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“Investments and public finance in a green, low carbon, economy”

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  • Carraro, Carlo
  • Favero, Alice
  • Massetti, Emanuele

Abstract

The paper evaluates the impacts on investments and public finance of a transition to a green, low carbon, economy induced by carbon taxation. Four global tax scenarios are examined using the integrated assessment model WITCH. Taxes are levied on all greenhouse gases (GHGs) and lead to global GHG concentrations equal to 680, 560, 500 and 460ppm CO2-eq in 2100. Investments in the power sector increase with respect to the Reference scenario only with the two highest taxes. Investments in energy-related R&D increase in all tax scenarios, but they are a small fraction of GDP. Investments in oil upstream decline in all scenarios. As a result, total investments decline with respect to the Reference scenario. Carbon tax revenues are high in absolute terms and as share of GDP. With high carbon taxes, tax revenues follow a “carbon Laffer” curve. The model assumes that tax revenues are flawlessly recycled lump-sum into the economy. In all scenarios, the power sector becomes a net recipient of subsidies to support the absorption of GHGs. In some regions, with high carbon taxes, subsidies to GHG removal are higher than tax revenues at the end of the century.

Suggested Citation

  • Carraro, Carlo & Favero, Alice & Massetti, Emanuele, 2012. "“Investments and public finance in a green, low carbon, economy”," Energy Economics, Elsevier, vol. 34(S1), pages 15-28.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:s1:p:s15-s28 DOI: 10.1016/j.eneco.2012.08.036
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    References listed on IDEAS

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    Cited by:

    1. repec:spr:climat:v:144:y:2017:i:2:d:10.1007_s10584-017-2034-9 is not listed on IDEAS
    2. Favero, Alice & Mendelsohn, Robert & Sohngen, Brent, 2016. "Carbon Storage and Bioenergy: Using Forests for Climate Mitigation," MITP: Mitigation, Innovation,and Transformation Pathways 232215, Fondazione Eni Enrico Mattei (FEEM).
    3. repec:spr:endesu:v:19:y:2017:i:5:d:10.1007_s10668-016-9834-3 is not listed on IDEAS
    4. Chaturvedi, Vaibhav & Clarke, Leon & Edmonds, James & Calvin, Katherine & Kyle, Page, 2014. "Capital investment requirements for greenhouse gas emissions mitigation in power generation on near term to century time scales and global to regional spatial scales," Energy Economics, Elsevier, pages 267-278.
    5. Heshmati, Almas, 2014. "An Empirical Survey of the Ramifications of a Green Economy," Working Paper Series in Economics and Institutions of Innovation 356, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    6. Alice Favero & Robert Mendelsohn, 2013. "Evaluating the Global Role of Woody Biomass as a Mitigation Strategy," Working Papers 2013.37, Fondazione Eni Enrico Mattei.
    7. Schmalensee, Richard, 2012. "From “Green Growth” to sound policies: An overview," Energy Economics, Elsevier, pages 2-6.
    8. Bartocci, Anna & Pisani, Massimiliano, 2013. "“Green” fuel tax on private transportation services and subsidies to electric energy. A model-based assessment for the main European countries," Energy Economics, Elsevier, pages 32-57.

    More about this item

    Keywords

    Climate change mitigation; Carbon tax; Negative emissions;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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