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.     

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.     

Measuring the value of induced technological change

In this paper, we analyze the value of induced technological change (ITC) for cutting the costs of reaching climate stabilization targets using techniques from the tax burden literature. First, ITC is valuable as it increases the elasticity of emissions with respect to carbon prices, and thereby it decreases the burden associated with an enforced emission reduction. Second, under ITC, emission abatement may generate a positive learning dividend when the social value of the induced change in learning exceeds its costs. We discuss under which assumptions we expect ITC to turn out a valuable feature, or not. We also carry out a numerical analysis with two models, one focusing on energy savings, the other focusing on energy transition. The models suggest that both the decreased carbon tax burden and the learning dividend gain can be substantial, compared to the costs of abatement without ITC.     

Reevaluating the first and the second dividends of environmental tax reforms

There is increasing global interest in market-based climate change policies following the last elections in the United States. In this context an Exxon Mobil chief executive came out in favour of a carbon tax. This paper is concerned with the welfare analysis of Environmental Tax Reforms (ETR), and takes up the claims for the need of an unambiguous and operative definition of the double dividend both for empirical purposes and political advisement. In this paper, we contest the usual definition of the second dividend and its assimilation to an “efficiency dividend”. We propose alternative definitions by suggesting a different splitting of the total welfare variation between the first and the second dividend in order to isolate the efficiency effects of the ETR. The new definitions become clearly understandable and easy for economic and policy interpretation. Concepts like “weak” and “strong” double dividend turn out to be unnecessary. Finally, we analyze ETR for the US economy to illustrate the advantages of the proposed definitions for policy implementation.     

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.     

Optimal green tax reforms yielding double dividend

In an stylized endogenous growth economy with a negative externality created by CO2 emissions and in which abatement activities are made by private firms, we find a wide range of dynamically feasible green tax reforms yielding the double dividend without any need to assume a complex production structure or tax system, or a variety of externalities in production. As a remarkable finding, we obtain certain scenarios in which increasing the emissions tax up to the Pigouvian level and removing completely the income tax is dynamically feasible and, also, it is the second-best reform. Hence, as a difference to previous literature, in these scenarios the first-best tax mix is implementable, allowing for the elimination of both environmental and non-environmental inefficiencies. Our result arises because of the consideration of public debt issuing and the management of the government budget balance with an intertemporal perspective. The result is obtained for an intermediate range of environmental bearing in preferences, the valid range being contingent on the pre-existing income tax rate. The type of tax reform that we propose could also be implemented for different energy taxes.     

Gradual green tax reforms

Green tax reforms have become an important tool not only in protecting the environment but also in bringing about a more efficient tax system. However, reforms often imply accepting sacrifices in the short-run and bring about the risk of potential political opposition. Within this framework, the debate on whether to implement green tax reforms in one-step or gradually becomes of great interest. In this paper, we use a dynamic general equilibrium model, calibrated to the Spanish economy, to evaluate different reforms that consist in increasing energy taxes and adjusting capital taxation in a revenue-neutral framework. Our findings show that, although an environmental dividend is always granted, the existence of an efficiency dividend depends on the type of reform, its size and how gradually it is implemented. Thus, one-step reforms that produce an efficiency dividend would imply large efficiency costs in the short-run. In this case, the reform could only produce efficiency gains in the short-run if it is implemented gradually, although such gains would end up disappearing in the long-run.     

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.     

Biofuel subsidies versus the gas tax: The carrot or the stick?

This paper provides an analytical framework to examine the relative efficiencies of a revenue-neutral biofuel subsidy and a gas tax in the presence of pre-existing distortions and growing substitutability between fuels. Both policies are set to achieve a targeted reduction in gasoline use at the state level. The model is then calibrated for a small open economy such as Illinois which is one of the largest producers of biofuels such as ethanol in the U.S. The main result of the paper shows that raising the biofuel subsidy use reduces overall welfare by more than a higher gas tax, both aimed to achieve a targeted reduction in pure gasoline. The relative efficiency of the higher gas tax is primarily due to it exacerbating the pre-existing distortion in the biofuel market by less than the subsidy. Moreover, for current parameter estimates welfare improving policy combinations for achieving a targeted amount of energy security are higher gas taxes combined with lower biofuel subsidies and a lower tax on income. However, the preference for a gasoline–labor tax swap shrinks as the elasticity of substitution between the two fuels rises.     

How does tax system on energy industries affect energy demand,CO2 emissions,and economy in China?

Energy savings and CO₂ emission reduction have become a major issue in recent years. Taxes on energy production sectors may be an effective way to save energy, reduce CO₂ emissions, and improve environmental quality. This paper constructs a dynamic recursive Computable General Equilibrium (CGE) model to analyze the impact of the energy tax on energy, economy, and environment from the perspective of tax rates and tax forms (specific tax and ad valorem tax). The results show that adjusting the tax system and the tax rate has important implications for energy conservation while having minor impacts on the output of other industries. The impact of an increasing energy tax on the energy demand is greater than the impact on sectoral output, indicating that energy efficiency will be increased to some extent. The CO₂ reduction will increase over time when an ad valorem tax is implemented on enterprises. We found that ad valorem tax has greater elasticity of economic output, energy demand, and CO₂ emission reduction. The results support the direction of China's resource tax reform. However, we argue that it is better to increase the tax rate relatively and relax the control on energy prices so that energy efficiency will increase.     

基于广义Leontief函数的峰谷分时电价用户响应研究

基于广义Leontief函数建立了电价替代弹性模型,利用峰谷分时电价用户历史数据求解不同高峰时段电价替代弹性,并进一步分析了替代弹性和高峰时段时长与划分的关系。结果表明,高峰时段较短时替代弹性较大,说明用户对电价响应较好,随着高峰时段的延长,替代弹性下降比较明显,实例亦验证了替代弹性与高峰时段划分的相关性。     

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.     

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.     

Does carbon intensity constraint policy improve industrial green production performance in China? A quasi-DID analysis

Whether or not carbon regulation policies can achieve the “double dividend” of carbon reduction and economic growth is vital for realizing the sustainable development of a certain country. This paper investigates the effects of a carbon intensity constraint policy (CICP) that the Chinese government put forward in 2009 on the green production performance (GPP, i.e., the environmentally sensitive productivity growth considering carbon emissions to be an undesirable output) of industrial sector (the largest carbon emitter in China) for the first time. Based on a non-radial and non-oriented DEA (data envelopment analysis) measure method, we first adopt the Luenberger indicator to estimate the GPP of China's 36 industrial sub-sectors over 2001–2013. Furthermore, regarding the CICP proposed in 2009 as a natural experiment, we assess the effects of such a policy on China's industrial GPP by using the quasi-difference-in-differences (quasi-DID) method. The results show that China's industrial GPP presents a circuitous downward trend after experiencing a transient rise. The heterogeneity of the GPP among industrial sub-sectors exists, and the increase in industrial output is the crucial driver of improving the GPP. China's industrial GPP has deteriorated after implementing the CICP, and the negative effect of such a policy is larger and larger over time. Such empirical results indicate that although the carbon regulation policy in China has achieved a surface success, the policy causes a factor substitution effect to hinder the improvement of the GPP. Therefore, China's current CICP is not effective in realizing the “double dividend” of carbon reduction and industrial growth.     

Are green hopes too rosy? Employment and welfare impacts of renewable energy promotion

In view of pressing unemployment problems, policy makers across all parties jump on the prospects of renewable energy promotion as a job creation engine which can boost economic well-being. Our analytical model shows that initial labor market rigidities in theory provide some scope for such a double dividend. However, the practical outcome of renewable energy promotion might be sobering. Our computable general equilibrium analysis of subsidized electricity production from renewable energy sources (RES-E) in Germany suggests that the prospects for employment and welfare gains are quite limited and hinge crucially on the level of the subsidy rate and the financing mechanism. If RES-E subsidies are financed by labor taxes, welfare and employment effects are strictly negative for a broad range of subsidy rates. The use of an electricity tax to fund RES-E subsidies generates minor benefits for small subsidy rates but these benefits quickly turn into significant losses as the subsidy rate exceeds some threshold value.     

Lifecycle economic analysis of biofuels: Accounting for economic substitution in policy assessment

This paper develops a lifecycle economic analysis (LCEA) model that integrates endogenous input substitution into the standard lifecycle analysis (LCA) of biofuel that typically assumes fixed-proportions production. We use the LCEA model to examine impacts of a pure carbon tax and a revenue-neutral tax-subsidy policy on lifecycle greenhouse gas emissions from cellulosic ethanol using forest residues as feedstock in Washington State. In a model allowing for input substitution in the cellulosic ethanol feedstock, conversion, and transportation process, we consider energy source substitution (woody biomass for coal in the cellulosic ethanol conversion plant and biodiesel for diesel in feedstock production and feedstock and ethanol transportation) as well as substitution of capital and labor for energy in all stages of the lifecycle. We find that ignoring endogenous input substitution by using standard LCA leads to substantial underestimation of the impact of carbon tax policies on carbon emissions. Both tax policies can substantially reduce carbon emissions by inducing substitution among inputs. The revenue-neutral tax-subsidy policy reduces emissions more effectively than the carbon tax policy for carbon tax rates currently in place throughout most of the world. It stimulates substitution of woody biomass for coal and biodiesel for diesel at much lower tax rates when accompanied by corresponding subsidies for reduced emissions from renewable sources.     

Energy security,energy modelling and uncertainty

The paper develops a framework to analyze energy security in an expected utility framework, where there is a risk of disruption of imported energy. The analysis shows the importance of an energy tax as a tool in maximizing expected utility, and how the level of that tax varies according to the key parameters of the system: risk aversion, probability of disruption, demand elasticity and cost of disruption.     

Implementing a double dividend: recycling ecotaxes towards lower labour taxes

In this paper, we follow the tradition of applied general equilibrium modelling of the Walrasian static variety to study the empirical viability of a double dividend (green, welfare, and employment) in the Spanish economy. We consider a counterfactual scenario in which an ecotax is levied on the intermediate and final use of energy goods. Under a revenue neutral assumption, we evaluate the real income and employment impact of lowering payroll taxes. To appraise to what extent the model structure and behavioural assumptions may influence the results, we perform simulations under a range of alternative model and policy scenarios. We conclude that a double dividend—better environmental quality, as measured by reduced CO₂ emissions, and improved levels of employment—may be an achievable goal of economic policy.     

Ecological tax reform in Germany: handling two hot potatoes at the same time

Combining environmental with employment objectives, ecological tax reform (ETR) envisages a double dividend. While research has mainly focused on the socio-economic and environmental impacts of ETR, there is less literature on the social responses. This paper gives an overview and history of German ETR as well as investigating the understanding of perceptions and attitudes towards ETR of those being “subject to tax”. The research is based on qualitative social research methods. As with the other PETRAS papers, interviews were conducted with policy-makers and business leaders and focus groups were formed with lay persons. The results show that responses of policy-makers and business leaders are modest. Although some criticisms about the specific design of the German ETR remain, complaints towards ETR are settled. Attitudes appear influenced by more fundamental convictions such as economic interest or altruistic views. In contrast, ETR appears to politicise common people. Attitudes are influenced by the overall comprehension of the ETR concept, the expected impacts, perceived information deficits, as well as a general distrust in politics. Our data show that the linking of environmental and employment objectives is not understood and not welcomed. In order to increase social acceptance, the paper discusses refocusing ETR on environmental objectives, modestly increasing the share of ETR revenue spent for environmental purposes, removing inconsistencies in the ETR design, and improving information policy.     

Energy taxes as a signaling device: An empirical analysis of consumer preferences

This paper presents an econometric study dealing with household demand in Sweden. The main objective is to empirically examine the differences in consumer reaction to the introduction of, or the change, in environmental taxes. Main focus is on environmental taxes as a signaling device. The hypothesis is that the introduction of an environmental tax provides new information about the properties of the directly taxed goods. This in turn may affect consumer preferences for these goods, hence altering the consumption choice. The result from the econometric analysis shows that all goods have negative own-price elasticities, and positive income elasticities. Concerning the signalling effect of environmental taxes the results are somewhat ambiguous. The tax elasticity for energy goods used for heating seems to be significantly higher than the traditional price elasticity, whereas the opposite seems to be the case for energy goods used for transportation.