Different Responses of European Economies to Carbon Tax: Insights from National CGE Models for Poland, Germany, France, and the UK

This paper compares the different responses of four European countries – Poland, Germany, France, and the UK – to carbon taxation through the lens of open-source national Computable General Equilibrium (CGE) ThreeME models. It investigates the medium-term impacts of a linearly increasing carbon tax from 2020 to 2035 on emissions reduction, energy consumption, and economic growth within these countries. The study reveals significant emissions reductions across all nations by 2035, with Poland experiencing the most substantial decrease, highlighting the influence of energy and carbon intensity on the effectiveness of carbon taxes. Investment growth spurred by carbon taxation emerges as a pivotal driver for economic resilience, notwithstanding the despite nuanced adverse effects on final consumption and trade balances. The paper underscores the dual nature of carbon taxes: as a potent mechanism for decarbonization decarbonisation and as a complex economic influencer necessitating nuanced fiscal strategies to mitigate potential adverse effects on economic performance. Through a rigorous comparison of carbon tax impacts across different economic structures, this study contributes valuable insights into the trade-offs and synergies between environmental and economic objectives, underlining the necessity for integrated policy approaches to achieve sustainable growth and climate targets in the European context.