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A Unilateral Versus a Multilateral Carbon Dioxide Tax - A Numerical Analysis with the European Model GEM-E3

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  • Nilsson, Charlotte

    ()
    (National Institute of Economic Research)

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    Abstract

    Simulation experiments are conducted, comparing the effects of a common reduction of CO2 emissions within the European Union to a Swedish unilateral decicion to reduce CO2 emissions. A numerical general equilibrium model, GEM-E3, has been used as analytical tool. The model covers all European Union countries, with production disaggregated into 18 sectors. The 13 consumption goods included are classified into three consumption categories (durable, non-linked non-durable and linked durable goods) in order to imporve the energy allocation description. In addition, industry exemption of CO2 tax is studied. The results indicate that if Sweden unilaterally decides to increase its carbon dioxide tax, the total European Union carbon dioxide emissions will increase, i.e. there will be a "carbon leakage" effect. Perhaps more surprisingly, a European Union multilateral implementation of a carbon dioxide tax rate will induce a lower welfare (exluding environmental benefits) in Sweden as compared to the situation where the same carbon dioxide tax was introduced unilaterally in Sweden.

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    Bibliographic Info

    Paper provided by National Institute of Economic Research in its series Working Paper with number 66.

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    Length: 29 pages
    Date of creation: 01 Nov 1999
    Date of revision:
    Handle: RePEc:hhs:nierwp:0066

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    Related research

    Keywords: CO2 taxation; Climate policy; Computable General Equilibrium; Unilatera actions; Multilateral actions.;

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    1. Hoel, Michael, 1991. "Global environmental problems: The effects of unilateral actions taken by one country," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 55-70, January.
    2. Patrick J. Kehoe & Timothy J. Kehoe, 1994. "A primer on static applied general equilibrium models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-16.
    3. Dewatripont, Mathias & Michel, Gilles, 1987. "On closure rules, homogeneity and dynamics in applied general equilibrium models," Journal of Development Economics, Elsevier, vol. 26(1), pages 65-76, June.
    4. Lars Bergman, 1991. "General equilibrium effects of environmental policy: A CGE-modeling approach," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(1), pages 43-61, March.
    5. Dominique van der Mensbrugghe, 1994. "GREEN - The Reference Manual," OECD Economics Department Working Papers 143, OECD Publishing.
    6. Scarf,Herbert E. & Shoven,John B., 2008. "Applied General Equilibrium Analysis," Cambridge Books, Cambridge University Press, number 9780521070935, April.
    7. John Whalley & Randall Wigle, 1991. "Cutting CO2 Emissions: The Effects of Alternative Policy Approaches," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 109-124.
    8. Conrad, K & Schroder, M, 1991. "Demand for Durable and Nondurable Goods, Environmental Policy and Consumer Welfare," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 6(3), pages 271-86, July-Sept.
    9. Roberts, Barbara M, 1994. " Calibration Procedure and the Robustness of CGE Models: Simulations with a Model for Poland," Economic Change and Restructuring, Springer, vol. 27(3), pages 189-210.
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