What do we know about carbon taxes? an inquiry into their impacts on competitiveness and distribution of income

ZhongXiang Zhang and Andrea Baranzini

MPRA Paper from University Library of Munich, Germany

Abstract: The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) has set legally binding emissions targets for a basket of six greenhouse gases and timetables for industrialised countries. It has also incorporated three international flexibility mechanisms. However, the Articles defining the flexibility mechanisms carry wording that their use must be supplemental to domestic actions. This has led to the open debates on interpretations of these supplementarity provisions. Such debates ended at the resumed sixth Conference of the Parties (COP) to the UNFCCC, held in Bonn, July 2001, and at the subsequent COP-7 in Marrakesh, November 2001. The final wording in the Bonn Agreement, reaffirmed in the Marrakesh Accords, at least indicates that domestic policies will have an important role to play in meeting Annex B countries’ emissions commitments. Carbon taxes have long been advocated because of their cost-effectiveness in achieving a given emissions reduction. In this paper, the main economic impacts of carbon taxes are assessed. Based on a review of empirical studies on existing carbon/energy taxes, it is concluded that competitive losses and distributive impacts are generally not significant and definitely less than often perceived. However, given the ultimate objective of the Framework Convention, future carbon taxes could have higher rates than those already imposed and thus the resulting economic impacts could be more acute. In this context, it has been shown that how to use the generated fiscal revenues will be of fundamental importance in determining the final economic impacts of carbon taxes. Finally, we briefly discuss carbon taxes in combination with other domestic and international instruments.

Keywords: Border tax adjustments; carbon taxes; distribution of income; double dividend; emissions trading; energy taxes; international competitiveness (search for similar items in EconPapers)
JEL-codes: D31 F18 Q48 Q52 Q54 Q56 Q58 R13 (search for similar items in EconPapers)
Date: 2000-09, Revised 2003-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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