High Carbon Tax Research Articles

To Be or Not to Be? Strategic Analysis of Carbon Tax Guiding Manufacturers to Choose Low-Carbon Technology

This paper analyzes the environmental tax’s effect on manufacturers’ choice of low-carbon technology in competitive supply chains. The existing studies only consider a single oligopoly enterprise and ignore the competition between supply chains. Few papers study the manufacturer’s technology choice under the carbon tax policy in the competitive supply chains, especially investigating the factors influencing the technology choice, including the market volume, and technology carbon emission reduction efficiency because different industry sectors have their distinctive carbon emissions reduction efficiencies and facing the different market volume. The study adopts a game theoretical approach, including the three-level supply chain consisting of the regulator, the manufacturers, and the retailers. A high carbon tax does not always help firms choose low-carbon technology. However, the monotonous effect of the carbon tax on manufacturer technology selection is no longer valid if the market volume and the carbon-reducing efficiency are considered. When the market volume is large, the regulator can set a high carbon tax to induce the manufacturers to choose low-carbon technology. We identify cases where the manufacturers are caught in a prisoner’s dilemma. When the market volume is small, and the carbon-reducing efficiency is high, the competitive manufacturers adopt the common technology. However, if the regulator increases the carbon tax, the manufacturers acquire the differential technology strategic choice, which is the Pareto optimal. We also extend the base model to the imperfect substitutable Cournot model and the Bertrand model to check the robustness and find our main results still hold in these extensions.

Insourcing versus outsourcing decision under environmental considerations and different contract arrangements

We investigate the insourcing versus outsourcing decision for a manufacturer, facing a price- and carbon emission-sensitive demand and an environmental regulation in the form of a carbon tax. We consider the carbon emissions generated during the production phase. In case of outsourcing, the transportation emissions are also considered, and we investigate the outcomes of revenue sharing and cost sharing contracts between the manufacturer and the supplier. We study the impacts of customers’ environmental awareness, carbon tax, price sensitivity, market potential, and supplier’s location on the insourcing vs. outsourcing decision, the environmental performance and the selling price. Our results show that a higher customers’ environmental awareness, a larger market potential and a longer distance between the supplier and the manufacturer favor insourcing over outsourcing, whereas a higher carbon tax and a higher price sensitivity favor outsourcing.

Carbon emission reductions, pricing and social welfare of three-echelon supply chain considering consumer environmental awareness under carbon tax policy

With the rapid growth in carbon emissions from transport, reducing these emissions is becoming as important as reducing emissions from production. We took a transporter as a member of the supply chain system and constructed a three-echelon supply chain composed of a manufacturer, transporter, and retailer. This study applies the Stackelberg game and Nash game to research the optimal carbon emission reductions, pricing, and social welfare when the government imposes a carbon tax on carbon emitters and consumers are environmentally conscious. The four scenarios were designed as follows: 1) non-cooperative decision-making (NN model), in which neither carbon emission reduction cooperation nor pricing cooperation takes place; 2) local-cooperative decision-making Ⅰ (CN model), in which only cooperation in the field of carbon emission reductions takes place; 3) local-cooperative decision-making Ⅱ (NC model), in which cooperation in the field of pricing without cooperation in the area of carbon emission reductions takes place; and 4) overall-cooperative decision-making (CC model), in which both cooperation in the field of carbon emission reductions and cooperation in the area of pricing take place. The results show that economic (as profit of the supply chain system), social (as pricing and social welfare), and environmental benefits (as the optimal carbon emission reductions) for the three-echelon supply chain will improve with the deepening of cooperation among the supply chain members. Carbon tax policies have different impacts on clean and polluting supply chains. High carbon tax can encourage clean supply chain to increase carbon emission reduction, but will lead to the reduction of carbon emission of polluting supply chain. A cross-shareholding contract is designed to coordinate the supply chain and achieve the optimal state of the overall cooperative decision. Finally, the paper provides suggestions on carbon emission reductions for enterprises and policymaking for the government.

Novel quota and tax regime design approach for green transition: A case study on Switzerland's aviation industry

In the present study, a novel approach for calculating optimal quota and tax regimes is investigated. A meta-heuristic framework has been developed to find the optimal quota regime for the national or worldwide aviation industry. The minimization of ticket prices and CO2 emissions are considered to be objective functions. The results of the current study indicate that implementing optimized quotas is more effective than intensive tax regimes. To elaborate, much more important than the value of the carbon price is the shape (convexity or concavity) of the tax regime. The optimal tax regime shape is also obtained. Based on the optimal quota and tax regime, the concept of golden time and value is introduced. In the golden time window, investing in Sustainable Aviation Fuels (SAFs) will be the most cost-effective. Furthermore, the results demonstrate that neither the sole introduction of quotas nor the imposition of high carbon taxes are beneficial from an economic and decarbonization standpoint. Thus, an optimized quota regime should be employed. These quotas should be introduced as soon as possible, and their implementation should be combined with political efforts to introduce a carbon tax and policies supporting the development of an alternative jet fuel industry.

Low-Carbon Transition Models of High Carbon Supply Chains under the Mixed Carbon Cap-and-Trade and Carbon Tax Policy in the Carbon Neutrality Era.

To achieve the goals of carbon peak and carbon neutrality, the low-carbon transformation (LCT) of high-carbon firms is inevitable. We construct game models of a supply chain with different dominant types under a mixed carbon policy that embraces carbon cap-and-trade and carbon tax. Solving each dominant model, we derive the effective area and optimal threshold of the mixed carbon policy to guide LCT. We find that the selling price, market demand, and profit of the supply chain system are equal in different dominant models due to the mixed carbon policy, but when a company dominates the supply chain, its profit is higher than when it is a subordinate. In addition, the high-carbon manufacturers (HCM) will pursue LCT only when the sum of the carbon tax rates and carbon trading prices is within a certain threshold, and the subordinate HCM are more likely to be driven to pursue LCT. Therefore, the government should adopt a differentiated hybrid carbon policy, setting a high (low) carbon tax rate for the HCM in a dominant (subordinate) position.

Biofuel Adoption Pathways for Cargo Vessels under Carbon Tax

According to the International Maritime Organization (IMO) Greenhouse Gas (GHG) Strategy, the shipping industry by 2050 aims to reduce by at least 50% of GHG emission level in 2008. Among various alternative energy sources, biofuels illustrate potential as a drop-in fuel using existing shipboard technologies, bunkering infrastructure, and a new fuel replacing conventional fossil-based fuels. However, the decision to adopt biofuel in vessels depends on various factors. Biofuels may be derived from different feedstock and production routes and thus demonstrate different economic and environmental performances. The compatible type of engines also differs across biofuels, implying differences in capital cost. In addition, a high carbon tax may push the usage of a more expensive biofuel, while a low carbon tax may not drive the switch from fossil fuel. This study aims to analyse biofuel adoption pathways under carbon tax to achieve a net 50% GHG emission reduction for cargo vessels, including bulk carriers, container vessels and tankers. The study focuses on the following types of fuels: low sulphur fuel oil (LSFO), marine gas oil (MGO), Liquefied natural gas (LNG), biodiesel in the form of palm methyl ester (PME), hydrotreated vegetable oil (HVO), and bio-LNG.

The role of torrefied wood pellets in the bio-economy: A case study from Western Canada

This work aims to provide a comprehensive in-depth analysis of the life cycle environmental and economic performance of some key global supply chains for torrefied wood pellets (TWP) used as bulk fuel, including their contribution to the bio-economy of the region where they are produced, and the effects of carbon accounting and carbon tax policies on the TWP trade. TWPs produced in British Columbia (BC), the western-most province of Canada, are taken as a specific example, with the results compared with pellets produced in other Canadian provinces, Southeast US and Vietnam. It is found that BC has comparative advantages in TWP production, benefiting from abundant biomass resources, availability of low-carbon electricity, existence of a well-developed forest product industry, and accessibility to international markets. The suitability of different domestic and overseas markets is assessed. In Canada, there is great potential demand for BC TWPs in the provinces of Alberta and Saskatchewan. In the Asia-Pacific region and Europe, BC pellets are not cost-competitive compared with pellets from Vietnam and Southeast US, due to higher production costs arising in part from BC's high carbon tax. However, BC producers have supply advantages over producers in Vietnam and the Southeast US in the province's abundant biomass and clean electricity supply. Transforming production from conventional to torrefied pellets can increase the contribution of the industry to the regional economy. The carbon accounting and carbon tax policies in different countries/regions will impact the TWP trade, and merit further study.

Bridging the Maritime-Hydrogen Cost-Gap: Real options analysis of policy alternatives

• A real option model is used to analyze investment in maritime hydrogen. • Scenarios are developed to account for fuel price differentials and policy measures. • A tax of at least 28% of fuel price is needed for a hydrogen-fueled ferry in 2025. • Favorable regulation increases the value of the option to invest now. • Taxation should be high to as soon as possible to avoid postponing investment. Alternative, and especially renewable, marine fuels are needed to reduce the environmental and climate impacts of the shipping sector. This paper investigates the business case for hydrogen as an alternative fuel in a new-built vessel utilizing fuel cells and liquefied hydrogen. A real option approach is used to model the optimal time and costs for investment, as well as the value of deferring an investment as a result of uncertainty. This model is then used to assess the impact of a carbon tax on a ship owner’s investment decision. A low carbon tax results in ship owners deferring investments, which then slows the uptake of the technology. We recommend that policymakers set a high carbon tax at an early stage in order to help hydrogen compete with fossil fuels. A clear and timely policy design promotes further investments and accelerates the uptake of new technologies that can fulfill decarbonization targets.

Policy Forum: Carbon Taxes and Fiscal Federalism in Canada—A New Wrinkle to an Old Problem

The federal government intends to increase its minimum carbon tax from $40 per tonne of carbon emissions to $170 per tonne by 2030. The carbon tax increase will have uneven and potentially large impacts on provincial emissions and carbon tax revenue, but little is known about how decisions to recycle these revenues will affect equalization payments to provinces. This article compares baseline equalization payments with simulated payments under various revenue-recycling scenarios given a $170 minimum carbon tax. The simulations demonstrate that recycling carbon tax revenues with offsetting reductions in provincial personal or business income taxes, for example, lowers overall disparities in provincial governments' revenue-raising abilities and reduces the size of the equalization program needed to address these disparities. The article draws attention to an already controversial design feature of the program, the fixed-growth rule. The simulations show that the fixed-growth rule limits the impact of higher carbon tax revenues on equalization, by adjusting payments to ensure that the overall size of the program grows roughly in line with the economy. As a result, any potential savings in aggregate equalization payments from revenue recycling are not realized. The distribution of payments is also affected by the fixed-growth rule. Overequalization often results, with Quebec and sometimes Ontario as the main beneficiaries.

Impact of carbon tax on oil and gas fiscal system: an integrated evaluation model

This paper estimates the impact of the carbon tax on oil and gas fiscal system. Carbon tax is regarded as the widely used mechanism for carbon policy. However, few studies analyzed the impacts of carbon tax on oil and gas fiscal system. This research addresses the gap by studying how the carbon tax affect the oil and gas industry and the risk of the carbon tax. In this paper, an integrated model considering the impact of the carbon tax in the oil and gas fiscal system and using the Monte-Carlo method to analyze the risk of the carbon tax is put forward. With the purpose of comparing the Royalty and Profit Sharing Contract, the distributions of the revenue are discussed. When the carbon price increases to US$100/ton, the contractor profit will drop to zero under Royalty fiscal system. When the carbon price increases to US$80/ton, the contractor profit will become negative under PSC. The result indicates that high carbon tax results in negative cash flow.

IMPACT OF CARBON TAXES, ECONOMIC GROWTH, GLOBALIZATION, FOREST RENT, INFLATION AND URBANIZATION ON SUSTAINABLE DEVELOPMENT IN CHINA

The study’s objective was to investigate the impact of carbon taxes, economic growth, globalization, forest rent, inflation, and urbanization on sustainable development in China. The study has used secondary data from World Development Indicators and International Energy Association from 1992 to 2020. For data analysis, the study has employed panel unit root analysis, panel cointegration analysis, Hausman test, and random-effect OLS technique for data analysis. The results showed that forest rent was significantly related to sustainable development. Moreover, the natural logarithm of GDP has negative and urbanization has a positive impact on sustainable development. On the other hand, inflation has an insignificant but negative impact on sustainable development. Also, globalization and carbon taxes have a positive impact on sustainable development. The study concluded that higher carbon taxes have proved to be a boom for sustainable development solutions in China. The results indicated that with the slow and gradual increase in the level of carbon taxes, the emissions of carbon dioxide will be reduced to varying degrees. The study found that among the six variables, carbon taxes have the most significantly strong impact on sustainable development followed by globalization, forest rent, and urbanization whereas gross domestic product and inflation have a negatively significant impact on sustainable development.

Effect of raw material substitution on the facility location decision under a carbon tax policy

Current environmental issues that have been made unavoidable by environmental regulations have become new constraints for industrial companies. In this paper, we consider a joint production-location problem for supply chains under a carbon tax policy on transport-related carbon emissions. We characterize the relationship that links the production level to the input quantities by considering a production function, namely, constant elasticity of substitution (CES) function. Our study focuses on the potential impact of increased transportation costs due to carbon taxation on the joint production-location decision. We find that the location-production configuration differs according to the degree of substitutability among the raw material quantities. More importantly, we observe that a higher carbon tax is more likely to cause a significant jump in firm location choice and a considerable change in production decisions when a firm has high flexibility in its ability to substitute among input quantities.

Techno-econo-environmental comparisons of zero- and low-emission heavy-duty trucks

This paper presents the results of techno-econo-environmental modelling of options to decarbonise fleets of four-axle trucks in the quarrying sector. The key parameter used to evaluate the performance of transitioning from diesel heavy-duty trucks (HDT) to zero- or low-emission heavy-duty trucks (ZLETs) is the total cost of carbon abatement (TCA). TCA is calculated by using the total cost of truck ownership on a discounted cost per km basis (TCO) and well-to-wheel (WTW) life-cycle greenhouse gas (GHG) emissions. TCO includes the costs of the vehicle, infrastructure, fuel, maintenance, and resale, and is evaluated for five different powertrain configurations: (1) battery electric heavy-duty truck (BET), (2) plug-in hybrid electric heavy-duty truck (PHET), (3) diesel internal combustion engine heavy-duty truck (ICET), (4) diesel-hydrogen dual-fuel engine heavy-duty truck (DFET), and (5) hydrogen fuel cell electric heavy-duty truck (FCET). Combinations of wind and/or grid electricity supply BETs and PHETs. Hydrogen is also produced from the same energy sources via electrolysis for DFETs and FCETs. The hourly electricity and hydrogen production and refuelling performance for each powertrain are assessed for on- and off-grid systems. The production capacity and costs can be optimally sized using the total number of trucks, annual operational distance, and fuel economy to meet the annual fuel demand for each powertrain. Results show the fuel cost is the largest contributor to TCOs for all powertrains except the BET, which is dominated by infrastructure cost. The TCOs for all powertrains in off-grid system are higher compared to on-grid systems, which require smaller equipment sizes. In contrast, more WTW emissions for all powertrains can be abated by off-grid system compared to on-grid system. The minimum TCAs for fleets of 100 trucks in on- and off-grid systems are found for BETs and DFETs, respectively. The total number of trucks has a significant impact on the reduction of TCO and TCA. Higher carbon tax (€/ tonne of CO₂ emitted) in the future can also help the ZLETs to be more competitive.

Evolutionary game theoretic study on the coordinated development of solar power and coal-fired thermal power under the background of carbon neutral

In recent years, China has been promoting the process of carbon neutral by establishing carbon exchanges (CEs) and implementing relevant carbon emission reward and punishment policies. This study proposes a partnership of the CE, solar power plant (SPP) and coal-fired thermal power plant (TPP). Based on the tripartite evolutionary game model and current policies of China, the evolutionary processes are simulated and discussed. The results reveal that stable states can be achieved under different partnership modes. Effect evaluation results of typical parameters on the three participants show that on the premise of ensuring the participations of CE and SPP, properly reducing the prices of carbon emission share sold to the TPP will strengthen the participation willingness of TPP. The relatively reasonable selling price ranges of carbon emission share of the CE and SPP sold to the TPP are 6.0∼6.2 $/t and 5.3∼5.5 $/t, respectively. Higher zero carbon emission reward and higher carbon tax can strengthen the participation willingness of TPP and make the TPP achieve the carbon neutral. This study can provide a reference for the government and related industries to promote the carbon neutral development as well as the coordinated development of solar power and coal-fired thermal power.

Measuring the effects of environmental policies on electricity markets risk

This paper studies how environmental policies, such as renewable portfolio standards (RPS) and carbon taxes, might contribute to reducing risk exposure in the electricity generation sector. We illustrate this effect by first computing long-term market equilibria of the Chilean generation sector for the year 2035 using a risk-averse planning model, considering uncertainty of hydrological scenarios and fossil fuel prices as well as distinct levels of risk aversion, but assuming no environmental policies in place. We then compare these risk-averse equilibria to generation portfolios obtained by imposing several levels of RPS and carbon taxes in a market with risk-neutral firms, separately. Our results show that the implementation of both policies can provide incentives for investments in portfolios of generation technologies that limit the risk exposure of the system, particularly when high levels of RPS (35%) or high carbon taxes (35 $/tonCO2) are applied. However, we find that in the case of a hydrothermal system, the resulting market equilibria under RPS policies yield expected generation cost and risk levels (i.e. standard deviation of costs) that are more similar to the efficient portfolios determined using a risk-averse planning model than the ones we find under the carbon tax.

Exploring the dynamics of low-carbon technology diffusion among enterprises: An evolutionary game model on a two-level heterogeneous social network

For mitigating carbon emissions, series of policies have been formulated by governments to promote the diffusion of low-carbon technologies (LCTs). Enterprises' strategic choices and consumers' decisions have a pivotal impact on LCT diffusion. In this context, this study builds an evolutionary game model based on a social network comprised of two sub-networks with different typologies, which respectively depict the connections of enterprises and consumers. Enterprises choose to produce either low-carbon or un-low-carbon products according to the evolutionary game theory. Consumers purchase preferable products repeatedly according to their demands. Using the model, this research explores the impacts of carbon taxes, subsidies, and the demand for low-carbon products. The results show that carbon taxes have increasing marginal effectiveness in promoting LCT diffusion; high carbon taxes can mitigate the fluctuations of LCT diffusion caused by consumers' repeat purchases; while using the data from the electric vehicle industry, enterprises do not manifest high sensitivity to mild carbon taxation. Different from taxation, the effectiveness of subsidization diminishes and results in inefficiency. A large demand for low-carbon products can prominently stimulate enterprises to adopt LCTs. However, if demand increases from a low level, the fluctuation of LCT diffusion is magnified. This magnification does not last if demand continues to increase.

Energy System Optimization including Carbon-Negative Technologies for a High-Density Mixed-Use Development

I In this paper, we use the ‘energy hub’ optimization model to perform a multi-objective analysis on a high-density mixed-use development (termed the ‘mothership’) under different scenarios and compare these results to appropriate base cases. These scenarios explore how the optimal energy system changes under different assumptions, including a high carbon tax, net metering, net-zero emissions and negative emissions, as well as two different electrical grid carbon intensities. We also include ‘carbon negative’ technologies involving biochar production, to explore the role that such processes can play in reducing the net emissions of energy systems. The annualized cost and total emissions of the mothership with a simple energy system are 4 and 8.7 times lower respectively than a base case using single detached homes housing the same population, due to the more efficient form and hence lower energy demand. Of the scenarios examined, it is notable that the case with the lowest annualized cost was one with a net-zero carbon emissions restriction. This gave an annualized cost of CAD 2.98M, which 36% lower than the base case annualized cost of CAD 4.66M. This relied upon the carbon negative production and sale of biochar. All scenarios examined had lower annualized costs than the base cases with many of the cases having negative operating costs (generating profit) due to the sale of renewable energy or carbon credits. This illustrates that the integration of renewable energy technologies is not only beneficial for reducing emissions but can also provide an income stream. These results give hope that suitably optimized urban developments may be able to implement low cost solutions that have zero net emissions.

Economic dispatch optimization of SOFC/GT-based cogeneration systems using flexible fuel purchasing strategy

The power dispatching of a solid oxide fuel cell (SOFC)/gas turbine (GT)-based cogeneration system, which is a parallel combination of natural gas-to-power and coal-to-power units, is investigated. To address the economic dispatch (ED) problem, the AI-based forecasting model such as a Gaussian process regression (GPR) and an integration of GPR and neural networks (NN) models is employed to predict natural gas/coal prices and load demand. The economic dispatch (ED) optimization algorithm for minimizing total operating costs of the cogeneration system is employed to determine the monthly inlet flowrates of natural gas and coal. Since the forecasting errors for purchasing natural gas/coal are inevitable and the high carbon tax is needed to meet the 2015 Paris Agreement, carbon tax with US$60/ton CO2 and ±10% forecasting errors of purchasing monthly fuel prices are taken into consideration. The flexible fuel purchasing strategies (FFPS) with 1024 approaches are aided to improve the power dispatch performance. It is validated that the worst approach of FFPS ensures the total profit improvement (TPI) with 0.30% at least and the best approach of FFPS increases the TPI to 7.33%.

The general equilibrium impacts of carbon tax policy in China: A multi-model comparison

We conduct a multi-model comparison of a carbon tax policy in China to examine how different models simulate the impacts in both near-term 2020, medium-term 2030, and distant future 2050. Though Top-down computable general equilibrium (CGE) models have been applied frequently on climate or other environmental/energy policies to assess emission reduction, energy use and economy-wide general equilibrium outcomes in China, the results often vary greatly across models, making it challenging to derive policies. We compare 8 China CGE models with different characteristics to examine how they estimate the effects of a plausible range of carbon tax scenarios – low, medium and high carbon taxes.. To make them comparable we impose the same population growth, the same GDP growth path and world energy price shocks. We find that the 2030 NDC target for China are easily met in all models, but the 2060 carbon neutrality goal cannot be achieved even with our highest carbon tax rates. Through this carbon tax comparison, we find all 8 CGE models differ substantially in terms of impacts on the macroeconomy, aggregate prices, energy use and carbon reductions, as well as industry level output and price effects. We discuss the reasons for the divergent simulation results including differences in model structure, substitution parameters, baseline renewable penetration and methods of revenue recycling.

The implications for energy crops under China's climate change challenges

This study investigated future bioenergy supply and demand from energy crops in China using the GCAM-integrated assessment model under different climate policy scenarios. The results indicated that China has rich resources of energy crops and marginal land for developing bioenergy. Under future carbon related policies, bioenergy production will considerably increase as projected by the GCAM. Current marginal land can completely meet the future bioenergy demand from energy crops by the end of this century in China. Although a high carbon tax would increase the agricultural market price, the bioenergy price does not affect the production of crop residue from which energy is generated. Also cultivated land resources would not be affected by increased competition for land from energy crops. In addition, forest areas will be preserved and greatly expand in China owing to the increased value of terrestrial carbon, and cropland will increase and expand into pasture, grasslands and other arable land. This conversion peaks in 2050 and decreases until 2090 in response to the increasing incomes and population in China. Climate policies with carbon taxes that include terrestrial carbon will likely reduce emissions from land-use changes, although land-use restrictions may lead to greater upward pressure on crop prices. Net cumulative emissions of land-use changes under two mitigation policies will be negative in 2050 and further decrease thereafter. It is important to note that energy crops and BECCS cause relatively low-cost to reduce carbon emissions. Efforts on policy designing to support cultivation of energy crops and to promote research and deployment of BECCS should be ramped up. • Current marginal land resource can meet future bioenergy supply from energy crops. • Bioenergy price does not affect production of the crop in China. • Cultivated land resources would not be affected by land from energy crops. • Climate policies with carbon taxes would reduce the emissions from land use change.