Carbon taxation in Russia: Prospects for a double dividend and improved energy efficiency

This study analyses the sectoral and macroeconomic impact of carbon taxes on the Russian economy, one of the world's most energy- and carbon-intensive economies, while assessing the hypothesis of a double dividend. Substituting carbon taxes for labour taxes can reduce GHG emissions and enhance welfare by improving the efficiency of the tax system — a strong double dividend. The analyses confirm, when capital is not internationally mobile, that a double dividend is likely to occur under (i) a high elasticity of labour supply, (ii) high elasticities of substitution between labour and the capital-energy aggregate, (iii) low elasticities of substitution between capital and energy. It is the tax-shifting effect between capital and labour that is crucial. In contrast, welfare losses resulting from the environmental tax reform may be substantial if capital is internationally mobile.     

Elasticities,ratios and energy modelling

This paper shows certain pitfalls in calculating elasticities and ratios. By studying some commonly used econometric models of energy, it is then argued that income elasticity could be considered stable both in the short run and in the long run. Lastly, we have derived a formula which clearly relates the income elasticity to the energy–income ratio. The difference of elasticities among the developing and developed countries can be explained directly from the formula.     

The effect of the German and British environmental taxation reforms: A simple assessment

This article implements a simple econometric approach to assess the effect of the environmental tax reforms introduced in Germany and the UK. Despite the very simple econometric approach adopted in this paper, in the case of the energy demand, our results do not differ markedly from those obtained from complicated multi-sectoral econometric models. In the case of the labour demand, our results differ from the estimates obtained from econometric models where the employment level is not directly influenced by the energy price. On the other hand, our results are more similar to those obtained from models where the level of employment is directly influenced by the energy price. Confirming the findings of Bosquet [2000. Environmental tax reform: does it work? A survey of the empirical evidence. Ecological Economics 34, 19–32] and OECD [2004. Environment and Employment: An Assessment Working Party on National Environmental Policy OECD, Paris], we conclude that environmental tax reforms can deliver substantial reductions in energy consumption while having small effects on the level of employment, effect which can be positive, depending on the size of the reduction in the labour costs and the value of cross-price elasticities.     

Taxing pollution and profits: A bargaining approach

This paper analyzes the taxation of polluting firms in a model where the government and firms bargain over emissions and profits taxes. We demonstrate that under reasonable assumptions, the bargaining position of firms is a determinant of the profits tax yet has no impact on the emissions tax. The emissions tax is affected by market structure, firm technologies, and environmental awareness. An emissions tax may not be imposed in some circumstances, although it would raise public revenue and reduce pollution. In that case, the transfer of profits taxes to people can be used to address their environmental suffering. We then extend the model to consider that the government spends a fraction of tax revenue to partner with firms in pollution abatement. Public environmental spending will increase with the demand for polluting goods and facilitate a cut in the emissions tax, which leads to a higher output level and less abatement effort at firms.     

Welfare effects of emission taxes in Norway

The welfare effects of introducing taxes on emissions of carbon dioxide is analysed within an empirical general equilibrium model of the Norwegian economy. A CO₂ tax regime where we aim at stabilizing the CO₂ emissions at the 1990 emission level in 2020 is compared to a reference scenario without such taxes. In the simulations introduction of CO₂ taxes reduces gross domestic product, but increases net national real disposable income, private consumption and money metric utility. This difference in sign is due to a positive terms of trade effect; some of the CO₂ taxes will be paid by foreigners through exports. The welfare effects differ from household to household depending on the composition of their total consumption. Poor households are less favourably affected than rich households, due to smaller budget shares for the rich households on consumer goods which imply relatively much CO₂ emissions.     

Double dividend effectiveness of energy tax policies and the elasticity of substitution: A CGE appraisal

There is a considerable body of literature that has studied whether or not an adequately designed tax swap, whereby an ecotax is levied and some other tax is reduced while keeping government income constant, may achieve a so-called double dividend, that is, an increase in environmental quality and an increase in overall efficiency. Arguments in favor and against are abundant. Our position is that the issue should be empirically studied starting from an actual, non-optimal tax system structure and by way of checking the responsiveness of equilibria to revenue neutral tax regimes under alternate scenarios regarding technological substitution. With the use of a CGE model, we find that the most critical elasticity for achieving a double dividend is the substitution elasticity between labor and capital whereas the elasticity that would generate the highest reduction in carbon dioxide emissions is the substitution elasticity among energy goods.     

Elasticities - science or fiction?

Apart from discrepancies in statistical data series, the most frequent source of inconsistencies, among elasticity estimates, is the model specification and the interpretation of empirical results. This paper investigates this issue and in particular highlights the misconception that elasticities can scientifically and uniquely be determined by econometric techniques. However, it is common knowledge that econometric methods constitute a very good tool for analysing the past. Thus the main message of this exercise is that, in the absence of complete specification, there are important trends in the elasticities themselves. Such trends are very crucial and need to be interpreted if elasticities are to be used for forecasting purposes.     

Energy consumption and economic activity in industrialized countries : The dynamic aggregate time series relationship

Most econometric studies suggest that the income elasticity of demand for energy is approximately unity. For the developed market economies it is shown that over the period 1950–1978 the long-run income elasticity is substantially higher than unity in terms of a CES energy demand function. This result reflects the application of a generalized dynamic estimation methodology where serial correlation is regarded as a diagnostic guide to distributed lag fitting. Price elasticities are also estimated but these are in line with conventional estimates.     

An assessment of the energy tax burden on the Philippine economy

This paper uses an aggregate modelling approach to assess the impacts of a redistribution of the taxes and duties that currently exist on crude oil and refined petroleum products in the Philippine economy. The approach used in the analysis consists of a general equilibrium model composed of fourteen producing sectors, fourteen consuming sectors, three household categories classified by income and a government. The effects of replacing the taxes and duties on crude oil and refined petroleum products with a more broad-based tax on manufacturing and service sectors output on prices and quantities are examined. The results are revealing. For example, the consequences of redistributing the tax burden away from petroleum products to the manufacturing and service sectors of the Philippine economy would be an increase in output by all producing sectors of about 3.5% or about 2.4 hundred billion Philippine pesos, a rise in the consumption of goods and services by about 6.1% or 1.6 hundred billion Philippine pesos, a rise in total utility by 6.9% or 1.9 hundred billion Philippine pesos and virtually no change in tax revenue for the government. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution eleasticities. That is, while the model's equilibrium values do vary in response to different assumptions of the values of these elasticities, the fluctutations are not so enormous to suggest that the model is unrealistically sensititve to these parameters.     

Modelling fuel demand for different socio-economic groups

The fuel demand literature provides a range of estimates of the long and short-run price and income elasticities of gasoline demand for different countries and states. These estimates can be very useful in predicting the overall impacts of policy approaches designed to reduce fuel consumption and to address concerns of carbon emissions or energy security. However, analysis of policy options based on elasticities that are homogenous across income groups provides no information about the relative distributional burden that may be faced by different sectors of the population. Different responses to the same change in price or income are likely to occur, dependent on both travel needs and income levels. This paper estimates gasoline demand elasticities for different income quintiles in the United States to test for heterogeneity in demand response. Group wise summary consumer expenditure data for 20 years is used to derive the elasticity estimates. The results show that the elasticities do vary across groups and follow a U-pattern from the lowest to the highest income quintile. The lowest income quintile is found to have the largest price elasticity. The lowest and the highest income quintiles appear to be statistically insensitive to any changes in income. The rebound effect also follows the U-pattern, with the highest rebound observed among the wealthiest households. Rural households appear to have lower price elasticity than households in urban areas.     

Structural change and Thailand energy demand

This paper examines the impact of changes in the structure of the economy, radical changes in economic policy and oil price shocks on the relation between Thailand energy demand and its macroeconomic determinants. The impact of these structural changes on the relationship between energy consumption, income, energy prices and structural variation is examined through unit root and cointegration tests, the cointegration relationship and the error correction model. Methods which endogenize the location of an a priori unknown break point are employed to assess the impact of structural change. In general, the recognition of structural change has lead to some unique insights. In particular, the results of some of the conventional unit root and cointegration tests are reversed once structural changes are recognized. Estimates from the cointegrating regression imply long-run income, price, and structural variation elasticities of 0.568, −0.600 and 1.046, respectively. In comparison, estimates from the error correction model suggest a higher short-run income elasticity (0.788) but lower short-run price and structural variation elasticities (−0.522 and 0.491, respectively). One of the important implications of the estimates pertains to the low price elasticity for aggregate energy demand which implies that the over-pricing of energy as a policy instrument is not likely to be very influential for restraining future energy demand. Additionally, taxes on energy prices are unlikely to achieve government goals for energy conservation and environmental improvement, although they may well be efficient for raising revenue. Copyright © 2006 John Wiley & Sons, Ltd.     

Price sensitivity of petrol consumption and some policy implications: The case of the EEC

Using econometric and statistical techniques this study focuses on conserving energy by taxing petrol. On the basis of the empirical findings there is substantial evidence to support the following policy implications. If the purpose of taxation on petrol prices is to raise public revenue, then the insensitivity of petrol demand to price would guarantee a good tax yield. Furthermore a ‘creeping’ rise in taxation, as opposed to a sharp one, would be met with almost no consumer reaction. If, however, the objective is to restrain petrol consumption and thus conserve energy, then taxes imposed on petrol seem to be a sheer exploitation of the consumer. Our results point to the fact that in the near future petrol consumption is unlikely to respond negatively to small price increases. If conservation efforts are to be successful, they should be directed to the alternatives of more efficient engine design, imposing speed limits, manufacturing smaller cars, and such like.     

Atmospheric externalities and environmental taxation

The paper reviews the theory of environmental taxation under first best and second best conditions. It argues that negative environmental externalities lead to reductions of the provision of public goods, while investment in abatement increases the supply of public goods. Together with optimal tax rules, the paper therefore also derives conditions for the optimal use of resources on abatement. After brief discussions of the dimensions of time and uncertainty, tax reform and the double dividend, and taxes vs. quotas, the optimal tax model is applied to the problem of global warming with a discussion of the particular incentive problems that arise in designing and implementing global climate policy.     

Price and income elasticities of demand for passenger transport fuels in Spain. Implications for public policies

The significant increase in passenger transport activity (cars) experienced by Spain and its associated increase in energy consumption have several associated negative aspects, including a greater dependence on foreign energy sources and higher GHG emissions. Therefore, reducing the level of transport activity would bring important socioeconomic and environmental benefits. The aim of this paper, which focuses on energy consumption in the passenger transport, is fourfold: (1) to provide a diagnostic of energy consumption in the Spanish passenger transport system and the related problems; (2) to develop a model to calculate price and income elasticities of demand for transport fuel; (3) to apply this model to the Spanish passenger transport sector; (4) to infer policy recommendations derived from the results of the diagnostic and the model. It is claimed that, in view of those low price elasticities and high income elasticities and if a reduction in the scale of transport activity is deemed socially desirable, a combination of instruments is necessary. Fuel taxes play an important role within this combination. Apart from their long-term effects, the low price elasticity of demand for transport fuel would allow the collection of a significant amount of revenues, which could eventually be earmarked to encourage reductions in private transport demand and modal shifts with other instruments.     

The incidence of fuel taxation in India

Fuel taxes have returned to centre stage as a potential policy instrument for greenhouse gas abatement. On the basis of some studies in developed countries, critics have complained that a fuel tax would be regressive. This paper uses data from a representative household survey covering more than 124 thousand Indian households to examine this claim. It finds that a fuel tax would be progressive as would a carbon tax. Using an input–output approach, it is found that the progressivity results holds good even when one considers indirect consumption of fuel through its use as an intermediate input. Sensitivity checks allowing for differing price elasticities of demand between rich and poor confirm this result for most of fuels. A tax on kerosene is the only fuel tax that is regressive in all situations.     

Norwegian climate policy reforms in the presence of an international quota market

This study shows that the second-best optimal difference between tax rates on goods that generate greenhouse gas emissions and non-polluting goods is equal to the quota price plus a Ramsey tax on the quota price when emission quotas are traded between governments and the price elasticity of these goods is identical. This tax difference exceeds the second-best optimal difference between tax rates on goods that generate a negative externality equivalent to the quota price and non-polluting goods. Model simulations show that a unilateral increase in emission tax to above the international quota price generates a welfare gain for Norway. Model simulations also show that an international tax/quota price increase generates a welfare gain (loss) for Norway if Norwegian imports of oil become substantial (marginal) in the long run.     

Electricity demand for Sri Lanka: A time series analysis

This study estimates electricity demand functions for Sri Lanka using six econometric techniques. It shows that the preferred specifications differ somewhat and there is a wide range in the long-run price and income elasticities with the estimated long-run income elasticity ranging from 1.0 to 2.0 and the long-run price elasticity from 0 to −0.06. There is also a wide range of estimates of the speed with which consumers would adjust to any disequilibrium, although the estimated impact income elasticities tended to be more in agreement ranging from 1.8 to 2.0. Furthermore, the estimated effect of the underlying energy demand trend varies between the different techniques; ranging from being positive to zero to predominantly negative. Despite these differences, the forecasts generated from the six models up until 2025 do not differ significantly. It is therefore encouraging that the Sri Lanka electricity authorities can have some faith in econometrically estimated models used for forecasting. Nonetheless, by the end of the forecast period in 2025 there is a variation of around 452 MW in the base forecast peak demand that, in relative terms for a small electricity generation system like Sri Lanka's, represents a considerable difference.     

An analysis of the proposed Btu tax on the us economy

This paper examines the impacts of a Btu tax on energy on the United States economy. The analytical approach used in the analysis consisted of a general equilibrium model composed of fourteen producing sectors, fourteen consuming sectors, six household categories classified by income and a government. The effects of imposing a tax on natural gas, coal, and nuclear power of 25.7 cents per million Btu and a tax on refined petroleum products of 59.9 cents per million Btu on prices and quantities are examined. The results are revealing. For example, a Btu tax on energy imposed at the point of production will result in lower output by the producing sectors (by about $122.4 billion), a decrease in the consumption of goods and services (by about $64.6 billion), and a reduction in welfare (by about $66.6 billion). The government would realize an increase in revenue of about $50.5 billion. In the case of the Btu tax being imposed at the point of consumption, there will be lower output by the producing sectors (by about $83.7 billion), a reduction in the consumption of goods and services (by about $48.3 billion), and a reduction in welfare (by about $49.5 billion). The government would realize an increase in revenue of $41.3 billion. Finally, when subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities.     

Energy and economic growth in industrializing countries: The case of Greece

This paper investigates some aspects of the interrelated paths of economic growth and energy demand, in the case of an industrializing economy, through the use of numerous econometric models. Translog functions have helped establish that income and price elasticities of energy, two critical parameters in the energy– economy interaction, exhibit falling trends with time. The value share of the industrial sector is strongly associated with both energy demand and energy intensity. Any increase in the former will lead to amplified increases in the latter, rendering the continuation of past trends in industrial expansion questionable under conditions of high energy costs. Substitution among capital, labour and energy does take place, though to a limited extent, as indicated by the aggregate measure of energy/non-energy substitution elasticity. All findings appear to suggest that energy policymaking, in an industrializing country like Greece, will be of low effectiveness until certain structural changes in the economy are realized.     

Analyzing carbon pricing policies using a general equilibrium model with production parameters estimated using firm data

Policy simulation results of Computable General Equilibrium (CGE) models largely hinge on the choices of substitution elasticities among key input factors. Currently, most CGE models rely on the common elasticities estimated from aggregated data, such as the GTAP model elasticity parameters. Using firm level data, we apply the control function method to estimate CES production functions with capital, labor and energy inputs and find significant heterogeneity in substitution elasticities across different industries. Our capital-labor substitution elasticities are much lower than the GTAP values while our energy elasticities are higher. We then incorporate these estimated elasticities into a CGE model to simulate China's carbon pricing policies and compare with the results using GTAP parameters. Our less elastic K-L substitution leads to lower base case GDP growth, but our more elastic energy substitution lead to lower coal use and carbon emissions. In the carbon tax policy exercises, we find that our elasticities lead to easier reductions in coal use and carbon emissions.