Effect Of Carbon Pricing Research Articles

Different effects of carbon pricing and border adjustment in Germany and Spain

This study examines the effects of carbon pricing in Germany, Spain, and the broader European context using the dynamic, three-region environmental multisector general equilibrium model, EMuSe. Our findings indicate that unilateral carbon pricing in Germany or Spain leads to a sustained negative output. The marginal increase in production costs outweighs modest reductions in emissions. However, when Europe collectively adopts carbon pricing, the long-term output effects become positive, although there are more significant transition costs due to close trade relations within Europe. We find evidence of carbon leakage, which is marginally mitigated by a border adjustment mechanism. However, this mechanism mainly protects domestic carbon-intensive sectors and produces inconsistent country outcomes; Germany gains, while Spain loses. Notably, Spain’s energy sector emerges as a long-term beneficiary due to its relatively lower emission intensity. The findings highlight the strategic importance for Europe to engage global partners in carbon pricing as it reduces the economic downturn phase and increases long-term gains.

Spatial effects of carbon pricing on transport equity

There is an ongoing process that greenhouse gas emissions of transport will be incorporated in the European Emissions Trading System. The cap-and-trade approach will result in substantial price increases for fossil fuels which will affect affordability of the transport systems. Within this paper the regressive effect on car-owning households is described in different area categories of the urban and rural region in Germany. Equal-per-household redistribution of the carbon revenue could reverse the regressive effect into a progressive effect. However, there is substantial variation within the different economic status groups leaving notable shares of households with a very low economic status without a positive net transfer. This share will be lowest in the metropolises of the urban region and highest in small-sized cities/village areas of the urban and rural region. Particularly in the latter area categories, these households may need temporary mobility allowances due to limited abatement options. Despite the environmental bonus, electric car-owning households still belong to groups of higher economic status, and public transport supply is limited, particularly in the small-sized cities/village areas of the urban and rural region.

Modelling the economy-wide effects of unilateral CO2 pricing under different revenue recycling schemes in Austria – Searching for a triple dividend

In this paper we identify policy implications for implementing carbon pricing in Austria, taking into account model structure uncertainty. Methodologically, we compare the results of two macroeconomic models, DYNK (a New Keynesian model) and WEGDYN-AT (a neoclassical general equilibrium model), to evaluate the effects of carbon pricing under different revenue recycling options. Specifically, we examine the model results with respect to their findings regarding a potential triple dividend, that we define as a simultaneous materialization of i) a reduction in CO2 emissions, ii) positive effects on GDP and employment, and iii) positive and distributionally progressive effects in household consumption possibilities. Accounting for model structure uncertainty improves the robustness of our results; at least within the macroeconomic frameworks applied here. Our results confirm the tradeoff between equity and efficiency identified in previous analyses. In the New Keynesian model, but not in the general equilibrium model, we find evidence for a triple dividend for a combination of the recycling options of non-wage labor cost reductions and lump-sum per-capita transfers (“climate bonus payments”).

Does carbon pricing policy improve energy efficiency? New evidence from Canadian provinces

ABSTRACT Given the increasing damage effect of climate change, the Canadian government has taken a further step to ensure that carbon pricing is implemented in all provinces to reduce its GHGs emissions as a means of addressing climate change. Thus, this paper examines the effect of carbon pricing on energy consumption which is the main source of CO2 emission to enhance our understanding beyond carbon-pricing effects on households and revenue recycling in the prior research. Our study analyzes the energy efficiency of Canada using the province-level data between 2000 and 2021, by developing an SFA production model to understand the drivers of energy consumption and then compute the total factor energy efficiency index while controlling for the role of carbon pricing. Our empirical results reveal that increased labor input, as well as output, mitigate the rising capital-induced energy consumption, while carbon pricing policy plays no significant role in influencing energy consumption. However, the effectiveness of carbon pricing is found in reducing province-level energy efficiency. This striking evidence suggests that policymakers should consider a labor-oriented energy saving scheme and conduct a comprehensive review of the current carbon pricing policy in order to align with energy efficiency interventions toward the achievement of Canada’s Paris Agreement targets.

Testing the Emissions Reduction Effect of Carbon Pricing: A Predictive Analysis of the Role of Speculation

We employ both ex-post and ex-ante approaches to determine the role of speculation in the emissions reduction effect of carbon pricing and its forecasting power in the predictability of climate change. We use several verifiable econometric approaches to select the Feasible Quasi Generalised Least Squares (FQGLS) as the best estimator for addressing some of the biases in climate change predictability. We demonstrate that a predictive model combining the complementing dynamics of carbon pricing forecasts climate change more accurately. We demonstrate the robustness of our findings for both in-sample and out-of-sample forecasts and across different forecast horizons.

Carbon Pricing Impacts on Four Pollutants: A Cross-Country Analysis

Research on climate change mitigation has increasingly considered carbon pricing, with these efforts concentrating on reductions in carbon dioxide (CO2) emissions. Our comprehensive cross-country analysis extends this focus by quantitatively evaluating the effects of carbon pricing on four major pollutants: CO2, nitrous oxide (N2O), methane (CH4), and particulate matter (PM). We use regressions and introduce entropy balancing to this research area. Analyzing data from 132 countries from 1992 to 2019, we find that carbon pricing is associated with an average annual reduction in CO2 emissions by 3 percentage points. A one-unit increase in a coverage-weighted carbon price is associated with reductions in N2O emissions by approximately 0.1 percentage points. A shorter panel for 2010–2017 shows a larger impact of 0.3 percentage points for PM. These findings underline the efficacy of carbon pricing not just in curtailing CO2 but in significantly mitigating other harmful pollutants on a global scale. Reductions in pollutants beyond CO2 provide further motivation for policymakers to pursue carbon pricing.

Macroeconomic structural change likely increases inequality in India more than climate policy

The decarbonization of India’s economy will have different effects across income groups. As India is in the middle of the transformation process from an agriculture-based economy towards an industry- and service-based economy, called economic structural change, the extent of income distribution across households strongly depends also on the speed of economic transformation. While a number of recent studies have analyzed the distributional effects of carbon pricing, the specific role of structural change across sectors has not been in the focus of the related literature. Our study contrasts distributional effects from climate policy with distributional effects from structural change in India and asks how far carbon pricing supports or hinders structural change and development. We develop and apply a comprehensive model framework that combines economic growth and international trade dynamics related to structural change with detailed household income and expenditure data for India. Our study shows that changes in income and inequality due to carbon pricing vary with changes in the sectoral structure of an economy. Our results indicate that carbon pricing tends to delay economic structural change by retarding the reallocation of economic activities from the agricultural sector to the manufacturing sector. Furthermore, the results emphasize that the increase in inequality due to structural change is substantially stronger than due to carbon pricing. Consequently, socially sensitive policies supporting the process of structural transformation appear to be more important for poor households than lowering climate policy ambitions.

Distributional effects of carbon pricing: An analysis of income-based versus expenditure-based approaches

As nations strive for a just transition to net-zero carbon emissions, the equitable distribution of carbon pricing's impact is of significant importance. Carbon pricing, a strategy recognized for its potentially regressive nature, tends to disproportionately burden lower-income households compared to wealthier counterparts. This study examined how the choice of income or expenditure as metrics for assessing carbon burdens and ranking household economic status influences these distributional effects. Our research, employing input-output models and the Taiwan 2021 Survey of Family Income and Expenditure, compared these two metrics. The findings revealed that income-based assessments would amplify the regressive impact of carbon pricing. Conversely, using expenditure as the base for carbon burden exhibited markedly reduced regressive effects. Moreover, the study highlighted the role of employment structures in determining the equity of ranking households by income or expenditure. The stability of distributional outcomes, when employing expenditure as the assessment base, suggested its superiority as a metric unaffected by ranking methodologies. Additionally, our analysis indicated that including gasoline in carbon pricing policies could counteract the regressive nature of such policies. This aligned with a just transition by potentially distributing the burden more evenly across socio-economic groups. By providing insights into the distributional effects of carbon pricing, this study contributed to the global pursuit of net-zero emissions while adhering to the principles of social equity and justice.

The Effect of Carbon Pricing on Firm Emissions: Evidence from the Swedish CO2 Tax

Abstract Sweden was one of the first countries to introduce a carbon tax back in 1991. We assemble a unique data set tracking CO2 emissions from Swedish manufacturing firms over 26 years to estimate the impact of carbon pricing on firm-level emission intensities. We estimate an emission-to-pricing elasticity of around two, with substantial heterogeneity across subsectors and firms, where higher abatement costs and tighter financial constraints are associated with lower elasticities. A simple calibration suggests that 2015 CO2 emissions from Swedish manufacturing would have been roughly 30% higher without carbon pricing.

The Effect of Carbon Pricing on Firm Performance: Worldwide Evidence

The Effect of Carbon Pricing on Firm Performance: Worldwide Evidence

Improving the design of cash transfers to reduce the regressive effects of a carbon tax in Latin American countries - a look at territorial heterogeneity

ABSTRACT The distributional effect of carbon pricing jeopardizes its public acceptability in developed and developing countries. Previous research has shown that cash transfers to poor households or targeted subsidies can correct the incidence of carbon pricing on different income groups. However, there has been no in-depth analysis of the territorial heterogeneity of the impacts or how redistributive policies could consider this element in their design. This study addresses this gap in the literature through a microsimulation approach for nine Latin American countries. We find that a carbon tax not only generates regressive effects on household expenditure but that there are also some regions within countries whose populations could be severely affected, exacerbating pre-existing inequalities. The previous is not solved with cash transfers based exclusively on income level criteria. Consequently, a mechanism is proposed to adjust targeted cash transfers according to regional differences, showing that it would contribute to territorial equity.

Optimization of Preventive Maintenance Timing of Highway Bridges Considering China’s “Dual Carbon” Target

The dual carbon target is a two-stage carbon reduction goal proposed by China, while the bridge maintenance strategy does not consider the need for sustainable development. Therefore, this article studies the optimization of bridge maintenance timing under China’s dual carbon goals. Firstly, this paper aims to minimize the total cost of maintenance and carbon emissions, considering the continuous effects of carbon pricing and emissions in the context of the dual carbon goals. The CHINAGEM-E model is employed to predict carbon prices, and a preventive maintenance decision-making method for highway bridges is established. Secondly, based on the theory of material residual strength, a degradation model for the technical condition of highway bridges is constructed. Finally, an in-depth case analysis of an in-service highway bridge is conducted to derive optimal maintenance solutions under three scenarios. In comparison to scenarios considering only maintenance costs or those based on benchmark carbon prices, the comprehensive maintenance cost under the dual carbon targets is the highest. In the total maintenance cost, carbon emission costs constitute over 50%, emphasizing the need for increased attention to carbon emission cost studies in future maintenance research. The methodology proposed in this paper is the first to connect carbon prices with the timing of preventive maintenance for bridges, providing a more scientific and sustainable basis for future highway bridge maintenance decisions.

Simulated effects of carbon pricing on industrial sector energy use

The aim of this paper is to analyze the simulated effects of carbon pricing on South Korea's industrial sector by using carbon pricing scenarios. The estimation results show that carbon taxation is highly effective to reduce carbon emissions of industrial sector only when the changes of energy mix take place. If the energy mix remain unchanged, the level of carbon tax should be higher than 60,000 Korean won (USD 54.55) to achieve the NDC goal of 14 % emissions reduction in industrial sector. In addition, the reduction in industrial production due to the carbon tax is estimated to be relatively small when substitution between energy and other production factors is possible. This paper proposes policies that can induce changes in the energy mix are very necessary in order to decarbonize and strengthen the competitiveness of industrial sector.

The global consumer incidence of carbon pricing: Evidence from trade

Carbon pricing is often seen as regressive, disproportionately burdening low-income consumers. I show that higher prices following a global carbon price would be mildly regressive in industrialized countries, mildly progressive in developing countries, and steeply regressive across countries. Refunding revenues via national carbon dividends would reverse all three findings. The net effect would be globally progressive, even without international transfers. My approach to estimating the global distributional effects of carbon pricing uses bilateral trade data and features non-homothetic consumers who differ both between and within countries. The supply side includes substitution of inputs along global value chains.

Cash transfers in the context of carbon pricing reforms in Latin America and the Caribbean

One reason carbon prices are difficult to implement is that they might imply high additional costs on poor and vulnerable households. In response, studies often highlight that recycling revenues through cash transfers can render carbon pricing reforms progressive. This neglects that existing cash transfer programs target households from low-income groups imperfectly and that impacts of a carbon price are heterogeneous within income groups. In this study, we analyze if existing cash transfer programs can help to alleviate distributional effects of carbon pricing in 16 Latin American and Caribbean countries. We find that carbon pricing is regressive in 11 countries and progressive in 5. Most importantly, differences within income groups exceed differences between them. Beyond total household expenditures, car ownership and cooking fuel usage explain the variance in carbon pricing impacts. We show that households who are most affected by carbon pricing, some of them poor, do not necessarily have access to existing cash transfer programs. We suggest that governments aiming to compensate households should consider broadening the coverage of existing cash transfer programs, utilizing in-kind transfers or removing other distortionary taxes.

Impact of carbon price on the relative profitability of production forestry and permanent forestry for New Zealand plantations

New Zealand has an Emissions Trading Scheme (ETS) under which forest growers can earn carbon units for increases in carbon stock. Between March 2020 and March 2022 carbon price increased from $24/NZU to $74/NZU. Carbon price increased to the extent that the Land Expectation Value (LEV) of permanent forestry (without clearfelling) exceeds the LEV of production forestry (with clearfelling) on many sites. This paper reports on an analysis comparing the LEV of permanent forestry with the LEV of production forestry for land of different site productivity, harvest difficulty (i.e. slope) and location (i.e. distance to market). Breakeven carbon price (when LEV for permanent forestry equals LEV for production forestry) is calculated for each combination to reveal overall trends. The effect of carbon price on the proportion of national afforestation for which permanent forestry gives a higher LEV is estimated. Results indicate that, at a carbon price of $50/NZU, permanent forestry is more profitable than production forestry on 71% of area with measured carbon and 26% of area with look-up table carbon. When carbon price reaches $100/NZU, permanent forestry is more profitable for all area.

Assessing distributional effects of carbon pricing in Israel

The government of Israel has announced its plan to introduce a national carbon price of ILS 130 (∼USD 40) per ton of CO2 in 2023. In this study, we analyse the subsequent distributional impacts on Israeli households. We build on the recent Household Budget Survey from 2018 compiled by the Israeli Central Bureau of Statistics and merge this data with sector-specific embedded carbon intensities derived from multi-regional input-output data. We find that without further measures a carbon price would have regressive effects on Israeli households. Using statistical analyses we show that rural households, Arab households or households that own (and use) a car would face additional costs above average. Redistributing revenues from carbon pricing could help to address socially unbalanced and unintended outcomes. We model various redistribution schemes after iterating with Israeli stakeholders. Compensating households with lump sum transfers or (partially) subsidizing electricity consumption could lead to progressive outcomes, while proposed policies to lower existing transport fuel taxes would exacerbate regressive distributional effects.

Could carbon emissions trading scheme improve total factor carbon emissions performance? Evidence from cities of China

Carbon emissions trading scheme (ETS) is a market-based measure to reduce carbon emissions. Evaluating the impact of carbon ETS on total factor carbon emissions performance (TFCEP) is of great significance to carbon emissions reduction and high-quality economic development in China. However, whether China's carbon ETS can improve TFCEP remains to be answered. Using the difference-in-differences model, super-efficient Slacks-based measure method and Malmquist–Luenberger index, this study evaluates the impact of carbon ETS on TFCEP and decomposition items of TFCEP based on the data during 2003–2017. Then, the heterogeneity effect of marketization and environmental enforcement are analyzed. The influencing mechanisms are tested from the perspective of industrial structure and green innovation and the moderating effect of carbon price and trading volume is also examined. The results show that carbon ETS could significantly improve TFCEP, and mainly improve the two decomposition items of efficiency change and scale technological change. Heterogeneity analyses show that the positive impact is more significant in cities with high levels of marketization and stricter environmental enforcement. Mechanism analyses suggest that carbon ETS could improve TFCEP by promoting industrial structure and green innovation. In particular, carbon prices and trading volume are confirmed to enhance the role of carbon ETS in promoting TFCEP. The results provide a new reference for Chinese government to use the market-based tool to reduce carbon emissions while maintaining economic growth.

Can learning-by-doing offset negative impacts of carbon pricing in China?

This is the first study utilizing carbon tax revenue to the renewable energy generation with Learning-by-doing (LBD) in the CGE model. This investigation demonstrates how induced technologically change (ITC) in the power sector offsets negative impacts on economic growth caused by the carbon tax in China. Business-as-usual scenario (without carbon tax) shows a significant impact of LBD on GDP growth and CO2 emission reduction. Under a policy scenario with carbon tax, the results show that the negative impact on economic growth can be alleviated to less than 0.12%. If total carbon tax revenue was used for the subsidy to wind and solar power, even a positive impact on GDP growth will occur in the long-term. Therefore, the results verified and demonstrated the synergic effect of carbon pricing and the LBD process that economic loss caused by carbon tax could be offset by ITC in the renewable energy power sector. GDP decomposition shows that unexpensive electricity affected by ITC is beneficial to drive development of low-carbon energy, which can mitigate shock of carbon tax on heavy dependence on fossil fuel. This paper also provides policy implications that the LBD process will positively play a key role in energy structural shift under climate policy, making a great effort to climate mitigation.

The effect of carbon price on low carbon innovation

Whilst many governments have implemented carbon pricing to provide firms with a greater financial incentive to develop low carbon technologies, the effect of the carbon price on the level of low carbon innovation remains unclear. In this study we develop an empirically grounded model of firms’ carbon price expectations and innovation processes. We use this model to show that a 1 USD increase in the expected future carbon price is associated with a 1.4% increase in the level of patenting in low carbon technologies, based on data for countries participating in the EU emissions trading system. We also find that firms gradually update their expectations of the future carbon price in response to recent price changes. Our findings indicate that higher carbon prices provide an effective incentive for low carbon innovation.