Carbon Taxation in Russia: Relevance of Export Taxes on Energy Resources

Russia is not only one of the world’s major sources of carbon based energy – coal, oil and gas - but is also one the most intensive users of energy. Furthermore, Russia accounts for a disproportionately large share of global carbon emissions – some 5 to 6 percent of global carbon emission (EIA, 2011); even after making allowance for climatic conditions. In large part, the high carbon emission rates are a consequence of outdated and inefficient technologies, a legacy of the Soviet era, reinforced by the low cost of energy (Bashmakov, 2009). Carbon taxes would, potentially, address the concerns on several fronts simultaneously: reduce emissions and encourage investment in energy efficiency. In theoretical literature, an introduction of environmental taxes is often related with the concept of double dividend, where substituting environmental taxes for other distortionary taxes can improve not the environmental only, but also this can reduce efficiency costs of the tax system (Goulder, 1994). Most studies on the double dividend concept are mainly focused on tax distortions on factor markets, whereas trade distortions such as import tariffs and export taxes are often neglected. In particular, Russia imposes high export taxes on gas, crude oil, and petroleum products, where revenues from export of these energy resources amount to approximately 21% of total government revenues in Russia (Roskazna, 2010). Therefore, introducing carbon taxes can considerably affect the structure of government budget through changes in the export supply of energy resources. In this paper we investigate the effects of carbon taxes on the Russian economy, where revenues from carbon taxes are recycled though a reduction in labour taxes. The objectives of this analysis are as following: (1) verify the double dividend hypothesis, (2) investigate the incidence of carbon taxes, (3) analyse the sectoral effects of carbon taxes, and (4) investigate how carbon taxes will affect the structure of Russian government revenues.This analysis is based on a computable general equilibrium model (CGE). The main features of the model can be highlighted as follows: (1) industries exhibit factor-fuel as well as inter-fuel substitutions in production, (2) household consumption is modeled using a nested linear expenditure system, which distinguishes between energy and non-energy composites, (3) the electricity sector is disaggregated into four technologies such as coal-fired, gas-fired, nuclear, and hydro, using a technology bundle approach. The previous results show that introducing carbon taxes leads to a switch of energy supply from domestic towards export markets: for example, the environmental tax policy induces an increase in export supply of natural gas, petroleum products, and crude oil. This will accumulate more revenues from export taxes on energy, which can significantly decrease the costs of environmental policy. Furthermore, increases in export supply of energy resources significantly depend on world’s demand elasticities. Moreover, an introduction of carbon taxes in Russia can lead to carbon leakages in countries which import Russian energy resources.