Development of CO2 Emissions and Impact of Carbon Pricing

Kenichi Kawasaki
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Kenichi Kawasaki: National Graduate Institute for Policy Studies, Tokyo, Japan

No 22-13, GRIPS Discussion Papers from National Graduate Institute for Policy Studies

Abstract: Global greenhouse gas (GHG) emissions have continued to increase. The targets of GHG emissions reduction under the Paris Agreement have been far from achievement. Carbon pricing has been implemented but it is limited, covering less than a quarter of global GHG emissions. This paper presents an overview of recent developments in carbon dioxide (CO2) emissions and investigates quantitatively the relative significance of the impact of carbon pricing, using a Computable General Equilibrium (CGE) model. The results of model simulations suggest that the impact of carbon pricing in the European Union (EU) member states and the Organisation for Economic Co-operation and Development (OECD) countries would be limited compared with that of a global initiative. Carbon tax (once introduced in a strong enough form worldwide, in particular if it included developing countries) would be effective for substantially reducing global CO2 emissions. However, the adverse economic impact of carbon pricing would be serious and much larger than the magnitude of possible carbon tax revenue. On the other hand, the impact of a carbon border adjustment mechanism (CBAM) would be minor compared with that of a carbon tax, regardless of the coverage of countries. Trade effects of a CBAM could more or less be offset by trade liberalization. The economic and trade impact of carbon pricing would vary by region as well as by sector. Climate and trade policies would need to be well designed and based on sound quantitative analysis.

Keywords: carbon tax; carbon border adjustment mechanism (CBAM); European Union (EU); Computable General Equilibrium (CGE) model (search for similar items in EconPapers)
Pages: 27 pages
Date: 2023-03
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:ngi:dpaper:22-13

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