Coal taxes as supply-side climate policy: a rationale for major exporters?

The shift away from coal is at the heart of the global low-carbon transition. Can governments of coal-producing countries help facilitate this transition and benefit from it? This paper analyses the case for coal taxes as supply-side climate policy implemented by large coal exporting countries. Coal taxes can reduce global carbon dioxide emissions and benefit coal-rich countries through improved terms-of-trade and tax revenue. We employ a multi-period equilibrium model of the international steam coal market to study a tax on steam coal levied by Australia alone, by a coalition of major exporting countries, by all exporters, and by all producers. A unilateral export tax has little impact on global emissions and global coal prices as other countries compensate for reduced export volumes from the taxing country. By contrast, a tax jointly levied by a coalition of major coal exporters would significantly reduce global emissions from steam coal and leave them with a net sector level welfare gain, approximated by the sum of producer surplus, consumer surplus, and tax revenue. Production taxes consistently yield higher tax revenues and have greater effects on global coal consumption with smaller rates of carbon leakages. Questions remain whether coal taxes by major suppliers would be politically feasible, even if they could yield economic benefits.     

Mitigating methane emissions from livestock: a global analysis of sectoral policies

Methane emissions from livestock enteric fermentation and manure management represent about 40% of total anthropogenic greenhouse gas emissions from the agriculture sector and are projected to increase substantially in the coming decades, with most of the growth occurring in non-Annex 1 countries. To mitigate livestock methane, incentive policies based on producer-level emissions are generally not feasible because of high administrative costs and producer transaction costs. In contrast, incentive policies based on sectoral emissions are likely administratively feasible, even in developing countries. This study uses an economic model of global agriculture to estimate the effects of two sectoral mitigation policies: a carbon tax and an emissions trading scheme based on average national methane emissions per unit of commodity. The analysis shows how the composition and location of livestock production and emissions change in response to the policies. Results illustrate the importance of global mitigation efforts: when policies are limited to Annex 1 countries, increased methane emissions in non-Annex 1 countries offset approximately two-thirds of Annex 1 emissions reductions. While non-Annex 1 countries face substantial disincentives to enacting domestic carbon taxes, developing countries could benefit from participating in a global sectoral emissions trading scheme. We illustrate one scheme in which non-Annex 1 countries collectively earn USD 2.4 billion annually from methane emission permit sales when methane is priced at USD 30/t CO₂-eq.     

Carbon taxes: a review of experience and policy design considerations

State and local governments in the USA are evaluating a wide range of policies to reduce carbon emissions, including carbon taxes, which have existed internationally for nearly 20 years. In this article, existing carbon tax policies, both internationally and in the USA, are reviewed, and carbon policy design and effectiveness are analysed. Design considerations include which sectors to tax, where to set the tax rate, how to use tax revenues, what the impact will be on consumers, and how to ensure that emissions reduction goals are achieved. Emissions reductions that are due to carbon taxes can be difficult to measure, although some jurisdictions quantify reductions in overall emissions, others examine impacts that are due to programmes funded by carbon tax revenues.     

全球长期减排目标与碳排放权分配原则

全球长期减排目标将对世界未来的碳排放形成严重制约,减排义务的分担原则涉及各国的发展空间,事关根本利益。部分发达国家倡导人均排放趋同原则,回避发达国家的历史责任,中国等发展中国家提出人均累积排放趋同原则,强调公平性。按人均累积排放量计算,发达国家自工业革命以来的CO₂排放量已远超出其到2050年前应有的限额,其当前和今后相当长时期的高人均排放都将继续挤占发展中国家的排放空间。因此,发达国家在哥本哈根会议的中近期减排承诺中必须深度减排,以实现全球长期减排目标下的排放轨迹,并为发展中国家留有必要的发展空间。同时必须对发展中国家给予充足的资金和技术支持,作为对其过度挤占发展中国家发展空间的补偿,使发展中国家能够在可持续发展框架下,提高应对气候变化的能力。我国在对外坚持公平原则,努力争取合理的排放空间的同时,对内要加强向低碳经济转型,努力实现保护全球气候和国内可持续发展的双赢。     

Carbon taxes and greenhouse gas emissions trading systems: what have we learned?

Systematic evidence relating to the performance of carbon pricing – carbon taxes and greenhouse gas (GHG) emissions trading systems (ETSs) – is sparse. In 2015, 17 ETSs were operational in 55 jurisdictions while 18 jurisdictions collected a carbon tax. The papers in this special thematic section review the performance of many of these instruments over the 2005–2015 period. The performance of existing carbon taxes and GHG ETSs can help policy makers make informed choices about whether to introduce these instruments and to improve their design. The purpose of carbon pricing instruments is to reduce GHG emissions cost effectively. Assessing their performance is difficult because emissions are also affected by other policies and exogenous factors such as economic conditions. Carbon taxes in Europe prior to 2008 and in British Columbia reduced emissions from business-as-usual but actual emissions continued to rise. Since 2008 emissions subject to European carbon taxes have declined, but in most countries, other mitigation policies have probably contributed more to the reductions than the carbon taxes. Emissions subject to ETSs, with the exception of four systems without emissions caps, have declined. The ETSs contributed to the emissions reductions, but their share of the overall reduction is not known. Most tax rates are low relative to levels thought to be needed to achieve climate change objectives. Few jurisdictions regularly adjust their tax rates. All ETSs have accumulated surplus allowances and implemented measures to reduce these surpluses. The largest ETSs now specify annual reductions in their emissions cap several years into the future. Emissions trading system allowance prices are generally lower than the tax rates.

Key policy insights

• Theoretical discussions usually portray carbon taxes and GHG ETSs as alternatives. In practice, a jurisdiction often implements both instruments to address emissions by different sources.

• Designs of ETSs have evolved based on experience shared bilaterally and via dedicated institutions.

• Carbon tax designs, in contrast, have hardly evolved and there are no institutions dedicated to sharing experience.

• Every jurisdiction with an ETS and/or carbon tax also has other policies that affect its GHG emissions.

     

Climate protection and newly industrialized countries: dilemmas and opportunities in Taiwan

Global climate policy currently is making efforts to mitigate greenhouse gas emissions of industrialized countries through implementation of the Kyoto Protocol. Yet, the development of greenhouse gas emissions in newly industrialized and developing countries is deeply influencing the perspectives of stabilizing the global climate system. This study takes a closer look at the challenges facing Taiwan as an illustrative example to analyze the trends of greenhouse gas emissions, to assess current strategies and their controversies, and to explore strategies for mobilizing national climate policies. Analyzing the aspects of emission caps, carbon taxes, and clean development mechanisms may shed light on the necessity of involving newly industrialized countries and joint reduction into global climate protection schemes. Hopefully, this analysis may provide inspiring insights about the international climate regime and to other newly industrialized and developing countries which can then adopt effective policies for stabilizing the global climate system.     

Achieving additional emission reductions under a cap-and-trade scheme

Over the last decade, cap-and-trade emissions schemes have emerged as one of the favoured policy instruments for reducing GHG emissions. An inherent design feature of cap-and-trade schemes is that, once the cap on emissions has been set, no additional reductions beyond this level can be provided by the actions of those individuals, organizations and governments within the covered sectors. Thus, the emissions cap constitutes an emissions floor. This feature has been claimed by some to have undesirable implications, in that it discourages ethically motivated mitigation actions and preempts the possibility that local, state and national governments can take additional mitigation action in the context of weak national or regional targets. These criticisms have become prominent in Australia and the US within the public debate regarding the adoption of an emissions trading scheme (ETS). These criticisms and their potential solutions are reviewed. A set-aside reserve is proposed to automatically retire ETS permits, which would correspond to verified and additional emissions reductions. This minimizes the possibility that ethically motivated mitigation actions are discouraged, allows for additional action by other levels of government, while providing transparency to other market participants on the level of permit retirements.     

Why are carbon taxes unfair? Disentangling public perceptions of fairness

In order to reach climate goals, governments need to gain support from their voters for the necessary policy interventions, such as carbon dioxide taxes. Previous research concludes that people often do not support and legitimize such taxes because they perceive them as unfair. However, the notion of fairness implies a multitude of factors and despite attempts of the previous research to further nuance people’s fairness perceptions, we currently lack a more precise understanding of what people mean when they regard carbon taxes as unfair. In this article, we thoroughly investigate this problem by using original survey data from YouGov collected in the United States in 2018 and analyzing open-ended survey responses on why people think carbon taxes are unfair. Applying structural topic modeling, we unpack the multi-dimensional meaning of unfairness, as perceived by the US population. The results from our analysis show that people regard carbon taxes based on gas pricing as unfair because they perceive gas prices already being high, because of the need to drive, unfairness for the poor or rural population, lack of trust in government, or considerations that the purpose of the tax is unjustified. These findings help provide a more nuanced policy design to address fairness concerns related to carbon taxes.     

A decision aid tool for equity issues analysis in emission permit allocations

Abstract

In the long term, the Kyoto Protocol will be insufficient to stabilize the greenhouse gas (GHG) concentrations in the atmosphere; quantified commitments will also be essential for major developing countries (and the US). International cooperation mechanisms, such as permit trading systems, can help achieve global economic efficiency. However, the initial allocation of emission permits raises many debates on equity. The main objective is to propose a decision aid tool for decision makers, which is capable of providing relevant information on various equitable permit allocation schemes and burden sharing. A dynamic multicriteria model is proposed to share the global quantity of permits among 15 regions, taking into account multiple definitions of equity and regional interests. The World-MARKAL energy model is used to compute the gross reduction cost (before permit exchanges) for each region. Afterward, it is possible to calculate their net reduction costs (after permit exchanges) according to different allocation schemes. A realistic simulation of the tool provides examples of results, i.e. ranges of permit allocations and net costs for each region. Finally, some recommendations are proposed to policy makers to design a decision process adapted to the global context of negotiations.     

Vehicle tax policies and new passenger car CO2 performance in EU member states

This article explores the causes for differences in the average CO₂ emissions intensity of the new passenger car (NPC) fleet in member states (MS) across Europe. Although EU policies mitigating CO₂ emissions from NPCs have been in place since 1999, MS strongly diverge in the absolute amount and relative change in emissions over the last decade. The authors employ a qualitative approach to analyse the factors, in particular national vehicle taxes, contributing to this divergence and the relative contribution of national and European policies in reducing national CO₂ emissions from NPCs. The analysis shows that there has been a significant reduction in CO₂ emissions intensity of NPCs since 2007 across most MS, compared with the six years previous to that date. This would indicate that EU-wide policies, such as the CO₂ vehicles regulation, along with the economic recession in 2008, have influenced national NPC CO₂ emissions. Generally, countries with CO₂-differentiated vehicle taxes are observed as more likely to have achieved greater reductions in CO₂ emissions. However, over the same period there have been many confounding factors, such as economic instability in the EU, that also influence NPC emissions. Using more detailed case study analyses of six countries, the authors find that there is scope for well-designed national vehicle tax policies to drive NPC emissions down further than the EU average. In countries with the highest success rate, such as the Netherlands, the design of the vehicle tax, as part of a well-aligned policy package, has been very important in delivering the biggest reductions in CO₂ emissions from NPCs.

POLICY RELEVANCE

The transport sector continues to be an intractable source of CO₂ emissions. Governments around the world are seeking effective policies to deal with the increase in passenger car CO₂ emissions appropriate to their own circumstances. This article examines the experience of EU MS with CO₂-differentiated vehicle taxes in reducing CO₂ emissions in the context of other national and international contributing factors. It should therefore both be useful to policy makers and contribute to climate policy research in general.     

Optimal carbon dioxide abatement and technological change: should emission taxes start high in order to spur R&;D?

Many European politicians argue that the EU should set tougher emission targets than what is required by the Kyoto protocol, and moreover, that emission trading with other countries outside EU should be limited so as to keep emission quota prices high. One of the arguments, frequently cited for such a policy, is the need for technological development. However, the literature on climate change and technological innovation does not unambiguously support the need for setting high emission taxes today. In this paper we investigate the relationship between emission taxes and technological change further by modeling innovation activity explicitly. In our model both the amount of R&D and the amount of carbon abatement are decided in a decentralized way by the market as a response to an emission tax. Moreover, we introduce several distinct failures in the market for new innovations, among others, insufficient patent protection and intertemporal knowledge spill-overs. Our findings suggest that governments should under some circumstances set a higher carbon tax today if we have technological change driven by R&D than if we have pure exogenous technological change. Based on numerical simulations these circumstances are (a) positive intertemporal knowledge spillovers and/or (b) weak patent protection.     

Reaching a climate agreement: compensating for energy market effects of climate policy

Because of large economic and environmental asymmetries among world regions and the incentive to free ride, an international climate regime with broad participation is hard to reach. Most of the proposed regimes are based on an allocation of emissions rights that is perceived as fair. Yet, there are also arguments to focus more on the actual welfare implications of different regimes and to focus on a ‘fair’ distribution of resulting costs. In this article, the computable general equilibrium model DART is used to analyse the driving forces of welfare implications in different scenarios in line with the 2?°C target. These include two regimes that are often presumed to be ‘fair’, namely a harmonized international carbon tax and a cap and trade system based on the convergence of per capita emissions rights, and also an ‘equal loss’ scenario where welfare losses relative to a business-as-usual scenario are equal for all major world regions. The main finding is that indirect energy market effects are a major driver of welfare effects and that the ‘equal loss’ scenario would thus require large transfer payments to energy exporters to compensate for welfare losses from lower world energy demand and prices.

Policy relevance

A successful future climate regime requires ‘fair’ burden sharing. Many proposed regimes start from ethical considerations to derive an allocation of emissions reduction requirements or emissions allowances within an international emissions trading scheme. Yet, countries also consider the expected economic costs of a regime that are also driven by other factors besides allowance allocation. Indeed, in simplified lab experiments, successful groups are characterized by sharing costs proportional to wealth. This article shows that the major drivers of welfare effects are reduced demand for fossil energy and reduced fossil fuel prices, which implies that (1) what is often presumed to be a fair allocation of emissions allowances within an international emissions trading scheme leads to a very uneven distribution of economic costs and (2) aiming for equal relative losses for all regions requires large compensation to fossil fuel exporters, as argued, for example, by the Organization of Petroleum Exporting Countries (OPEC).     

Sector-based approach to the post-2012 climate change policy architecture

A sectoral approach to GHG emissions reductions in developing countries is proposed as a key component of the post-2012 climate change mitigation framework. In this approach, the ten highest-emitting developing countries in the electricity and other major industrial sectors pledge to meet voluntary, ‘no-lose’ GHG emissions targets in these sectors. No penalties are incurred for failing to meet a target, but emissions reductions achieved beyond the target level earn emissions reduction credits (ERCs) that can be sold to industrialized nations. Participating developing countries establish initial ‘no-lose’ emissions targets, based upon their national circumstances, from sector-specific energyintensity benchmarks that have been developed by independent experts. Industrialized nations then offer incentives for the developing countries to adopt more stringent emissions targets through a ‘Technology Finance and Assistance Package’, which helps to overcome financial and other barriers to technology transfer and deployment. These sectorspecific energy-intensity benchmarks could also serve as a means for establishing national economy-wide targets in developed countries in the post-2012 regime. Preliminary modelling of a hybrid scenario, in which Annex I countries adopt economy-wide absolute GHG emissions targets and high-emitting developing countries adopt ‘no-lose’ sectoral targets, indicates that such an approach significantly improves the likelihood that atmospheric concentrations of CO₂ can be stabilized at 450 ppmv by the end of the century.     

Trends of the EU’s territorial and consumption-based emissions from 1990 to 2016

In this paper, a model for the distribution of the Global Carbon Budget between the countries of the world is presented. The model is based on the criteria of equity while also taking into account the different historical responsibilities. The Global Carbon Budget corresponds to the quantity of carbon dioxide emissions that can still be released into the atmosphere while maintaining the increase in the average earth surface temperature below 2 °C, and it is therefore compatible with the long-term objective defined in the Paris Agreement. The results of applying the model are shown both for the 15 emitters that currently top the ranking for world emissions as well as for the other countries, which are grouped together in three main groups: Other African, Other Latin American and Caribbean, and the Rest of the World. Mitigation curves compatible with the carbon budget allocated to the different countries are presented. When comparing each emitter’s historical emissions for the period 1971–2010 with the proposed distribution for the period 2011–2050 obtained using the model, it can be seen that developed countries must face the future with a greatly reduced carbon budget, whereas developing countries can make use of a carbon budget that is higher than their cumulative historical emissions. Finally, there is a discussion about how a model with these characteristics could be useful when implementing the Paris Agreement.     

Combining price and quantity instruments: insights from South Africa

A carbon tax will form the central carbon pricing instrument in South Africa. The country, however, is also in the process of setting specific short-term emissions limits at a subnational level. Additional mitigation policy instruments will thus be required to meet these targets. Although it is possible to combine sector-level quantity targets with a broad-based carbon tax, this article finds that this greatly complicates mitigation policy design, increasing both the information requirements and the likelihood of unintended consequences. The trade-offs between economic efficiency (optimized by the use of a broad-based price set by a carbon tax) and environmental effectiveness (optimized by using instruments that ensure emissions reduction targets are met) are ever present. A clear understanding of subnational quantity targets and an appreciation of the characteristics of the instruments to achieve such targets (quantity-based instruments, QBIs), the framework through which the instruments are combined, and their possible interactions, are required for effective policy making. Three possible frameworks for combining instruments are identified in the article, and some specific implications of interaction between particular QBIs and a carbon tax are suggested.

Policy relevance

This article explores the interaction of a carbon tax with mitigation policy instruments to meet subnational emissions targets in the South African context (where both a carbon tax and subnational emissions targets are currently being developed). As international negotiations progress towards countries accepting binding GHG emissions restrictions, quantity-based mitigation policy approaches become more important. In countries where a broad-based emissions trading scheme (ETS) is not feasible in the short to medium term, combining a broad-based carbon tax with subnational emission targets provides an alternative mechanism for achieving the economic efficiency and emissions certainty benefits derived from an ETS. This paper considers the mechanisms through which such a combination of instruments can be achieved. Three possible frameworks for combining instruments are identified, some specific implications of interaction between particular QBIs and a carbon tax are suggested, and guidelines and concept tools are presented to assist policy-makers in designing efficient and coherent mitigation policy.     

The influence of political ideology on greenhouse gas emissions

This research tests the casual link from political ideology to national greenhouse gas emissions by utilizing multinational panel data covering 98 countries during the period 1990–2016. Overall, the baseline results and robustness tests show a political divide on national greenhouse gas emissions, whereby compared to right-wing governments, left-wing governments are more likely to exhibit less carbon dioxide emissions. We further explore this topic from the perspectives of energy efficiency and education. Three-stage OLS regressions suggest that leftist parties increase energy efficiency and spend more on secondary education, which lead to less greenhouse gas emissions. We also introduce the interaction between political ideology and economic performance as well as globalization to test the moderating effects of economic performance and globalization. The study further looks into the interaction effects of political ideology and democracies on greenhouse gas emissions by dividing the whole sample into two sub-samples. The results indicate that the ideology effect on greenhouse gas emissions varies among countries with different economic performances or different degrees of political globalization, as well as between democracies and non-democracies.     

Sectoral targets for developing countries: combining ‘common but differentiated re-sponsibilities’ with ‘meaningful participation’

Although a global cap-and-trade system is seen by many researchers as the most cost-efficient solution to reduce greenhouse gas (GHG) emissions, the governments of developing countries refuse to enter into such a system in the short term. Many scholars and stakeholders, including the European Commission, have thus proposed various types of commitments for developing countries that appear less stringent, such as sectoral approaches. A macroeconomic assessment of such a sectoral approach is provided for developing countries. Two policy scenarios in particular are assessed, in which developed countries continue with Kyoto-type absolute commitments, while developing countries adopt an emissions trading system limited to electricity generation and linked to developed countries' cap-and-trade systems. In the first scenario, CO₂ allowances are auctioned by the government, which distributes its revenues as a lump sum to households. In a second scenario, the auction revenues are used to reduce taxes on, or to give subsidies to, electricity generation. The quantitative analysis, conducted with a hybrid general equilibrium model, shows that such options provide almost as much emissions reduction as a global cap-and-trade system. Moreover, in the second sectoral scenario, GDP losses in developing countries are much lower than with a global cap-and-trade system, as is also the effect on the electricity price.     

Vikings and virtues: a decade of CO2 taxation

Abstract

Experience with implementation of CO² taxes spans almost a decade in the Nordic countries, and time is ripe for an evaluation of their performance. In contrast to ex-ante forecasts, empirical research can show the extent to which such taxes deliver on the assumptions of economic theory. A survey of the existing literature shows that there are currently 20 ex-post studies of the full or partial effects of CO² taxes. Evaluations are complicated by frequent changes in tax rates, widespread exemptions and the ‘too many variables’ problem. Attempts have been made to deal with these problems by using a variety of approaches and research techniques, some more advanced than others. On balance the studies appear to show that emissions have been curbed when compared to businessas-usual forecasts, while absolute CO² reduction remains the exception. Among the Nordic countries, Denmark's scheme, which combines taxes with subsidies for energy efficiency, seems to have attained the most marked results, although the achieved reductions also reflect the higher carbon content of the Danish energy sector. The evaluations differ considerably in scope, approach and methodology. Methodological issues connected with expost evaluation are considered. An adequate evaluation of the impact of the CO² taxes, in both environmental and economic terms, will require the establishment of comprehensive panel databases of energy consumers.     

International and national climate policies for aviation: a review

Aviation constitutes about 2.5% of all energy-related CO₂ emissions and in addition there are non-CO₂ effects. In 2016, the ICAO decided to implement a Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and in 2017 the EU decided on faster emission reductions in its Emissions Trading System (EU ETS), which since 2012 includes the aviation sector. The effects of these policies on the expected development of air travel emissions from 2017 to 2030 have been analyzed. For the sample country Sweden, the analysis shows that when emissions reductions in other sectors are attributed to the aviation sector as a result of the EU ETS and CORSIA, carbon emissions are expected to reduce by ?0.8% per year (however if non-CO₂ emissions are included in the analysis, then emissions will increase). This is much less than what is needed to achieve the 2°C target. Our analysis of potential national aviation policy instruments shows that there are legally feasible options that could mitigate emissions in addition to the EU ETS and CORSIA. Distance-based air passenger taxes are common among EU Member States and through increased ticket prices these taxes can reduce demand for air travel and thus reduce emissions. Tax on jet fuel is an option for domestic aviation and for international aviation if bilateral agreements are concluded. A quota obligation for biofuels is a third option.

Key policy insights

• Existing international climate policies for aviation will not deliver any major emission reductions.

• Policymakers who want to significantly push the aviation sector to contribute to meeting the 2°C target need to work towards putting in place tougher international policy instruments in the long term, and simultaneously implement temporary national policy instruments in the near-term.

• Distance-based air passenger taxes, carbon taxes on jet fuel and quota obligations for biofuels are available national policy options; if they are gradually increased, and harmonized with other countries, they can help to significantly reduce emissions.

     

Managing carbon-intensive materials in a decarbonizing world without a global price on carbon

Emissions from the production of iron and steel could constitute a significant share of a 2°C global emissions budget (around 19% under the IEA 2DS scenario). They need to be reduced, and this could be difficult under nationally based climate policy approaches. We compare a new set of nationally based modelling (the Deep Decarbonization Pathways Project) with best practice and technical limit benchmarks for iron and steel and cement emissions. We find that 2050 emissions from iron and steel and cement production represent an average 0.28?tCO₂ per capita in nationally based modelling results, very close to the technical limit benchmark of 0.21?tCO₂ per capita, and over 2.5 times lower than the best practice benchmark of 0.72?tCO₂ per capita. This suggests that national projections may be overly optimistic about achievable emissions reductions in the absence of global carbon pricing and an international research and development effort to develop low emissions technologies for emissions-intensive products. We also find that equal per capita emissions targets, often the basis of proposals for how global emissions budgets should be allocated, would be inadequate without global emissions trading. These results show that a nationally based global climate policy framework, as has been confirmed in the Paris Agreement, could lead to risks of overshooting global emissions targets for some countries and carbon leakage. Tailored approaches such as border taxes, sectoral emissions trading or carbon taxes, and consumption-based carbon pricing can help, but each faces difficulties. Ultimately, global efforts are needed to improve technology and material efficiency in emissions-intensive commodities manufacturing and use. Those efforts could be supported by technology standards and a globally coordinated R&D effort, and strengthened by the adoption of global emissions budgets for emissions-intensive traded goods.

Policy relevance

This article presents new empirical findings on global iron and steel and cement production in a low-carbon world economy, demonstrates the risks associated with a nationally based global climate policy framework as has been confirmed in the Paris Agreement, and analyses policy options to deal with those risks.