Environmental and Economic Analyses of the Carbon Tax Based on the Imputed Price Using Applied General Equilibrium Model:Taxation on All Industrial Sectors

Abstract

Considering the recent discussions on global warming, CO₂ emissions reduction by not only developed but also developing countries is becoming the important issue. Although the worldwide uniform-rate carbon tax (UCT) is the cost effective method to reduce CO₂ emissions, it heavily burdens on developing countries economically. Since such a policy might be opposed by developing countries and is against "common but differentiated responsibilities" of UNFCCC, it will be hardly achieved successfully. Thinking of those, the effect of the variant-rate carbon tax (VCT) is discussed from the policy viewpoint regarding the environmental (CO₂ emissions) and the economic (GDP) aspects. VCT is based on the imputed price and is compared with UCT by the simulation analysis using the appliedd general equilibrium model. The world economy is classified into 15 industries and 14 regions in the model. Each tax is imposed on all industries. Consequently, although VCT reduced CO₂ emissions slightly smaller than UCT, it generated positive GDP effects on developing countries unlike UCT. Regarding the importance of worldwide introduction of CO₂ abating policies and avoidance of excessive economic burdens on developing countries, VCT has higher fairness and policy effectiveness than UCT.