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Heterogeneous welfare and emission effects of energy tax policies in Brazil

Author

Listed:
  • Paula Pereda

  • Maria Alice Christofoletti

Abstract

The consolidation of the energy sector as one of the main emitters of greenhouse gases in Brazil is directly related to the expansion of fuel consumption in passenger and cargo transport and to the higher use of thermal power plants for electricity generation. This fact reflects a detachment from the historical renewable energy and biofuels production and goes against the global efforts to reduce GHG emissions. Our paper analyzes the short run emissions and distributional effects of energy price changes in a partial equilibrium framework. Our findings suggest that taxes and subsidies in fuel prices (oil and diesel, respectively) are progressive, but have positive impact on total household emissions due to substitution effects. Despite being regressive, changes in electricity price have large effects on household emissions due to the characteristics of electric energy supply in Brazil. More environment-friendly policies that subsidize ethanol have a small but positive effect on the economy and tend to reduce households emissions. However, large substitution effects - due to an increase in the demand for CO2eq intensive goods, such as commuting and transportation services - when also taxing oil do not offset the reduction in emissions caused by a lower ethanol price. Therefore, understanding who benefits from energy price taxes and subsidies and their welfare impacts policies are key to gaining public support for a greener energy matrix.

Suggested Citation

  • Paula Pereda & Maria Alice Christofoletti, 2019. "Heterogeneous welfare and emission effects of energy tax policies in Brazil," Working Papers, Department of Economics 2019_32, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2019wpecon32
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    References listed on IDEAS

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    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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