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.     

Improving energy consumption structure: A comprehensive assessment of fossil energy subsidies reform in China

Fossil energy subsidies reform would be an effective way to improve the energy consumption structure; however, the reform needs to be assessed comprehensively beforehand as it would exert uncertain impacts on economy, society and environment. In this paper, we use price-gap approach to estimate the fossil energy subsidies of China, then establish CGE model that contains pollutant emissions accounts and CO₂ emissions account to stimulate the fossil energy subsidies reform under different scenarios, and the environmental economic analysis concept is introduced to monetize the pollutant reduction benefits. Furthermore, we analyze the possibility and scope of improving the energy consumption structure from the perspective of technical and economic analysis. Analytical results show that the energy consumption structure could be improved by different extent by removing coal or oil subsidies, while the economic and social indexes will be influenced distinctively. Meanwhile, the effects of cutting coal subsidies are more feasible than that of cutting oil subsidies overall. It is recommended to implement fossil energy subsidies gradually, cut the coal first and then cut oil subsidies successively.     

Dynamics of the oil transition: Modeling capacity,depletion, and emissions

The global petroleum system is undergoing a shift to substitutes for conventional petroleum (SCPs). The Regional Optimization Model for Emissions from Oil Substitutes, or ROMEO, models this oil transition and its greenhouse gas impacts. ROMEO models the global liquid fuel market in an economic optimization framework, but in contrast to other models it solves each model year sequentially, with investment and production optimized under uncertainty about future prevailing prices or resource quantities. ROMEO includes more hydrocarbon resource types than integrated assessment models of climate change. ROMEO also includes the carbon intensities and costs of production of these resources. We use ROMEO to explore the uncertainty of future costs, emissions, and total fuel production under a number of scenarios. We perform sensitivity analysis on the endowment of conventional petroleum and future carbon taxes. Results show incremental emissions from production of oil substitutes of ≈ 0–30 gigatonnes (Gt) of carbon over the next 50 years (depending on the carbon tax). Also, demand reductions due to the higher cost of SCPs could reduce or eliminate these increases. Calculated emissions are highly sensitive to the endowment of conventional oil and less sensitive to a carbon tax.     

Effectiveness of local air pollution and GHG taxes: The case of Chilean industrial sources

In 2017, environmental taxes began to be applied to CO₂, PM, NOx and SO₂ emissions in Chile to reduce the negative environmental effects of fossil fuels burned in industrial and thermoelectric sources with a thermal power greater than or equal to 50 MW. In this context, the present study generates an economic optimization model to simulate how different tax scenarios would modify the behavior of regulated industrial sources considering the alternatives they have to minimize their costs (tax payment, fuel change and/or installation of abatement technologies). The main results show that, under the current tax scenario, CO₂, PM and SO₂ emissions would decrease by 11%, 48% and 49% respectively, while NO_X emissions would increase by 5%. By extending the tax to all industrial sources regardless of their thermal power, CO₂, PM and SO₂ emissions would decrease respectively by 14%, 98% and 66%, while NO_X emissions would increase by 7.1%. Finally, it is determined that modifying the tax rate of a single pollutant while maintaining the rest of the constant rates generates a low impact on the other pollutants emissions.     

Energy demand and environmental taxes: the case of Greece

The purpose of this paper is to analyze the effects that energy taxes may have on reducing environmental pollution in Greece. We study the demand for residential energy for the period 1965–1998, and on the basis of these estimates we make forecasts for CO₂ emissions in the coming years. Furthermore we develop alternative scenarios for tax changes, and study their effects on CO₂ emissions. According to our findings the harmonization of the Greek energy taxes to the average European Union levels implies an increase of total CO₂ emissions by 6% annually. If taxes are raised, however, to the highest European Union levels, the CO₂ emissions are restricted significantly. These empirical findings may indicate that environmental taxation cannot be the unique instrument for combating pollution.     

Coproduction of district heat and electricity or biomotor fuels

The operation of a district heating system depends on the heat load demand, which varies throughout the year. In this paper, we analyze the coproduction of district heat and electricity or biomotor fuels. We demonstrate how three different taxation scenarios and two crude oil price levels influence the selection of production units to minimize the district heat production cost and calculate the resulting primary energy use. Our analysis is based on the annual measured heat load of a district heating system. The minimum-cost district heat production system comprises different production units that meet the district heat demand and simultaneously minimize the district heat production cost. First, we optimize the cost of a district heat production system based on the cogeneration of electricity and heat with and without biomass integrated gasification combined-cycle technology. We considered cogenerated electricity as a byproduct with the value of that produced by a condensing power plant. Next, we integrate and optimize different biomotor fuel production units into the district heat production system by considering biomotor fuels as byproducts that can substitute for fossil motor fuels. We demonstrate that in district heating systems, the strengthening of environmental taxation reduces the dependence on fossil fuels. However, increases in environmental taxation and the crude oil price do not necessarily influence the production cost of district heat as long as biomass price is not driven by policy measures. Biomotor fuel production in a district heating system is typically not cost-efficient. The biomotor fuels produced from the district heating system have to compete with those from standalone biomotor fuel plants and also with its fossil-based counterparts. This is also true for high oil prices. A carbon tax on fossil CO₂ emissions based on social cost damage will increase the competitiveness of biomass-based combined heat and power plants, especially for BIGCC technology with its high electricity-to-heat ratio.     

Impact of a carbon tax on the Chilean economy: A computable general equilibrium analysis

In 2009, the government of Chile announced their official commitment to reduce national greenhouse gas emissions by 20% below a business-as-usual projection by 2020. Due to the fact that an effective way to reduce emissions is to implement a national carbon tax, the goal of this article is to quantify the value of a carbon tax that will allow the achievement of the emission reduction target and to assess its impact on the economy.The approach used in this work is to compare the economy before and after the implementation of the carbon tax by creating a static computable general equilibrium model of the Chilean economy. The model developed here disaggregates the economy in 23 industries and 23 commodities, and it uses four consumer agents (households, government, investment, and the rest of the world). By setting specific production and consumptions functions, the model can assess the variation in commodity prices, industrial production, and agent consumption, allowing a cross-sectoral analysis of the impact of the carbon tax. The benchmark of the economy, upon which the analysis is based, came from a social accounting matrix specially constructed for this model, based on the year 2010.The carbon tax was modeled as an ad valorem tax under two scenarios: tax on emissions from fossil fuels burned only by producers and tax on emissions from fossil fuels burned by producers and households. The abatement cost curve has shown that it is more cost-effective to tax only producers, rather than to tax both producers and households. This is due to the fact that when compared to the emission level observed in 2010, a 20% emission reduction will cause a loss in GDP of 2% and 2.3% respectively. Under the two scenarios, the tax value that could lead to that emission reduction is around 26 US dollars per ton of CO₂-equivalent. The most affected productive sectors are oil refinery, transport, and electricity — having a contraction between 7% and 9%. Analyzing the electricity sector by energy source, the production of electricity from fossil fuels will decrease by 11%, but electricity from renewables will increase by 43%. Electricity producers will pass the cost of the carbon tax to the consumer by increasing the price of electricity by 8%.The findings of this paper will allow policy makers to take better and more informed decisions, by providing a cross-sectoral analysis of the impact on the economy of reducing emissions by 20% by implementing a national carbon tax.     

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.     

Competition between biomass and food production in the presence of energy policies: a partial equilibrium analysis

Bioenergy has several advantages over fossil fuels. For example, it delivers energy at low net CO₂ emission levels and contributes to sustaining future energy supplies. The concern, however, is that an increase in biomass plantations will reduce the land available for agricultural production. The aim of this study is to investigate the effect of taxing conventional electricity production or carbon use in combination with subsidizing biomass or bioelectricity production on the production of biomass and agricultural commodities and on the share of bioelectricity in total electricity production. We develop a partial equilibrium model to illustrate some of the potential impacts of these policies on greenhouse gas emissions, land reallocation and food and electricity prices. As a case study, we use data for Poland, which has a large potential for biomass production. Results show that combining a conventional electricity tax of 10% with a 25% subsidy on bioelectricity production increases the share of bioelectricity to 7.5%. Under this policy regime, biomass as well as agricultural production increase. A carbon tax that gives equal net tax yields, has better environmental results, however, at higher welfare costs and resulting in 1% to 4% reduction of agricultural production.     

Spatial and temporal optimization of hydrogen fuel supply chain for light duty passenger vehicles in British Columbia

British Columbia is well positioned to capitalize on its natural resources and its carbon policies towards the development of a hydrogen fueling network. A multi-period optimization model was developed to design a hydrogen fuel supply chain based on a mixed integer linear programming formulation. The model was applied to the light duty passenger vehicle sector in British Columbia under three hydrogen demand scenarios. As part of the objective function, the model incorporated the current provincial emissions mitigation policies, i.e., a carbon tax and a low-carbon fuel standard (LCFS). Based on cost, our model indicates that steam methane reforming (SMR) is the least costly hydrogen production technology even with carbon policies in place. However, SMR would result in higher emissions (compared to other pathways). Coupling the carbon tax with the LCFS can be a suitable policy option when hydrogen price and GHG emissions are weighted equally.     

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.     

Biofuel market and carbon modeling to analyse French biofuel policy

In order to comply with European Union objectives, France has set up an ambitious biofuel plan. This plan is evaluated on the basis of two criteria: tax exemption on fossil fuels and greenhouse gases (GHG) emission savings. An economic marginal analysis and a life cycle assessment (LCA) are provided using a coupling procedure between a partial agro-industrial equilibrium model and an oil refining optimization model. Thus, we determine the minimum tax exemption needed to place on the market a targeted quantity of biofuel by deducting the biofuel long-run marginal revenue of refiners from the agro-industrial marginal cost of biofuel production. With a clear view of the refiner's economic choices, total pollutant emissions along the biofuel production chains are quantified and used to feed an LCA. The French biofuel plan is evaluated for 2008, 2010 and 2012 using prospective scenarios. Results suggest that biofuel competitiveness depends on crude oil prices and demand for petroleum products and consequently these parameters should be taken into account by authorities to modulate biofuel tax exemption. LCA results show that biofuel production and use, from “seed to wheel”, would facilitate the French Government's compliance with its “Plan Climat” objectives by reducing up to 5% GHG emissions in the French road transport sector by 2010.     

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.     

Design of sustainable second-generation biomass supply chains

Operational and economic trade-offs in the design of second-generation biomass (SGB) supply chains guide the decisions about plant scale and location as well as biomass collection routes. This paper compares different SGB supply chain designs with a focus on mobile pyrolysis plants and centralized versus decentralized collection of biomass in terms of economic and environmental sustainability. Pyrolysis scenarios are also compared to fuel-upgrading and electricity production scenarios.The empirical context of this paper is based on a scenario analysis for processing lignocellulosic biomass, particularly landscape wood, reed and roadside grass available in the Overijssel region (Eastern Netherlands). Four scenarios are compared: (1) mobile pyrolysis plant processes the locally available biomass on-site into pyrolysis oil which is sent to a regional biofuel production unit for upgrading to marketable biofuel; (2) local biomass is collected and transported to a regional pyrolysis-based biofuel production unit for upgrading to a marketable biofuel; (3) mobile pyrolysis plant performs the on-site conversion to pyrolysis oil which is transported to an oil refinery outside the region (Rotterdam); and (4) collected biomass is sent to the nearest electricity production unit to generate electricity.The results show that processing SGB is costly and upgraded oil and refined oil are at least 65% more expensive compared to their fossil counterparts. In terms of economic and environmental performance, the mobile plant performs slightly better than a fixed plant. The energy output/input ratio range is between 6.99 and 7.54 and CO₂ emissions range is between 96 and 138 kg CO₂/t upgraded oil.     

Role of natural gas in meeting an electric sector emissions reduction strategy and effects on greenhouse gas emissions

With advances in natural gas extraction technologies, there is an increase in the availability of domestic natural gas, and natural gas is gaining a larger share of use as a fuel in electricity production. At the power plant, natural gas is a cleaner burning fuel than coal, but uncertainties exist in the amount of methane leakage occurring upstream in the extraction and production of natural gas. At higher leakage levels, the additional methane emissions could offset the carbon dioxide emissions reduction benefit of switching from coal to natural gas. This analysis uses the MARKAL linear optimization model to compare the carbon emissions profiles and system-wide global warming potential of the U.S. energy system over a series of model runs in which the power sector is required to meet a specific carbon dioxide reduction target across a number of scenarios in which the availability of natural gas changes. Scenarios are run with carbon dioxide emissions and a range of upstream methane emission leakage rates from natural gas production along with upstream methane and carbon dioxide emissions associated with production of coal and oil. While the system carbon dioxide emissions are reduced in most scenarios, total carbon dioxide equivalent emissions show an increase in scenarios in which natural gas prices remain low and, simultaneously, methane emissions from natural gas production are higher.     

The feasibility of co-firing biomass for electricity in Missouri

Bioenergy is one of the most significant energy resources with potential to serve as a partial replacement for fossil. As an agricultural state, Missouri has great potential to use biomass for energy production. In 2008, Missouri adopted a renewable portfolio standard (RPS) yet about 80% of its power supply still comes from coal. This paper describes a feasibility study of co-firing biomass in existing coal-powered plants in Missouri. Specifically, this study developed a linear programming model and simulated six scenarios to assess the economic feasibility and greenhouse gas impacts of co-firing biomass in existing qualified coal power plants in Missouri.The results of this study indicate that although co-firing can reduce the emissions of GHG and environmental pollutants, it is still not an economically feasible option for power generation without additional economic or policy incentives or regulations which could take environmental costs into account. Based on these results, strategies and policies to promote the utilization of biomass and to increase its competitiveness with fossil fuels are identified and discussed.     

Market,welfare and land-use implications of lignocellulosic bioethanol in Hawai'i

This article examines land-use, market and welfare implications of lignocellulosic bioethanol production in Hawai'i to satisfy 10% and 20% of the State's gasoline demand in line with the State's ethanol blending mandate and Alternative Fuels Standard (AFS). A static computable general equilibrium (CGE) model is used to evaluate four alternative support mechanisms for bioethanol. Namely: i) a federal blending tax credit, ii) a long-term purchase contract, iii) a state production subsidy financed by a lump-sum tax and iv) a state production subsidy financed by an ad valorem gasoline tax. We find that because Hawaii-produced bioethanol is relatively costly, all scenarios are welfare reducing for Hawaii residents: estimated between −0.14% and −0.32%. Unsurprisingly, Hawaii's economy and its residents fair best under the federal blending tax credit scenario, with a positive impact to gross state product of $49 million. Otherwise, impacts to gross state product are negative (up to −$63 million). We additionally find that Hawaii-based bioethanol is not likely to offer substantial greenhouse gas emissions savings in comparison to imported biofuel, and as such the policy cost per tonne of emissions displaced ranges between $130 and $2100/tonne of CO₂e. The policies serve to increase the value of agricultural lands, where we estimate that the value of pasture land could as well.     

Distributional effects of subsidy removal and implementation of carbon taxes in Mexican households

This paper presents a microsimulation using data from the National Households Income and Expenditure Survey (NHIES) from 1994 to 2010 to determine the distributional effects of the price changes arising from energy and environmental policies and their impact on Mexican households.We reported simulations of several changes in energy prices as a result of partial or total energy subsidy removal, including carbon tax. In order to examine whether the subsidy mechanism and carbon tax tend to be progressive or regressive, we evaluated the households' burden in different income levels.These simulations respond to the need for an assessment of economic and environmental impacts of energy subsidies in Mexico. This is of great importance for Mexico because of effort that has been taken in the development of energy policies, and the rising interest of the Mexican government in mitigating carbon dioxide (CO₂) emissions and their concomitant environmental damage.     

Potential of green ammonia production in India

The threat of climate change is forcing the world to decarbonize all economic sectors. Ammonia primarily used for fertilizer production and a potential, ‘hydrogen carrier’ currently accounts for ~27% of global hydrogen consumption and ~1% of global greenhouse gas emissions. In this analysis, we assess the techno-economic potential of ammonia production using onshore wind, open-field photovoltaic and batteries for both domestic usage and export scenarios in India, which is currently one of the world's largest producer and importer of ammonia. Our results reveal that India's potential can comfortably satisfy global ammonia demand with lowest ammonia costs of 723 EUR/t_NH3 and 765 EUR/t_NH3 for the domestic and export scenario, respectively. To compete with conventional ammonia production a carbon tax of 224–335 €/t_CO2 would be required. Finally, costs of shipping liquid hydrogen and the ‘hydrogen carrier’ ammonia are similar here giving other economic, environmental and safety factors higher relevance.     

Reformulating taxes for an energy transition

An energy transition toward clean energy sources would reduce environmental impacts. One proposal to trigger this energy transition uses economic instruments, particularly environmental taxes. This research studies the potential impact of taxes on electricity on the environment and the economy. Using a dynamic computable general equilibrium model for Spain with energy and environmental extensions, we assess their current impact on GDP growth, energy use, and a set of different pollutant emissions. Then we propose a reform that would foster an energy transition toward clean energies and assess their economic and environmental impact. We find that only taxing the production of electricity by coal, oil, and natural gas can be better for the environment and economy than taxing all forms of electricity production in a revenue-neutral context. Moreover, the production of electricity by biomass, though considered renewable, is an important source of pollutant emissions and, in these terms, should have less importance in an energy transition.