We demonstrate that the economic attractiveness of afforestation projects is strongly context dependent and varies substantially across regions. The findings can contribute to the cost-efficient design of carbon sequestration projects. The methodology can be applied to other regions in the developing world.

Carbon tax incidence on household demand: Effects on welfare, income inequality and poverty incidence in Thailand

Studying the impact of a carbon tax on household demand can be relevant in terms of securing public acceptance of a carbon tax and clarifying the implications for policy design. This paper aims to fill a gap in the academic literature by simulating carbon tax scenarios and estimating distributional effects of the tax on household welfare, income inequality, and poverty rates based on household consumption in Thailand. The study employs a microsimulation model incorporating the economy-wide effects of the tax on prices and consumers’ behavioral responses to changes in prices. The results indicate that a carbon tax is progressive in Thailand under revenue-recycling scenarios by expanding social transfer programs. When carbon tax revenues are recycled through pensions for elderly people, the carbon tax could reduce the poverty rate and improve the welfare of households in the lowest quintile. The results imply that the distributional impacts of environmental taxes could result in favorable outcomes for income inequality and poverty reduction in developing countries.

The distributional impacts of U.S. energy policy

This paper surveys energy policy in the United States from a distributional perspective. Focusing on the distributional impacts of energy taxes is too narrow a framework. The United States relies much more heavily on regulation than taxation to address energy-related market failures. It argues that most regulatory policies and tax subsidies to achieve energy policy goals are regressive. This includes fuel economy standards, EV purchase incentives, and energy efficiency tax incentives. In contrast, a carbon tax is likely to be progressive, even when ignoring the use of revenue. The view that carbon taxes are regressive stems from an incomplete distributional analysis that assumes all impacts arise from increases in the costs of consumer goods and services. Recent analyses have emphasized the importance of impacts on sources of income. In particular, a carbon tax is likely to reduce returns to capital more than wages. With capital disproportionately held by higher income households, this differential factor income effect is progressive. In addition, transfer income, more important for lower income households, tends to be indexed and so contributes to a carbon tax's progressivity. How carbon tax revenue is used can add even greater progressivity to a carbon tax reform.

Carbon revenue in the profitability of agroforestry relative to monocultures

The impact of carbon revenue on the profitability of agroforestry systems in comparison to monocultures is unexplored in regard to Sub-Saharan Africa. This study creates a multivariate model to evaluate the impact of carbon revenue on the profitability of agroforestry relative to the dominant monocultures in Ethiopia by using stylized plots. Yields and carbon stock changes of eight agroforestry systems were modeled based on data from agroforestry plots in the Ethiopian Central Rift Valley. According to our model, agroforestry was, on average, four times more profitable than the main monoculture systems (wheat, barley, maize, teff, sorghum, sugarcane and lentil) even when carbon revenues were excluded, primarily due to the higher prices of fruit produce. Carbon revenues were estimated using a plausible carbon price ranging from US$8/tCO2e to $40/tCO2e and carbon sequestration rates of 0.59 to 17.2 Mg C ha−1 year−1. The possibility of receiving carbon revenue increased the profitability of agroforestry by 0.5% when using the lowest utilized carbon price and carbon sequestration rate, by 20% when using the carbon price of $20 and the average carbon sequestration rate, and by 70% when using the highest price and highest sequestration rate of carbon. On average, carbon revenue increased the profitability of agroforestry by 150% in comparison to monoculture farming. We conclude that carbon income may have significant potential to motivate smallholders to convert to agroforestry when there is a proper management system, a sufficiently high carbon price and effective institutional support to mitigate the transition and transaction costs.

Would an increasing block carbon tax be better? A comparative study within the Stackelberg Game framework

Carbon tax is a policy for controlling carbon emissions, and is widely used worldwide. However, a non-differentiated carbon tax increases financial burden on manufacturers and inhibits their willingness to produce. Herein, a novel carbon tax policy involving an increasing block carbon tax is proposed, and the policy's possible implementation effects are analyzed. First, based on the Stackelberg game, the study constructs a social welfare model considering carbon emissions. Then, the study discusses the theoretical characteristics of the proposed carbon tax policy. After that, the differences and similarities between a flat carbon tax and an increasing block carbon tax are analyzed using a numerical simulation. The results indicate that: (1) compared to flat carbon tax, an increasing block carbon tax has the same controlling effect on carbon emissions. Both forms of taxes can restrict total carbon emissions within the desired range. (2) An increasing block carbon tax policy can significantly reduce tax burdens for manufacturers, and encourages low-carbon production. (3) An increasing block carbon tax can flexibly adjust the relationship between government's carbon tax revenue and manufacturer's tax burden. Finally, some policy implications for the proposed strategy are revealed.

The distributional effects of a carbon tax and its impact on fuel poverty: A microsimulation study in the French context

This paper studies the distributional effects of France's recently introduced carbon tax. Using a microsimulation model built on a representative sample of the French population from 2012, it simulates the taxes levied on each household's consumption of energy for housing and transport. Without revenue recycling, the carbon tax is regressive and increases fuel poverty. From a policy perspective, this finding indicates that the question of fuel poverty cannot be ignored in the quest for a fair ecological transition. It proposes that some of the revenues from the carbon tax should be redistributed to households. Different designs of cash transfer to support households are then compared. The results show that the inequities of the carbon tax could be offset at reasonable cost relative to total carbon tax revenues. However, adjusting the design of cash transfers to criteria other than income level does not diminish the cost of compensating households. The benefits of finely adjusting cash transfers may therefore be somewhat limited. Most notably, the results show that targeting revenue recycling at low-income households would help to reduce fuel poverty substantially. This study therefore indicates that carbon taxation actually provides an opportunity to finance ambitious policies to fight fuel poverty.

THE IMPACTS OF IMPLEMENTING THE CARBON TAX ON FOSSIL FUELS: A HYBRID CGE ANALYSIS FOR INDONESIA

This paper investigates the environmental and economic impacts of introducing the CO2 taxation on carbon-based fuels using a detailed disaggregation of energy-economy-environmental CGE model for Indonesia. The carbon tax has yet to be implemented in Indonesia. However, this instrument has been considered in the Ministry of Finance report as one of the governments fiscal strategic framework to finance the countrys action plan in commitments to reduce the GHG emissions. Suppose that the government levies the tax of Rp. 100,000/ton CO2e under two possible revenue-recycling scenarios: the carbon tax revenue is recycled through a reduction of labour income tax rate or an increase of government spending on commodities. For comparison purpose, we also implement the non-compensated scenario of which the additional revenue from carbon tax is kept as government savings to run budget surplus. Overall, the results suggested that the carbon tax reduces the national emissions but adding more costs to the economy,resulting a fall in GDP. In terms of income distribution, the carbon tax tends to be progressive in both scenarios of revenue-recycling. However, when there is no compensating mechanism, the carbon tax tends to be regressive - the poorer households carry a higher share of the carbon tax burden.

Exploring the impacts of a low-carbon policy instrument: A case of carbon tax on transportation in China

The rapid growth of energy consumption and CO2 emission in transportation has brought great challenges to China’s energy demand and environmental issues. Carbon tax, considered as an efficient low-carbon policy instrument, can effectively reduce the use of fossil fuels and improve energy efficiency. This study aims to explore the impacts of a transportation carbon tax on transport sectors, macroeconomy and social welfare by developing a computable general equilibrium (CGE) model. Meanwhile, to achieve fiscal revenue neutrality, two schemes are employed for revenue recycling. One is that all of the carbon tax revenue is recycled to subsidize households through lump-sum transfer; the other one is that carbon tax revenue is used to reduce the income tax of households and enterprises. The simulation results show that the appropriate carbon tax rate is 50 Chinese Yuan (RMB)/ton-CO2. At this level of taxation, energy demand and carbon reduction have fewer negative impacts on the macro-economy and transport sectors. We also find that the appropriate carbon tax rates among different transport sectors and different energy categories are different. The appropriate carbon tax rates for airlines, railway, urban transport and water transport are same (50 RMB/ton-CO2), while the appropriate carbon tax rate for road transport sector is 60 RMB/ton-CO2. The recycling of carbon tax revenue to households and enterprises should be implemented to realize the “weak double dividend” effect of the carbon tax.

Carbon tax or emissions trading? An analysis of economic and political feasibility of policy mechanisms for greenhouse gas emissions reduction in the Mexican power sector

This study provides a comparative assessment of carbon-pricing instruments for the Mexican electricity sector, contrasting a carbon tax with an emissions trading scheme (ETS). The assessment is performed in terms of economic impacts and political feasibility. Model-based scenarios considering different price and quantity levels are analyzed on Balmorel-MX, a cost optimization bottom-up model of the Mexican electricity system. The political feasibility is evaluated using an online survey and interviews with representatives of relevant stakeholder groups. The assessment suggests that an ETS is the most appropriate instrument for the Mexican case. We recommend to set the cap as 31% abatement in relation to a baseline, which is suggested to be 102 MtCO2 by 2030, given the business-as-usual baseline used as reference by the Mexican government (202 MtCO2) is found to leave cost-effective abatement potential untapped. An emission trading system with such design has higher cost-efficiency and lower distributional effects than a carbon tax at equivalent ambition level (15 USD/tCO2). The political feasibility analysis confirms the assessment, as it is in line with the priorities of the stakeholder groups, allows earmarking carbon revenue and avoids exempting natural gas from carbon pricing.

Making carbon pricing work for citizens

The gap between actual carbon prices and those required to achieve ambitious climate change mitigation could be closed by enhancing the public acceptability of carbon pricing through appropriate use of the revenues raised. In this Perspective, we synthesize findings regarding the optimal use of carbon revenues from both traditional economic analyses and studies in behavioural and political science that are focused on public acceptability. We then compare real-world carbon pricing regimes with theoretical insights on distributional fairness, revenue salience, political trust and policy stability. We argue that traditional economic lessons on efficiency and equity are subsidiary to the primary challenge of garnering greater political acceptability and make recommendations for enhancing political support through appropriate revenue uses in different economic and political circumstances. Ambitious carbon pricing reform is needed to meet climate targets. This Perspective argues that effective revenue recycling schemes should prioritize behavioural considerations that are aimed at achieving greater political acceptance.

The unpaid social cost of carbon

PurposeThis paper aims to examine the complex issue of the social cost of carbon. The authors review the existing literature and the strengths and deficiencies of existing approaches. They introduce a simple methodology that estimates the amount of “legal looting” in the fossil fuel industry as an alternative approach to calculate an unpaid social cost of carbon. The “looting amount” can be defined as society’s failure to charge fossil fuel firms for the damage that their activities cause represents an implied subsidy.Design/methodology/approachThe methodology used in this paper combines decisions in the form of policymakers setting carbon taxes and rational investors investing in carbon emission markets.FindingsThe authors show that the unpaid social cost of carbon in the fossil fuel industry was US$12.7tn over 1995-2013, but may be as high as US$115.5tn.Originality/valueOver the same period, the sum of industry profits, emission trading scheme carbon permit and carbon tax revenue totalled US$7tn, indicating the industry would not be viable if it was made to pay for damages to society.