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Tax policy to reduce carbon emissions in south Africa

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Author Info

  • Devarajan, Shantayanan
  • Go, Delfin S.
  • Robinson, Sherman
  • Thierfelder, Karen

Abstract

Noting that South Africa may be one of the few African countries that could contribute to mitigating climate change, the authors explore the impact of a carbon tax relative to alternative energy taxes on economic welfare. Using a disaggregate general-equilibrium model of the South African economy, they capture the structural characteristics of the energy sector, linking a supply mix that is heavily skewed toward coal to energy use by different sectors and hence their carbon content. The authors consider a"pure"carbon tax as well as various proxy taxes such as those on energy or energy-intensive sectors like transport and basic metals, all of which achieve the same level of carbon reduction. In general, the more targeted the tax to carbon emissions, the better the welfare results. If a carbon tax is feasible, it will have the least marginal cost of abatement by a substantial amount when compared to alternative tax instruments. If a carbon tax is not feasible, a sales tax on energy inputs is the next best option. Moreover, labor market distortions such as labor market segmentation or unemployment will likely dominate the welfare and equity implications of a carbon tax for South Africa. This being the case, if South Africa were able to remove some of the distortions in the labor market, the cost of carbon taxation would be negligible. In short, the discussion of carbon taxation in South Africa can focus on considerations other than the economic welfare costs, which are likely to be quite low.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4933.

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Date of creation: 01 May 2009
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Handle: RePEc:wbk:wbrwps:4933

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Keywords: Environmental Economics&Policies; Transport Economics Policy&Planning; Taxation&Subsidies; Energy Production and Transportation; Environment and Energy Efficiency;

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References

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  1. Aldy, Joseph E. & Ley, Eduardo & Parry, Ian, 2008. "A Tax–Based Approach to Slowing Global Climate Change," National Tax Journal, National Tax Association, vol. 61(3), pages 493-517, September.
  2. Lawrence H. Goulder & Ian W. H. Parry & Roberton C. Williams III & Dallas Burtraw, 1998. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," NBER Working Papers 6464, National Bureau of Economic Research, Inc.
  3. Aldy, Joseph & Barrett, Scott & Stavins, Robert, 2003. "Thirteen Plus One: A Comparison of Global Climate Policy Architectures," Working Paper Series rwp03-012, Harvard University, John F. Kennedy School of Government.
  4. A. Lans Bovenberg & Lawrence H. Goulder, 2001. "Environmental Taxation and Regulation," NBER Working Papers 8458, National Bureau of Economic Research, Inc.
  5. Xie, Jian & Saltzman, Sidney, 2000. "Environmental Policy Analysis: An Environmental Computable General-Equilibrium Approach for Developing Countries," Journal of Policy Modeling, Elsevier, vol. 22(4), pages 453-489, July.
  6. Go, Delfin S. & Kearney, Marna & Korman, Vijdan & Robinson, Sherman & Thierfelder, Karen, 2009. "Wage subsidy and labor market flexibility in south Africa," Policy Research Working Paper Series 4871, The World Bank.
  7. Bev Dahlby, 2008. "The Marginal Cost of Public Funds: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262042509, December.
  8. Lawrence H. Goulder, 1998. "Environmental Policy Making in a Second-Best Setting," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 279-328, November.
  9. Jan van Heerden & Reyer Gerlagh & James Blignaut & Mark Horridge & Sebastiaan Hess & Ramos Mabugu & Margaret Mabugu, 2006. "Searching for Triple Dividends in South Africa: Fighting CO2 Pollution and Poverty while Promoting Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 113-142.
  10. Anwar Shah & Bjorn Larsen, 2014. "Carbon taxes, the greenhouse effect, and developing countries," Annals of Economics and Finance, Society for AEF, vol. 15(1), pages 353-402, May.
  11. Annegrete Bruvoll & Bodil Merethe Larsen, 2002. "Greenhouse gas emissions in Norway Do carbon taxes work?," Discussion Papers 337, Research Department of Statistics Norway.
  12. Jorgenson, Dale W. & Wilcoxen, Peter J., 1993. "Reducing US carbon emissions: an econometric general equilibrium assessment," Resource and Energy Economics, Elsevier, vol. 15(1), pages 7-25, March.
  13. Beghin, John C. & Roland-Holst, David & Van der Mensbrugghe, Dominique, 1995. "Trade Liberalization and the Environment in the Pacific Basin: Coordinated Approaches to Mexican Trade and Environment Policy," Staff General Research Papers 1588, Iowa State University, Department of Economics.
  14. Devarajan, Shantayanan & Go, Delfin S., 1998. "The Simplest Dynamic General-Equilibrium Model of an Open Economy," Journal of Policy Modeling, Elsevier, vol. 20(6), pages 677-714, December.
  15. Go, Delfin S. & Kearney, Marna & Robinson, Sherman & Thierfelder, Karen, 2005. "An Analysis of South Africa's Value Added Tax," Policy Research Working Paper Series 3671, The World Bank.
  16. Essama-Nssah, B. & Go, Delfin S. & Kearney, Marna & Korman, Vijdan & Robinson, Sherman & Thierfelder, Karen, 2007. "Economy-wide and distributional impacts of an oil price shock on the south African economy," Policy Research Working Paper Series 4354, The World Bank.
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Cited by:
  1. Asafu-Adjaye, John & Mahadevan, Renuka, 2013. "Implications of CO2 reduction policies for a high carbon emitting economy," Energy Economics, Elsevier, vol. 38(C), pages 32-41.

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