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Carbon Taxes and Joint Implementation. An Applied General Equilibrium Analysis for Germany and India

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  • Christoph Böhringer
  • Klaus Conrad
  • Andreas Löschel

Abstract

Germany has committed itself toreducing its carbon emissions by 25 percent in2005 as compared to 1990 emission levels. Toachieve this goal, the government has recentlylaunched an environmental tax reform whichentails a continuous increase in energy taxesin conjunction with a revenue-neutral cut innon-wage labor costs. This policy is supposedto yield a double dividend, reducing both, theproblem of global warming and high unemploymentrates. In addition to domestic actions,international treaties on climate protectionallow for the supplementary use of flexibleinstruments to exploit cheaper emissionreduction possibilities elsewhere. One concreteoption for Germany would be to enter jointimplementation (JI) with developing countriessuch as India where Germany pays emissionreduction abroad rather than meeting itsreduction target solely by domestic action. Inthis paper, we investigate whether anenvironmental tax reform cum JI providesemployment and overall efficiency gains ascompared to an environmental tax reformstand-alone. We address this question in theframework of a large-scale general equilibriummodel for Germany and India where Germany mayundertake JI with the Indian electricitysector. Our main finding is that JI offsetslargely the adverse effects of carbon emissionconstraints on the German economy. JIsignificantly lowers the level of carbon taxesand thus reduces the total costs of abatementas well as negative effects on labor demand. Inaddition, JI triggers direct investment demandfor energy efficient power plants produced inGermany. This provides positive employmenteffects and additional income for Germany. ForIndia, joint implementation equips itselectricity industry with scarce capital goodsleading to a more efficient power productionwith lower electricity prices for the economyand substantial welfare gains. Copyright Kluwer Academic Publishers 2003

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  • Christoph Böhringer & Klaus Conrad & Andreas Löschel, 2003. "Carbon Taxes and Joint Implementation. An Applied General Equilibrium Analysis for Germany and India," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(1), pages 49-76, January.
    • Handle: RePEc:kap:enreec:v:24:y:2003:i:1:p:49-76
    DOI: 10.1023/A:1022849730905
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    2. Arief Anshory Yusuf, 2004. "Poverty and Environmental Degradation: Searching for Theoretical Linkages," Working Papers in Economics and Development Studies (WoPEDS) 200403, Department of Economics, Padjadjaran University, revised Oct 2004.
    3. Auffhammer, Maximilian & Carson, Richard T., 2008. "Forecasting the path of China's CO2 emissions using province-level information," Journal of Environmental Economics and Management, Elsevier, vol. 55(3), pages 229-247, May.
    4. Carsten Helm & Stefan Pichler, 2015. "Climate Policy with Technology Transfers and Permit Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(1), pages 37-54, January.
    5. Böhringer, Christoph, 2003. "The Kyoto Protocol: A Review and Perspectives," ZEW Discussion Papers 03-61, ZEW - Leibniz Centre for European Economic Research.
    6. Larson, Donald F. & Ambrosi, Philippe & Dinar, Ariel & Rahman, Shaikh Mahfuzur & Entler, Rebecca, 2008. "Carbon markets, institutions, policies, and research," Policy Research Working Paper Series 4761, The World Bank.
    7. Garth Heutel & Xin Zhang, 2020. "Efficiency Wages, Unemployment, and Environmental Policy," NBER Working Papers 27960, National Bureau of Economic Research, Inc.
    8. Kenneth A. Castellanos & Garth Heutel, 2019. "Unemployment, Labor Mobility, and Climate Policy," NBER Working Papers 25797, National Bureau of Economic Research, Inc.
    9. Brechet, Thierry & Lussis, Benoit, 2006. "The contribution of the clean development mechanism to national climate policies," Journal of Policy Modeling, Elsevier, vol. 28(9), pages 981-994, December.
    10. Olga Kiuila, 2011. "Interactions between trade and environmental policies in the Czech economy," Working Papers 2011-16, Faculty of Economic Sciences, University of Warsaw.
    11. Heutel, Garth & Zhang, Xin, 2021. "Efficiency wages, unemployment, and environmental policy," Energy Economics, Elsevier, vol. 104(C).
    12. Babatunde, Kazeem Alasinrin & Begum, Rawshan Ara & Said, Fathin Faizah, 2017. "Application of computable general equilibrium (CGE) to climate change mitigation policy: A systematic review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 78(C), pages 61-71.
    13. Shunli Wang & Henri L.F. de Groot & Peter Nijkamp & Erik T. Verhoef, 2009. "Global and Regional Impacts of the Clean Development Mechanism," Tinbergen Institute Discussion Papers 09-045/3, Tinbergen Institute.
    14. Freire-González, Jaume, 2018. "Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review," Journal of Policy Modeling, Elsevier, vol. 40(1), pages 194-223.

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    More about this item

    Keywords

    computable general equilibrium modeling; energy efficiency improvement; environmental tax reform; joint implementation; productivity gaps;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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