Environmental and economic analyses of the carbon tax based on the imputed price using applied general equilibrium model: taxation on the upper industrial sectors

Considering the latest arguments on global warming, CO2 emissions reduction by not only developed countries but also by developing countries is becoming a pivotal issue. Although the worldwide uniform-rate carbon tax (UCT) is thought to be a cost-effective method to reduce CO2 emissions, it places heavy economic burdens on developing countries. Because such a policy is likely to be opposed by developing countries and is against “common but differentiated responsibilities” of the UNFCCC, it is unlikely to be successfully implemented. This article discusses the effects of the worldwide differentiated-rate carbon tax from the policy viewpoint regarding environmental (CO2) and economic (gross domestic product) aspects. The tax, based on the imputed price of carbon (ICT), was compared with UCT by simulation analysis using the applied general equilibrium model. The world economy was classified into 15 industries and 14 regions in the model. Each tax was imposed on the upper industrial sectors. As ICT reduced CO2 emissions slightly less than UCT, it was found to generate positive GDP effects on developing countries, unlike UCT. With regard to the importance of worldwide introduction of CO2 abating policies and avoidance of excessive economic burdens on developing countries, ICT has higher economic equity and policy effectiveness than UCT.