Uniform Carbon Tax Research Articles

Why a uniform carbon tax is unjust, no matter how the revenue is used, and should be accompanied by a limitarian carbon tax

ABSTRACT A uniform carbon tax with equal per capita dividends is usually advocated as a cost-effective way of reducing greenhouse gas (GHG) emissions without increasing, and in many cases even reducing, economic inequality, in particular because of the positive balance between the carbon taxes paid by the worse off and the carbon dividends they receive back. In this article, I argue that a uniform carbon tax reform is unjust regardless of how the revenue is used, because it does not discourage the rich from indulging in wasteful emissions. This is at odds with a normative account of the distribution of the GHG budget that I define as emissions limitarianism, which is a climate derivative of economic limitarianism. Emissions limitarianism holds that, under low GHG budget conditions, emissions permits should not be used to achieve functionings that over-consume the GHG budget without producing significant welfare gains relative to the achievement of alternative functionings. Accordingly, I argue that a uniform carbon tax should be complemented by a limitarian carbon tax, which restricts the capabilities of the rich to achieve wasteful emission-generating functionings. The article adopts a methodological multi-level perspective on capabilities as a measure of welfare, distinguishing between basic, secondary and tertiary capabilities.

Carbon taxes and agriculture: the benefit of a multilateral agreement

ABSTRACT Reducing greenhouse gas emissions from agriculture is crucial to reach global and regional climate targets. However, the efficiency of unilateral climate policies aimed at taxing emissions might be hampered by carbon leakage. One way to eliminate leakage is to implement a global carbon tax. In this article, we study the effects of a carbon tax in agriculture on GHG emissions by simulating five policy scenarios using the CAPRI model; (i) an EU tax, (ii) an EU tax complemented with a border carbon adjustment mechanism (BCA), (iii) a global tax, (iv) a global tax scaled by GDP per capita, and (v) a low global tax at 1/10 of the tax level in the other scenarios. For the global scenarios, we also analyse the impact on food consumption and nutrient intake. We find that a global tax of EUR 120 per ton CO2-eq could reduce global agricultural emissions by 19%, but also jeopardizes food security in some parts of the world. A global tax at 1/10 of that rate (EUR 12) achieves a 3.2% reduction. In contrast, a unilateral EU tax of EUR 120 per ton CO2-eq, accompanied with a BCA, reduces global agricultural emissions by only 0.15%.

Symposium: perspectives on carbon taxes – introduction

With this issue of Fiscal Studies, we inaugurate a new section entitled ‘Symposia’. This new section will publish commissioned papers from leading scholars and policy analysts on issues of topical importance to public economics and microeconomic policy. In some cases these symposia will emphasise policy issues, while in other cases contributions will emphasise methodological issues, and sometimes both. Over the course of future symposia, papers will be more diverse in format and content than traditional research papers. A common thread running through the papers will be perspectives guided by rigorous research evidence, but with the aim of reaching a broad audience across the research, policy and stakeholder communities. In this inaugural issue we focus on global climate change, and in particular on policies and practices to tax carbon emissions within and across borders. Economists have, in general, been highly supportive of carbon-based taxation as a mechanism to efficiently reduce greenhouse gas emissions. However, the implementation of such a tax is challenging when spillover effects across state and national borders are considered. The first paper in the symposium, which is by Michael Keen of the University of Tokyo along with Ian Parry and James Roaf of the International Monetary Fund, examines the design, rationale and potential impact of a border carbon adjustment. The fundamental concern of unilateral action on carbon pricing is that others will free ride on the policy, thus potentially harming domestic producers and consumers vis-à-vis trading partners. The authors propose a border carbon adjustment that assesses a charge (either direct taxation or tradable pollution permits) on the carbon content of imported products. The intent is that the charge will be equivalent to domestic carbon pricing, and with the option of rebates for the carbon content of exports. The paper first spells out the theoretical and practical motivations for a border carbon adjustment and then proposes a series of design options to provide guidance to policymakers. The second paper in the symposium, which is by Stuart Adam, Isaac Delestre, Peter Levell and Helen Miller, all of the Institute for Fiscal Studies, documents the patchwork of current tax and subsidy programmes that aim to mitigate greenhouse gas emissions in the United Kingdom, and examines how these have created oftentimes conflicting incentives and distortions for households and firms to reduce their carbon emissions. The authors calculate implied carbon taxes levied by source and user of energy and show, for instance, that businesses are taxed more heavily than households, but that energy-intensive industries face lower carbon tax rates than other businesses; emissions from long-haul air travel are lightly taxed when compared with those from short-haul air travel, and for those flying first class the implied carbon tax rate is still lower. On this, the UK is not exceptional; rather, inconsistencies in the taxation of carbon emissions across different sources and users are common to many countries. In some cases, governments may find it desirable to deviate from a uniform carbon tax rate. The authors show that distributional considerations and other concerns may help justify some, but not all, of the variation in carbon prices, and argue for the rationalisation of carbon taxation. The papers in this first symposium highlight some of the challenges facing nations as they grapple with the most pressing and far-reaching economic challenge of our time. It is our hope that the papers in the issue, and in future symposia, will not only spur additional research, but will also make a meaningful and timely contribution to the public discussion of key topical issues, and serve as a platform to inform policymakers of best practices and policies based on the evidence.

A multinational carbon-credit market integrating distinct national carbon allowance strategies

We study the potential role and advantages of a multinational carbon-credit (CC) market allowing a set of countries to procure CCs for their domestic producers. We study the interaction of such a market with renewable portfolio standards, specifically regarding whether a country’s government or its energy producers are responsible for upholding the renewable portfolio standards (RPS), and how this impacts total emissions and energy mix. Implementing uniform carbon tax policies or cross-border emission trading systems hinders individual countries’ autonomy while strictly segregated carbon markets suffer from the tragedy of the commons. We develop a model where countries can have their own policies to allocate the CCs, which may include taxes or subsidies depending upon the country’s choices. We use a special form of equilibrium programs with equilibrium constraints (EPEC) game – Nash Among Stackelberg Players (NASP) – and recent algorithmic advances to identify equilibria for these games to identify the effect of such a common CC market, and the regional governments’ individualized interests on the resulting energy production patterns and emissions. We observe that countries could retain their autonomy and have reasonable freedom to set national policy by acting as intermediaries between the CC market and the producers. We carry out a case study using historical data and projections of energy production for the US and Canada, and observe the varying effects of such a common CC market on government policy and the behavior of energy producers. Establishing a common CC market could significantly reduce global emissions without infringing on national autonomy. Such a market helps governments to motivate producers to uphold renewable standards because if the producers do not voluntarily reduce emissions, then the government could enforce the obligation through its national policies, generally leading to a revenue loss for producers.

Optimal energy taxes and subsidies under a cost-effective unilateral climate policy: Addressing carbon leakage

We analyse how a country pursuing a unilateral climate policy may contribute to a reduction in global CO2 emissions in a cost-effective way. To do so its system of energy taxes and subsidies must account for leakage of emissions from the domestic to the foreign economy. We focus on leakage occurring via international trade in electricity and via shifts between domestic and foreign production of other goods. The optimal tax-subsidy scheme is based on an intuitive principle: Impose a uniform carbon tax on all additions to global emissions caused by changes in domestic production and consumption of energy, including additions to emissions occurring via shifts in international trade. Emissions from the sector exposed to foreign competition should be taxed at reduced rates to avoid excessive carbon leakage, and a part of the carbon tax on electricity should be levied at the consumer rather than the producer level to ensure taxation of the carbon content of imported electricity. Producers of renewables-based electricity should receive a subsidy to internalize their contribution to the reduction of global emissions. In other sectors emissions should be taxed at a uniform rate corresponding to the marginal social cost of meeting the target for emissions reduction. Simulations calibrated to data for the Danish economy suggest that redesigning energy taxes and subsidies to account for carbon leakage can generate a welfare gain.

Citizen Carbon Fund: Harmonized International Carbon Taxes and Transfers to Increase Treaty Size

Abstract A uniform carbon tax and Citizen Carbon Fund are proposed as a zero-sum system of transfers that can increase equilibrium participation and result in a positive carbon check for each citizen covered by the agreement. The carbon tax results in efficient abatement, generates tax revenue and finances transfers that increase equilibrium participation in a climate agreement. A single carbon price is easier to negotiate than many different abatement requirements, but mirrors the results of a cap-and-trade agreement. An example using the four largest carbon emitters illustrates the set of stable agreements, the transfers required for stability and the resulting carbon checks.

Protecting the poor with a carbon tax and equal per capita dividend

We find that if all countries adopt the necessary uniform global carbon tax and then return the revenues to their citizens on an equal per capita basis, it will be possible to meet a 2 °C target while also increasing wellbeing, reducing inequality and alleviating poverty. These results indicate that it is possible for a society to implement strong climate action without compromising goals for equity and development.

Greenhouse gas emissions vs CO2 emissions: Comparative analysis of a global carbon tax

Both CO2 and non-CO2 emissions are liable in climate change policies in many countries around the world. However, there are still many impact assessment studies in different regions that consider only CO2 emissions. We hypothesise that excluding non-CO2 greenhouse gas emissions, which are also liable in climate change policies, may lead to misleading results and impacts. We employ a global climate change policy model (GTAP-E-PowerS) to examine how the impact of a uniform carbon tax at US$15 applying to the world regions are different when only CO2 emissions are liable compared to the case that non-CO2 emissions are additionally subject to the tax. That is, the impacts of the carbon tax applying to CO2 emissions only (against no carbon tax) will be compared to the impacts of such a tax applying to both CO2 and non-CO2 greenhouse gas emissions (against no carbon tax). Results show the deviations in the impacts between with and without inclusion of non-CO2 emissions are more obvious in developing countries particularly by comparison to developed nations. Iran, for instance, experiences a higher reduction in real GDP of 1.52 percentage points when non-CO2 emissions are overlooked. These impact deviations also rise with increased costs to economies (e.g., more sectors involved or higher tax rates). We find developing countries experience higher contraction rates in their economies than developed nations. Iran, Kazakhstan, South Africa, China, India, Russia, Mexico, and Indonesia all experience 2–5.1% reductions in real GDP relative to business-as-usual (no carbon tax), while such reductions are below 0.8% in Australia, the United States and other developed nations because emission costs compared to economy size are relatively high in developing nations. Major polluting countries like China, the United States, India, and Russia were also found to have low marginal abatement costs compared to other nations due to high emission levels and input substitution possibilities. To provide more accurate and insightful impacts of climate change policies, we recommend future studies include both CO2 and non-CO2 emissions in models.

Close the carbon loophole

Close the carbon loophole

AN INVESTIGATION OF CARBON TAXES AND TERMS OF TRADE IN A LARGE MACROECONOMETRIC MODEL

Carbon taxes are likely to play a key role in meeting greenhouse gas emission targets that are consistent with the Paris Agreement. In this article, we assess the macroeconomic effects of a carbon tax on the global economy, paying particular attention to the terms-of-trade implications for importers and exporters of fossil fuels. We use a modified version of the National Institute’s Global Econometric Model, NiGEM. In the stylized scenarios, all countries and regions impose a permanent and uniform carbon tax immediately. Our simulations show that demand for fossil fuels falls substantially in response to the tax, global (pre-tax) prices of fossil fuels decline, and the tax can raise substantial revenue for the government. The overall impact on GDP growth and inflation in each country depends on the fossil fuel intensity of output, the net losses/gains in terms of trade and the macroeconomic policy reaction.

Implications of the distribution of German household environmental footprints across income groups for integrating environmental and social policy design

The distribution of German household environmental footprints (EnvFs) across income groups is analyzed by using EXIOBASE v3.6 and the consumer expenditure survey of 2013. Expenditure underreporting is corrected by using a novel method, where the expenditures are modeled as truncated normal distribution. The focus lies on carbon (CF) and material (MF) footprints, which for average German households are 9.1 ± 0.4 metric tons CO2e and 10.9 ± 0.6 metric tons material per capita. Although the lowest-income group has the lowest share of transportation in EnvFs, at 10.4% (CF) and 3.9% (MF), it has the highest share of electricity and utilities in EnvFs, at 39.4% (CF) and 16.7% (MF). In contrast, the highest-income group has the highest share of transportation in EnvFs, at 20.3% (CF) and 12.4% (MF). The highest-income group has a higher share of emissions produced overseas (38.6% vs. 34.3%) and imported resource use (69.9% vs. 66.4%) compared to the average households. When substituting 50% of imported goods with domestic ones in a counterfactual scenario, this group only decreases its CF by 2.8% and MF by 5.3%. Although incomes in Germany are distributed more equally (Gini index 0.28), the German household CF is distributed less equally (0.16). A uniform carbon tax across all sectors would be regressive (Suits index −0.13). Hence, a revenue recycling scheme is necessary to alleviate the burden on low-income households. The overall carbon intensity shows an inverted-U trend due to the increasing consumption of carbon-intensive heating for lower-income groups, indicating a possible rebound effect for these groups. This article met the requirements for a gold – gold JIE data openness badge described at http://jie.click/badges.

DESIGNING A GLOBALLY ACCEPTABLE CARBON TAX SCHEME TO ADDRESS COMPETITIVENESS AND LEAKAGE CONCERNS

To address competitiveness and leakage concerns in international climate policy, this paper proposes a differentiated carbon tax scheme (DCT), which largely preserves the relative competitive positions of developed and developing countries. The paper first presents a theoretical model from which to derive the DCT. Then, employing a global trade analysis model, competitiveness and leakage effects under a DCT are simulated and contrasted to those of a unilateral carbon tax, a carbon tariff, and a uniform carbon tax. The results of our analysis suggest that: (1) under the proposed DCT, emission reductions in developed and developing countries are higher and leakage is lower than under a carbon tariff; (2) the DCT has weaker competitiveness effects than a carbon tariff; and (3) the DCT is more favorable to developing countries’ output and welfare than a carbon tariff or a uniform global carbon tax. Developing countries may therefore embrace a DCT as an intermediate step towards the implementation of a global carbon tax.

Technology Beats Capital - Sharing the Carbon Price Burden in Federal Europe

Passing federal environmental policy reform is a challenge as the approval of interest groups such as consumers and state-level governments is often a prerequisite. Among others, the burden sharing's progressivity has a large impact on reform approval. We investigate how carbon tax payments by states to a federal authority are influenced by differences in technological emission intensity and wealth and show how they can turn out to be at the expense of poor states. We show that a uniform federal carbon tax that is endorsed by all states with equal per capita transfers can theoretically put a higher burden on poorer states than richer states. The opposite applies for transfers based on historical emissions (sovereignty transfers) which reduce the burden of emission-intensive states. We test our results numerically in a general equilibrium model with a vertical federalism governance structure calibrated to the European Union. Our simulations show that a federal minimum emissions tax with sovereignty transfers is twice as high as for equal per capita transfers and also has a progressive effect.

Multi-model comparison of Swiss decarbonization scenarios

Collaborating under the Swiss Energy Modeling Platform (SEMP), five modeling teams (employing an energy systems model and four macroeconomic models with a focus on energy) have carried out a multi-model comparison to assess the economic and technological consequences of reaching emission reduction targets for 2050 in the context of Switzerland. We consider different designs of carbon taxes to compare their economic cost: economy-wide or sector-specific carbon taxes with or without an emission trading system (ETS) in place. All models find that the climate targets can be reached at modest welfare reductions of 0.15–0.37% (if targeting 1.5 tonnes of CO 2 per capita) or 0.24–0.48% (if targeting 1.0 tonnes per capita) compared to a business-as-usual scenario in which the emission level of 1.5 tonnes per capita is exceeded by 83–137%. In contradiction to the additional target of reducing Swiss electricity use, most models find it cost-effective to replace some of the energy supplied by fossil fuels by electricity and thus do not recommend a decrease in electricity use.Most models find that a uniform carbon tax is the most efficient instrument to achieve the emission reduction targets. Those models with a detailed representation of pre-existing mineral oil taxes find that in early periods of climate policy, taxing emission from transport fuels at lower rates than other emissions may be cost-efficient. This effect vanishes as the stringency of targets and thus CO 2 taxes increase over time.

Optimal Energy Taxes and Subsidies under a Cost-Effective Unilateral Climate Policy: Addressing Carbon Leakage

We analyze how a country pursuing a unilateral climate policy may contribute to a reduction in global CO2 emissions in a cost-effective way. To do so its system of energy taxes and subsidies must account for leakage of emissions from the domestic to the foreign economy. We focus on leakage occurring via international trade in electricity and via shifts between domestic and foreign production of other goods. The optimal tax-subsidy scheme is based on an intuitive principle: Impose a uniform carbon tax on all additions to global emissions caused by changes in domestic production and consumption of energy, including additions to emissions occurring via shifts in international trade. Emissions from the sector exposed to foreign competition should be taxed at reduced rates to avoid excessive carbon leakage, and a part of the carbon tax on electricity should be levied at the consumer rather than the producer level to ensure taxation of the carbon content of imported electricity. Producers of renewables-based electricity should receive a subsidy to internalize their contribution to the reduction of global emissions. In other sectors emissions should be taxed at a uniform rate corresponding to the marginal social cost of meeting the target for emissions reduction. Simulations calibrated to data for the Danish economy suggest that redesigning energy taxes and subsidies to account for carbon leakage can generate a welfare gain.

The structure of the climate debate

First-best climate policy is a uniform carbon tax which gradually rises over time. Civil servants have complicated climate policy to expand bureaucracies, politicians to create rents. Environmentalists have exaggerated climate change to gain influence, other activists have joined the climate bandwagon. Opponents to climate policy have attacked the weaknesses in climate research. The climate debate is convoluted and polarized as a result, and climate policy complex. Climate policy should become easier and more rational as the Paris Agreement has shifted climate policy back towards national governments. Changing political priorities, austerity, and a maturing bureaucracy should lead to a more constructive climate debate.

Energy substitution, efficiency, and the effects of carbon taxation: Evidence from China's building construction industry

As buildings are constructed to be more energy-efficient and environmental friendly, the building construction industry, which is a basic and leading industry of the national economy development, has become one of the key sectors for energy conservation and emission reduction in China. This paper aims at quantifying both inter-factor and inter-energy substitution for China's building construction industry and investigate the main driving forces behind energy efficiency changes as well as the CO2 abatement effect of a uniform carbon tax in this sector. The model is established employing provincial pooled data over 2003–2012 in China by regions; hence, results between different regions are compared. The main findings indicate that: (i) energy and non-energy are substitutes whereas individual energy inputs are complementary in China's building construction industry. The substitution effect varies across regions due to different factor endowments and marketization levels. (ii) Energy price increase and construction scale expansion leads to energy efficiency improvement while substitution and technology present negative influences on energy efficiency. (iii) Approximately 3% of the CO2 emissions in China's building construction industry can be reduced by carbon taxation based on the integrated own- and cross- price elasticities of each energy.

Distributional effects of carbon taxation

The carbon tax is a frequently discussed economic instrument for carbon emissions mitigation and prevention of global climate change. However, a range of issues may emerge when introducing a carbon tax; among these issues, the distributional impact has been frequently highlighted as an obstacle to the public acceptance of such a mitigation policy. This literature review focuses specifically on the distributional effects of carbon taxes and contributes to existing studies by providing a classification and discussion on how to comprehensively assess distributional impacts and what measures can be taken to mitigate the potential adverse distributional impact. We confirm that a pure carbon tax without revenue recycling in developed economies tends to be regressive, i.e. lower income households being more affected, while our research does not support the perception that it reveals progressivity in developing countries. In terms of its effects on economic sectors, we find that sectors with higher energy intensity are more affected by a uniform carbon tax, while preferential measures to protect these industries face a trade-off between environmental effectiveness and economic growth. We also stress that different designs for carbon tax mechanisms play a key role in affecting the distributional impacts and impacts in other policy arenas, indicating that trade-offs between efficiency and equity always exist when designing a carbon tax. This study may help to identify the shortcomings of existing designs and puts forward practical implications for future research; moreover, it offers valuable information to help policy-makers to understand the trade-off between equity and efficiency when designing a carbon tax.

The Economy-wide Impact of a Uniform Carbon Tax in ASEAN

The main goal of this study is to analyse the benefits and losses associated with cooperation among ASEAN members in mitigating their CO2 emissions, particularly by implementing a uniform carbon tax across ASEAN. To achieve this goal, this paper uses a multi-country computable generals equilibrium model for ASEAN, known as the Inter-Regional System of Analysis for ASEAN model. This study finds that the implementation of a carbon tax scenario is an effective means of reducing carbon emissions in the region. However, this environmental gain could come at a cost in terms of GDP contraction and reduction in social welfare, i.e. household income. Nevertheless, Indonesia and Malaysia can potentially gain from the implementation of a carbon tax as it counteracts price distortions due to the existence of heavy energy subsidies in these two countries.

The Economy-wide Impact of a Uniform Carbon Tax in ASEAN

The main goal of this study is to analyse the benefits and losses associated with cooperation among ASEAN members in mitigating their CO 2 emissions, particularly by implementing a uniform carbon tax across ASEAN. To achieve this goal, this paper uses a multi-country computable generals equilibrium model for ASEAN, known as the Inter-Regional System of Analysis for ASEAN model. This study finds that the implementation of a carbon tax scenario is an effective means of reducing carbon emissions in the region. However, this environmental gain could come at a cost in terms of GDP contraction and reduction in social welfare, i.e. household income. Nevertheless, Indonesia and Malaysia can potentially gain from the implementation of a carbon tax as it counteracts price distortions due to the existence of heavy energy subsidies in these two countries.