IDEAS home Printed from https://ideas.repec.org/a/eee/appene/v160y2015icp164-171.html
   My bibliography  Save this article

The energy price equivalence of carbon taxes and emissions trading—Theory and evidence

Author

Listed:
  • Chiu, Fan-Ping
  • Kuo, Hsiao-I.
  • Chen, Chi-Chung
  • Hsu, Chia-Sheng

Abstract

The main purpose of this study is to estimate the energy price equivalence of carbon taxes and emissions trading in an energy market. To this end, both the carbon tax and emissions trading systems are designed in the theoretical model, while alternative market structures are taken into consideration. The theoretical findings show that the economic effects of these two schemes on energy prices depend on the market structures. Energy prices are equivalent between these two schemes given the same amount of greenhouse gas emissions (GHGE) reduction when the market structure is characterized by perfect competition. However, energy prices will be lower when a carbon tax is introduced than when emissions trading is implemented in an imperfectly competitive market, which implies that the price effects of a carbon tax and emissions trading depend on the energy market structure. Such a theoretical basis is applied to the market for gasoline in Taiwan. The empirical results indicate that the gasoline prices under a carbon tax are lower than under emissions trading. This implies that the structure of the energy market needs to be examined when a country seeks to reduce its GHGE through the implementation of either a carbon tax or emissions trading.

Suggested Citation

  • Chiu, Fan-Ping & Kuo, Hsiao-I. & Chen, Chi-Chung & Hsu, Chia-Sheng, 2015. "The energy price equivalence of carbon taxes and emissions trading—Theory and evidence," Applied Energy, Elsevier, vol. 160(C), pages 164-171.
    • Handle: RePEc:eee:appene:v:160:y:2015:i:c:p:164-171
    DOI: 10.1016/j.apenergy.2015.09.022
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0306261915010922
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.apenergy.2015.09.022?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Aw, Bee Yan, 1992. "An empirical model of mark-ups in a quality-differentiated export market," Journal of International Economics, Elsevier, vol. 33(3-4), pages 327-344, November.
    2. Wang, Xin & Li, Ji Feng & Zhang, Ya Xiong, 2011. "An analysis on the short-term sectoral competitiveness impact of carbon tax in China," Energy Policy, Elsevier, vol. 39(7), pages 4144-4152, July.
    3. Fang, Guochang & Tian, Lixin & Fu, Min & Sun, Mei, 2013. "The impacts of carbon tax on energy intensity and economic growth – A dynamic evolution analysis on the case of China," Applied Energy, Elsevier, vol. 110(C), pages 17-28.
    4. Vandyck, Toon & Van Regemorter, Denise, 2014. "Distributional and regional economic impact of energy taxes in Belgium," Energy Policy, Elsevier, vol. 72(C), pages 190-203.
    5. Alton, Theresa & Arndt, Channing & Davies, Rob & Hartley, Faaiqa & Makrelov, Konstantin & Thurlow, James & Ubogu, Dumebi, 2014. "Introducing carbon taxes in South Africa," Applied Energy, Elsevier, vol. 116(C), pages 344-354.
    6. Pedro Linares & Francisco Javier Santos & Mariano Ventosa & Luis Lapiedra, 2006. "Impacts of the European Emissions Trading Scheme Directive and Permit Assignment Methods on the Spanish Electricity Sector," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 79-98.
    7. Stevens, Brandt & Rose, Adam, 2002. "A Dynamic Analysis of the Marketable Permits Approach to Global Warming Policy: A Comparison of Spatial and Temporal Flexibility," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 45-69, July.
    8. Callan, Tim & Lyons, Sean & Scott, Susan & Tol, Richard S.J. & Verde, Stefano, 2009. "The distributional implications of a carbon tax in Ireland," Energy Policy, Elsevier, vol. 37(2), pages 407-412, February.
    9. Kahn, James Randall & Franceschi, Dina, 2006. "Beyond Kyoto: A tax-based system for the global reduction of greenhouse gas emissions," Ecological Economics, Elsevier, vol. 58(4), pages 778-787, July.
    10. Severin Borenstein & James. Bushnell & Steven Stoft, 2000. "The Competitive Effects of Transmission Capacity in A Deregulated Electricity Industry," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 294-325, Summer.
    11. Tezuka, Tetsuo & Okushima, Keisuke & Sawa, Takamitsu, 2002. "Carbon tax for subsidizing photovoltaic power generation systems and its effect on carbon dioxide emissions," Applied Energy, Elsevier, vol. 72(3-4), pages 677-688, July.
    12. Karali, Nihan & Xu, Tengfang & Sathaye, Jayant, 2014. "Reducing energy consumption and CO2 emissions by energy efficiency measures and international trading: A bottom-up modeling for the U.S. iron and steel sector," Applied Energy, Elsevier, vol. 120(C), pages 133-146.
    13. Boeters, Stefan, 2014. "Optimally differentiated carbon prices for unilateral climate policy," Energy Economics, Elsevier, vol. 45(C), pages 304-312.
    14. Tanachai Limpaitoon, Yihsu Chen, and Shmuel S. Oren, 2014. "The Impact of Imperfect Competition in Emission Permits Trading on Oligopolistic Electricity Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    15. Kara, M. & Syri, S. & Lehtila, A. & Helynen, S. & Kekkonen, V. & Ruska, M. & Forsstrom, J., 2008. "The impacts of EU CO2 emissions trading on electricity markets and electricity consumers in Finland," Energy Economics, Elsevier, vol. 30(2), pages 193-211, March.
    16. Klimenko, V. V. & Mikushina, O. V. & Tereshin, A. G., 1999. "Do we really need a carbon tax?," Applied Energy, Elsevier, vol. 64(1-4), pages 311-316, September.
    17. Sugino, Makoto & Arimura, Toshi H. & Morgenstern, Richard D., 2013. "The effects of alternative carbon mitigation policies on Japanese industries," Energy Policy, Elsevier, vol. 62(C), pages 1254-1267.
    18. Rocchi, Paola & Serrano, Mònica & Roca, Jordi, 2014. "The reform of the European energy tax directive: Exploring potential economic impacts in the EU27," Energy Policy, Elsevier, vol. 75(C), pages 341-353.
    19. Jenny Sumner & Lori Bird & Hillary Dobos, 2011. "Carbon taxes: a review of experience and policy design considerations," Climate Policy, Taylor & Francis Journals, vol. 11(2), pages 922-943, March.
    20. Yihsu Chen & Chung-Li Tseng, 2011. "Inducing Clean Technology in the Electricity Sector: Tradable Permits or Carbon Tax Policies?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 169-174.
    21. Dissou, Yazid & Siddiqui, Muhammad Shahid, 2014. "Can carbon taxes be progressive?," Energy Economics, Elsevier, vol. 42(C), pages 88-100.
    22. Steven L. Puller, 2007. "Pricing and Firm Conduct in California's Deregulated Electricity Market," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 75-87, February.
    23. Liu, Yu & Lu, Yingying, 2015. "The Economic impact of different carbon tax revenue recycling schemes in China: A model-based scenario analysis," Applied Energy, Elsevier, vol. 141(C), pages 96-105.
    24. Pollitt, Hector & Park, Seung-Joon & Lee, Soocheol & Ueta, Kazuhiro, 2014. "An economic and environmental assessment of future electricity generation mixes in Japan – an assessment using the E3MG macro-econometric model," Energy Policy, Elsevier, vol. 67(C), pages 243-254.
    25. Crossland, Jarrod & Li, Bin & Roca, Eduardo, 2013. "Is the European Union Emissions Trading Scheme (EU ETS) informationally efficient? Evidence from momentum-based trading strategies," Applied Energy, Elsevier, vol. 109(C), pages 10-23.
    26. Stefan Boeters, 2014. "Optimally Differentiated Carbon Prices for Unilateral Climate Policy," CPB Discussion Paper 283.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    27. Seldon, Barry J. & Jung, Chulho & Cavazos, Roberto J., 1998. "Market power among physicians in the U.S., 1983-1991," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(4), pages 799-824.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Qian & Hubacek, Klaus & Feng, Kuishuang & Wei, Yi-Ming & Liang, Qiao-Mei, 2016. "Distributional effects of carbon taxation," Applied Energy, Elsevier, vol. 184(C), pages 1123-1131.
    2. Abdul-Manan, Amir F.N. & Arfaj, Abdullah & Babiker, Hassan, 2017. "Oil refining in a CO2 constrained world: Effects of carbon pricing on refineries globally," Energy, Elsevier, vol. 121(C), pages 264-275.
    3. Wesseh, Presley K. & Lin, Boqiang & Atsagli, Philip, 2017. "Carbon taxes, industrial production, welfare and the environment," Energy, Elsevier, vol. 123(C), pages 305-313.
    4. Wu, T. & Thomassin, P.J., 2018. "The Impact of Carbon Tax on Food Prices and Consumption in Canada," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 275913, International Association of Agricultural Economists.
    5. Wesseh, Presley K. & Lin, Boqiang, 2016. "Modeling environmental policy with and without abatement substitution: A tradeoff between economics and environment?," Applied Energy, Elsevier, vol. 167(C), pages 34-43.
    6. Wesseh, Presley K. & Lin, Boqiang, 2018. "Optimal carbon taxes for China and implications for power generation, welfare, and the environment," Energy Policy, Elsevier, vol. 118(C), pages 1-8.
    7. Li, Wei & Jia, Zhijie, 2016. "The impact of emission trading scheme and the ratio of free quota: A dynamic recursive CGE model in China," Applied Energy, Elsevier, vol. 174(C), pages 1-14.
    8. Fang, Guochang & Tian, Lixin & Fu, Min & Sun, Mei & Du, Ruijin & Liu, Menghe, 2017. "Investigating carbon tax pilot in YRD urban agglomerations—Analysis of a novel ESER system with carbon tax constraints and its application," Applied Energy, Elsevier, vol. 194(C), pages 635-647.
    9. Tian, Xu & Dai, Hancheng & Geng, Yong & Huang, Zhen & Masui, Toshihiko & Fujita, Tsuyoshi, 2017. "The effects of carbon reduction on sectoral competitiveness in China: A case of Shanghai," Applied Energy, Elsevier, vol. 197(C), pages 270-278.
    10. Kirchner, Mathias & Sommer, Mark & Kratena, Kurt & Kletzan-Slamanig, Daniela & Kettner-Marx, Claudia, 2019. "CO2 taxes, equity and the double dividend – Macroeconomic model simulations for Austria," Energy Policy, Elsevier, vol. 126(C), pages 295-314.
    11. Liu, Yu & Lu, Yingying, 2015. "The Economic impact of different carbon tax revenue recycling schemes in China: A model-based scenario analysis," Applied Energy, Elsevier, vol. 141(C), pages 96-105.
    12. Genovaitė Liobikienė & Mindaugas Butkus & Kristina Matuzevičiūtė, 2019. "The Contribution of Energy Taxes to Climate Change Policy in the European Union (EU)," Resources, MDPI, vol. 8(2), pages 1-23, April.
    13. Maruf Rahman Maxim, 2020. "Environmental fiscal reform and the possibility of triple dividend in European and non-European countries: evidence from a meta-regression analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(4), pages 633-656, October.
    14. Heindl, Peter & Löschel, Andreas, 2015. "Social implications of green growth policies from the perspective of energy sector reform and its impact on households," ZEW Discussion Papers 15-012, ZEW - Leibniz Centre for European Economic Research.
    15. Xiao Liu & Yee Leung & Yuan Xu & Linda Chor Wing Yung, 2017. "The effect of carbon tax on carbon emission abatement and GDP: a case study," Journal of Geographical Systems, Springer, vol. 19(4), pages 399-414, October.
    16. Freyre, Alisa & Klinke, Sandra & Patel, Martin K., 2020. "Carbon tax and energy programs for buildings: Rivals or allies?," Energy Policy, Elsevier, vol. 139(C).
    17. Xiao Yu & Yingdong Xu & Meng Sun & Yanzhe Zhang, 2021. "The Green-Innovation-Inducing Effect of a Unit Progressive Carbon Tax," Sustainability, MDPI, vol. 13(21), pages 1-18, October.
    18. Oueslati, Walid & Zipperer, Vera & Rousselière, Damien & Dimitropoulos, Alexandros, 2017. "Energy taxes, reforms and income inequality: An empirical cross-country analysis," International Economics, Elsevier, vol. 150(C), pages 80-95.
    19. Jia, Zhijie & Lin, Boqiang & Liu, Xiying, 2023. "Rethinking the equity and efficiency of carbon tax: A novel perspective," Applied Energy, Elsevier, vol. 346(C).
    20. Maruf Rahman Maxim & Kerstin Zander, 2019. "Can a Green Tax Reform Entail Employment Double Dividend in European and non-European Countries? A Survey of the Empirical Evidence," International Journal of Energy Economics and Policy, Econjournals, vol. 9(3), pages 218-228.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:appene:v:160:y:2015:i:c:p:164-171. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.