Modelling the impacts of a carbon emission-differentiated vehicle tax system on CO2 emissions intensity from new vehicle purchases in Ireland

The increasing awareness of the effects of climate change on the environment and the economic pressure on oil supply has focused international attention on reducing CO₂ emissions and energy usage across all sectors. In order to meet their Kyoto protocol commitments and in line with European Union policy, the Irish government has introduced a carbon-based tax system for new vehicles purchased from the 1st of July 2008. This new legislation aims to reduce carbon emissions in the transport sector, a sector which is responsible for a significant proportion of both. This paper presents the results of the development, calibration, and application of a car choice model which predicts the changes in CO₂ emissions intensity from new vehicle purchases as a result of the changes in vehicle tax policy and fuel price in Ireland. The model also predicts the impact of such changes on tax revenue for the Irish government and the changes in the split between the number of diesel and petrol vehicles purchased. The investigation found that the introduction of these new carbon-based taxes in Ireland will result in a reduction of 3.6–3.8% in CO₂ emissions intensity and a reduction in annual tax revenue of €191 M.     

Plug-in vehicles and the future of road infrastructure funding in the United States

In the United States, road infrastructure funding is declining due to an increase in fuel efficiency and the non-adjustment of fuel taxes to inflation. Legislation to tax plug-in vehicles has been proposed or implemented in several states. Those propositions are contrary to policies to promote fuel efficient vehicles. This paper assesses (1) the magnitude of the decline in federal fuel tax revenue caused by plug-in vehicles and (2) quantifies the revenue that could be generated from a federal plug-in vehicle registration fee. We find that the contribution of plug-in vehicles to the decline of the federal fuel tax revenue is at most 1.6% and the majority of the shortfall can be attributed to the non-adjustment of the fuel tax rate and the increase in vehicle fuel efficiency by 2040. An additional tax of $50–$200 per plug-in vehicle per year in the reference case would generate $188–$745 million in 2040 which represents an increase of 1.69–6.71% in federal fuel tax revenue compared to no tax. The lesson for policy makers is that plug-in vehicles do not contribute significantly to the funding shortfall in the short- and medium-run and a supplemental tax would generate a small percentage of additional revenue.     

Measuring effectiveness of carbon tax on Indian road passenger transport: A system dynamics approach

The objective of this study is to examine whether carbon tax as a mitigation instrument could be effective in reducing CO₂ emissions from road passenger transport in India. A simulation exercise with system dynamics modelling is used to explore various scenarios pertaining to the carbon tax on fuel. To validate the model, available data from 2000 to 2011 on major variables such as CO₂ emissions, passenger kilometre travelled and GDP growth rate has been used in the paper as a reference case. Findings from scenario analysis using different tax rates indicate a potential reduction in CO₂ emissions in the range of 26 to 40% as compared to a baseline scenario in 2050. The analysis shall assist policymakers in designing an appropriate rate of the carbon tax and optimise its effect through revenue recycling.     

Accounting for behavioral effects of increases in the carbon dioxide (CO2) tax in revenue estimation in Sweden

In this paper we describe how behavioral responses of carbon dioxide (CO₂) tax increases are accounted for in tax revenue estimation in Sweden. The rationale for developing a method for this is a mix between that a CO₂ tax is a primary climate policy tool aiming to reduce CO₂ emissions and that the CO₂ tax generates sizable tax revenues.     

Quantitative analysis of energy-efficiency strategy on CO2 emissions in the residential sector in Japan – Case study of Iwate prefecture

This study examines the economics of energy-efficiency strategies for reducing CO₂ emissions in the residential sector in Japan from the perspective of regional characteristics. For this study, the residential sector in Iwate prefecture was selected as representative of rural areas in Japan. In order to promote purchases of energy-efficient consumer appliances, the prefectural government is presumed to reimburse purchasers a part of the cost difference between energy efficient and conventional appliances. This paper begins with a discussion of the prefecture’s financial support for purchasers of energy efficient appliances and assumes that the payments come from prefectural government funds. This paper then looks at the effect of a carbon-tax refund on the reduction of CO₂ emissions. The results show that, if half of the households use energy-efficient appliances, then CO₂ emissions in the residential sector in the year 2020 will decreases from the BAU scenario, 0.726 Mt-C to 0.674 Mt-C. However, the Iwate prefectural government expends $105 million annually, which is 1.5% of the total tax revenue in the year 2003. The carbon-tax refund effectively encourages further reductions in CO₂ emissions. Under the $20/tC carbon tax, proposed by the Ministry of the Environment, the carbon-tax refund leads to a reduction in residential CO₂ emissions from 0.726 Mt-C to 0.712 Mt-C.     

Energy taxation and the double dividend effect in Taiwan's energy conservation policy—an empirical study using a computable general equilibrium model

Faced with pressure from greenhouse gas reductions and energy price hikes, the Taiwan government is in the process of developing an energy tax regime to reflect environmental external costs and effectively curb energy consumption, as well as mitigate CO₂ emissions through an adequate pricing system. This study utilizes a CGE model to simulate and analyze the economic impacts of the draft Energy Tax Bill and its complementary fiscal measures. Under the assumption of tax revenue neutrality, the use of energy tax revenue generated for the purpose of reducing income tax is the best choice with double dividend effects since it will effectively stimulate domestic consumption and investment, and, consequently, mitigate the negative impacts of the distortionary tax regime. The double dividend effect is less significant, however, when the supplementary measures being used are for government expenditure. Nevertheless, all supplementary measures have effectively reduced energy consumption, which means they have delivered at least the first dividend—in the sense of CO₂ emissions control. It has been verified in this study that having adequate public-finance policy measures is the key to realizing the double dividend effect.     

Analysis of the vehicle mix in the passenger-car sector in Japan for CO2 emissions reduction by a MARKAL model

Carbon dioxide (CO₂) emissions from the passenger-car sector in Japan are increasing rapidly and should be reduced cost-effectively in order to stabilize energy-related CO₂ emissions in Japan. The purpose of the present paper is to clarify the most cost-effective mix of vehicles for reducing CO₂ emissions and to estimate the subsidy that is necessary to achieve this vehicle mix. For this analysis, the energy system of Japan from 1988 to 2032 is modeled using a MARKAL model. The most cost-effective mix of vehicles is estimated by minimizing the total energy system cost under the constraint of an 8% energy-related CO₂ emissions reduction nationally by 2030 from the CO₂ emissions of 1990. Based on the results of the analysis, hybrid vehicles are the only type of clean-energy vehicle, and their share of the passenger car sector in 2030 will be 62%. By assuming the subsidization of hybrid vehicles, the same vehicle mix can be achieved without constraining CO₂ emissions. The peak of the total subsidy estimated to be necessary is 1.225 billion US$/year in 2020, but the annual revenue of the assumed 31 US$/t-C carbon tax from the passenger car sector is sufficient to finance the estimated subsidy. This suggests that we should support the dissemination of hybrid vehicles through subsidization based on carbon tax.     

A comparative analysis of energy and CO2 taxes on the primary energy mix for electricity generation

In many countries, economies are moving towards internalization of external costs of greenhouse‐gas (GHG) emissions. This can best be achieved by either imposing additional taxes or by using an emission‐permit‐trading scheme. The electricity sector is under scrutiny in the allocation of emission‐reduction objectives, not only because it is a large homogeneous target, but also because of the obvious emission‐reduction potential by decreasing power generation based on carbon‐intensive fuels. In this paper, we discuss the impact of a primary‐energy tax and a CO₂ tax on the dispatching strategy in power generation. In a case study for the Belgian power‐generating context, several tax levels are investigated and the impact on the optimal dispatch is simulated. The impact of the taxes on the power demand or on the investment strategies is not considered. As a conclusion, we find that a CO₂ tax is more effective than a primary‐energy tax. Both taxes accomplish an increased generation efficiency in the form of a promotion of combined‐cycle gas‐fired units over coal‐fired units. The CO₂ tax adds an incentive for fuel switching which can be achieved by altering the merit order of power plants or by switching to a fuel with a lower carbon content within a plant. For the CO₂ tax, 13 €/tonCO₂ is withheld as the optimal value which results in an emission reduction of 13% of the electricity‐related GHG emissions in the Belgian power context of 2000. A tax higher than 13 €/tonCO₂ does not contribute to the further reduction of GHGs. Copyright © 2005 John Wiley & Sons, Ltd.     

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.     

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.     

Dosis facit effectum why the size of the carbon tax matters: Evidence from the Swedish residential sector

After 25 years of gradually increasing its carbon tax, Sweden now imposes the world's highest tax on carbon dioxide emissions. This paper examines the effect of the Swedish carbon tax on residential carbon emissions by using European panel data. We employ synthetic control methods (SCMs) and perform difference-in-difference (DiD) regressions to evaluate the causal impact of carbon taxation on carbon emissions in the residential sector. We provide evidence that early-2000s carbon tax augmentation had a causal effect on residential carbon emissions. We find that the reduction of residential carbon emissions stemming from the carbon tax augmentation ranges from 200 kg (when compared with other countries with a carbon tax of more than 20 euro) to 800 kg (when compared with countries without a carbon tax) of CO₂ per capita per year. Hence, the evidence suggests that carbon taxation is an effective tool for reducing residential CO₂ emissions and, in turn, mitigating climate change.     

Assessing the role of renewable energy policies in landfill gas to energy projects

Methane (CH₄) is the second most prevalent greenhouse gas and has a global warming potential at least 28 times as high as carbon dioxide (CO₂). In the United States, Municipal Solid Waste (MSW) landfills are reported to be the third-largest source of human-made methane emissions, responsible for 18% of methane emissions in 2011. Capturing landfill gas (LFG) for use as an energy source for electricity or heat produces alternative energy as well as environmental benefits. A host of federal and state policies encourage the development of landfill gas to energy (LFGE) projects. This research provides the first systematic economic assessment of the role of these policies on adoption decisions. Results suggest that Renewable Portfolio Standards and investment tax credits have contributed to the development of these projects, accounting for 13 of 277 projects during our data period from 1991 to 2010. These policy-induced projects lead to 10.4 MMTCO₂e reductions in greenhouse gas emissions and a net benefit of $41.8 million.     

Taxing CO2 and subsidising biomass: analysed in a macroeconomic and sectoral model

This paper analyses the combination of taxes and subsidies as an instrument to enable a reduction in CO₂ emission. The objective of the study is to compare recycling of a CO₂ tax revenue as a subsidy for biomass use as opposed to traditional recycling such as reduced income or corporate taxation.A model of Denmark’s energy supply sector is used to analyse the effect of a CO₂ tax combined with using the tax revenue for biomass subsidies. The energy supply model is linked to a macroeconomic model such that the macroeconomic consequences of tax policies can be analysed along with the consequences for specific sectors such as agriculture. Electricity and heat are produced at heat and power plants utilising fuels which minimise total fuel cost, while the authorities regulate capacity expansion technologies. The effect of fuel taxes and subsidies on fuels is very sensitive to the fuel substitution possibilities of the power plants and also to the extent to which expansion technologies have been regulated.It is shown how a relatively small CO₂ tax of 15 US$/tCO₂ and subsidies for biomass can produce significant shifts in the fuel input-mix, when the expansion of production capacity is regulated to ensure a flexible fuel mix. The main finding is that recycling to biomass use will reduce the level of CO₂ tax necessary to achieve a specific emission reduction. Policies to ensure a more intensive use of such relatively expensive renewable energy sources as biomass could be implemented with only small taxes and subsidies.     

The impact of the proposed reduction in the motor fuels excise tax in the United States

The analysis in this paper examines the impact of reducing the excise tax on gasoline and diesel fuel on the United States economy. The analytical approach used in the analysis consists of a computable general equilibrium model composed of fourteen producing sectors, fourteen consuming sectors, six household categories classified by income and a government. The effects of a 4·3 cents per gallon reduction in the excise tax on gasoline and diesel fuel on prices and quantities are examined. The results suggest, for example, a decrease in the tax would result in higher output by the producing sectors (by about $2·86 billion), a expansion in the consumption of goods and services (by about $3·48 billion), and an increase in welfare (by about $3·59 billion). The government would realize a decrease in revenue of about $2·37 billion. When subjected to a sensitivity analysis, the results are reasonably robust with regard to the assumption of the values of the substitution elasticities. © 1997 John Wiley & Sons, Ltd.     

Federal policies for renewable electricity: Impacts and interactions

Three types of policies that are prominent in the federal debate over addressing greenhouse gas emissions in the United States are a cap-and-trade program (CTP) on emissions, a renewable portfolio standard (RPS) for electricity production, and tax credits for renewable electricity producers. Each of these policies would have different consequences, and combinations of these policies could induce interactions yielding a whole that is not the sum of its parts. This paper utilizes the Haiku electricity market model to evaluate the economic and technology outcomes, climate benefits, and cost-effectiveness of three such policies and all possible combinations of the policies. A central finding is that the carbon dioxide (CO₂) emissions reductions from CTP can be significantly greater than those from the other policies, even for similar levels of renewable electricity production, since of the three policies, CTP is the only one that distinguishes electricity generated by coal and natural gas. It follows that CTP is the most cost-effective among these approaches at reducing CO₂ emissions. An alternative compliance payment mechanism in an RPS program could substantially affect renewables penetration, and the electricity price effects of the policies hinge partly on the regulatory structure of electricity markets, which varies across the country.     

Analyzing the distributional effects of fuel taxation in China

As an effective policy instrument to reduce energy consumption and CO₂ emissions, the effects of fuel taxation on income distribution have been the critical factor that determines whether a fuel tax could be acceptable in China. This paper estimates the distributional effects of a fuel tax on households in various income groups by using the input-output model. Results indicate that the total distributional effects of fuel taxes are moderately progressive; that is, high-income households would bear more tax burden compared to low-income households. In addition, the indirect effects are larger than the direct effects. Moreover, the Kakwani and Suits indices show that fuel excise taxes are progressive, implying that a fuel tax could improve the unfair income distribution. In order to reduce the negative impact of fuel taxes on low-income households, it is necessary for the government to design a reasonable redistribution mechanism of tax revenue or adopt compensatory measures such as the transfer payments targeted on low-income groups.     

Emission trading schemes: potential revenue effects, compliance costs and overall tax policy issues

The case for the imposition of carbon (emission) taxes or tradable carbon permits in important tax jurisdictions is arguably strong, based upon the polluter pays principle first proposed by Pigou almost a century ago. This paper briefly reviews the arguments for and against these market-based instruments, and discusses their relative advantages and disadvantages in a practical context. In the case of Australia, the revenue effect of the proposed tradable carbon permits scheme is estimated to be A$11.5 billion in 2010–11. For comparison, this is roughly equivalent to a quarter of the revenue from the Goods and Services Tax. The paper focuses on three neglected aspects of climate change taxation discussion to date: how much tax revenue is likely to be raised, and the administrative and compliance costs of an emissions trading scheme, with particular reference to Australia. In discussing these issues, the paper draws upon selected and relevant international experience, particularly the European Union emissions trading scheme. The challenges of an emissions trading scheme, including integration with the existing tax system, particularly in an Australian context, are also discussed. The paper concludes by emphasising the key challenges and issues facing this ‘ultimate externality’ debate, particularly from a taxation policy perspective.     

Towards a low carbon growth in Mexico: Is a double dividend possible? A dynamic general equilibrium assessment

This paper simulates the medium- and long-term impact of proposed and expected energy policy on the environment and on the Mexican economy. The analysis has been conducted with a Multi-sector Macroeconomic Model for the Evaluation of Environmental and Energy policy (Three-ME). This model is well suited for policy assessment purposes in the context of developing economies as it indicates the transitional effects of policy intervention. Three-ME estimates the carbon tax required to meet emissions reduction targets within the Mexican “Climate Change Law”, and assesses alternative policy scenarios, each reflecting a different strategy for the recycling of tax revenues. With no compensation, the taxation policy would reduce CO₂ emissions by more than 75% by 2050 with respect to Business as Usual (BAU), but at high economic costs. Under full redistribution of carbon tax revenues, a double dividend arises: the policy appears beneficial both in terms of GDP and CO₂ emissions reduction.     

The “decarbonization” of the world’s energy matrix

“Decarbonizing” the world’s energy matrix is the strategy being implemented by most countries to reduce CO₂ emissions and thus contribute to achieve the ultimate objectives of the Climate Convention. The evolution of the carbon intensity (I_c=CO₂/GDP) in the period 1990–2007 was encouraging but not sufficient to reduce the growth of carbon emission. As a result of COP-15 in Copenhagen these countries (and regions) made pledges that could lead to more reduction: for the United States a 17% reduction in CO₂ emissions by 2020 below the level of 2005; for the European Union a 20% reduction in CO₂ emissions by 2020 below the 1990 level; for China a 40–45% reduction in the carbon intensity and for India a 20–25% reduction in carbon intensity by 2020. We analyzed the consequences of such pledges and concluded that the expected yearly rate of decrease of the carbon intensity follows basically the “business as usual” trend in the period 1990–2007 and will, in all likelihood, be insufficient to reduce carbon emissions up to 2020.     

The distributional implications of a carbon tax in Ireland

We study the effects of carbon tax and revenue recycling across the income distribution in the Republic of Ireland. In absolute terms, a carbon tax of €20/tCO₂ would cost the poorest households less than €3/week and the richest households more than €4/week. A carbon tax is regressive, therefore. However, if the tax revenue is used to increase social benefits and tax credits, households across the income distribution can be made better off without exhausting the total carbon tax revenue.