Narrow Results

Climate change and climate mitigation policies pose significant challenges to both the economy and public finances. This paper analyzes the long-term fiscal implications of climate policies aimed at achieving net-zero emissions in Switzerland by 2050. Using a novel budget-impact projection framework, we consider four climate policy scenarios with different mixes of carbon pricing, regulation and subsidies. Our projection analysis shows that the path to net-zero emissions will put pressure on public finances in the coming decades. This result primarily follows from the projected negative impact of climate mitigation policies on economic growth, which in turn dampens the growth of tax revenues and social security contributions. We highlight the importance of compensating for revenue losses due to the erosion of the fuel tax base as a result of the electrification of the transport sector. Finally, we show that the use of subsidies in climate and energy policies exacerbates fiscal pressures on the public expenditure side. Our projections highlight the need for policy action and the importance of forward-looking climate and fiscal policies to ensure sustainable public finances during the energy transition.

This paper examines a sample of 167 publicly listed enterprises covered by eight regional pilot emissions trading markets in China from 2013 to 2023. Our empirical findings indicate that the carbon price returns negatively affect the stock returns of enterprises covered by the regional markets, with the Shenzhen and Guangdong regions suffering a more pronounced effect. Furthermore, high-carbon-intensity enterprises are more susceptible to this negative impact than their low-carbon-intensity counterparts. The robustness of the negative relationship is evident even after the national emissions trading market opened on July 16, 2021. This study provides insightful guidance for policymakers to regulate emissions trading markets.

Carbon capture, utilisation, and storage (CCUS) technologies have the potential to play a crucial role in mitigating climate change by capturing CO₂ emissions from industrial processes and power generation. This study aims to explore the economic feasibility of CCUS and provide practical policy recommendations for making CCUS technologies economically feasible. The findings emphasise the importance of integrated policy frameworks, carbon pricing mechanisms, R&D investments, international collaboration, regulatory certainty, public awareness, and industry collaboration to unlock the potential of CCUS.

This paper calculates, for the top 20 emitting countries, how much pricing of carbon dioxide (CO₂) emissions would be in their own national interests due to domestic co-benefits (leaving aside the global climate benefits). On average, second-best domestic prices are substantial, $57.5 per ton of CO₂ (for year 2010), reflecting primarily health co-benefits from reduced air pollution at coal plants and, in some cases, reductions in automobile externalities net of fuel taxes/subsidies. Pricing co-benefits reduces CO₂ emissions from the top 20 emitters by 13.5%. However, co-benefits vary dramatically across countries (e.g., with population exposure to pollution) and differentiated pricing of CO₂ emissions therefore yields higher net benefits (by 23%) than uniform pricing. Importantly, the efficiency case for pricing carbon’s co-benefits hinges critically on weak prospects (for the foreseeable future) for comprehensive internalization of other externalities through other (more efficient) pricing instruments.

Carbon pricing generates revenues which can be recycled back into the economy in different ways to help mitigate the economic cost of abatement. These include, lump-sum transfers to households; reducing existing distortionary taxes, such as income taxes on labor and capital; investment in technology funds leading to energy/emissions efficiency improvements; and/or infrastructure developments that help expedite the adoption of low or lower carbon-intensive technologies. In this paper, we undertake illustrative simulations to explore how different revenue recycling options influence the overall economic outcome in terms of broad macroeconomic indicators, such as Gross Domestic Product (GDP) or household welfare. Environment and Climate Change Canada’s (ECCC) multi-sector, multi-region Computable General Equilibrium (CGE) model (EC-MSMR) is used to simulate various revenue recycling options. These simulations are undertaken for the U.S. economy. The main findings of the paper are: (i) using carbon revenue for a general income tax reduction or investment subsidy is more advantageous than a lump-sum transfer to U.S. consumers in terms of welfare or GDP; and (ii) using carbon revenue for a sector-based subsidy such as renewable energy is more disadvantageous than a lump-sum transfer to consumers. In terms of accumulated welfare effects, our results indicate that the best carbon revenue recycling option is the investment subsidy or capital income tax reduction in the longer horizon; labor tax reductions yield the best outcome in the shorter horizons.

Carbon taxes create incentives for controlling greenhouse gases by putting a price on these emissions. In theory major carbon emitters would pay more under an effective carbon tax. In practice political considerations often dominate and consequently compromise effectiveness in emissions mitigation. Australia's carbon pricing mechanism is a recent example. It involves the use of a fixed-price instrument that resembles a carbon tax and will eventually turn into an emission trading scheme and enable price fluctuation. The policy design is however questionable for overcompensating big polluters and legitimizing the failure to curb emissions domestically. This paper offers a review of the development of carbon tax policies in various national contexts with a focus on Australia. Lessons from the international practices could provide a useful reference for China to advance its timely commitment to establishing a carbon pricing system.

Business Climate Leaders is an action team of the Citizens’ Climate Lobby. As of this writing, it consists entirely of volunteers…

This chapter describes how economic models are used to answer questions about policy changes, specifically in the context of a carbon fee-and-dividend system. A carbon fee-and-dividend is a price on carbon dioxide emissions that returns the revenues gained to ordinary households in the form of a monthly check. The chapter describes, in nontechnical terms, the economic models and modeling processes involved and how they are similar and different from climate models…

The Association of Southeast Asian Nations (ASEAN) electricity market is being liberalised in some regional countries. This step of opening electricity markets is aimed at establishing a competitive and efficient environment that not only reduces electricity prices and CO₂ emissions from electricity generation but also promotes the wider use of renewable energy resources. This paper examines the effects of liberalisation on these expected outcomes in the electricity markets of Singapore and the Philippines during 2015–2020. The regression analysis results show that, in the specified period, liberalisation of the electricity market in Singapore has delivered price reductions and improvement in renewable energy share. However, there is no significant effect of liberalisation on the reduction of CO₂ emissions from the generation of electricity. The results also imply that, with the electricity market liberalisation in the Philippines, prices for household consumers and CO₂ emissions have increased. Also, the liberalisation has no significant impact on renewable energy share and industry electricity prices in the Philippines. To avoid the mixed results and strike a balance between expected outcomes, policy recommendations are given for ASEAN economies following the pathway of liberalised electricity markets.

In July 2012, the Australian government introduced a Carbon Pricing Mechanism (CPM) to regulate national Greenhouse Gas (GHG) emissions. However, due to political controversies, there were concerns over the fate of this policy throughout its implementation. To determine the effect of carbon pricing policy on major electric utility companies, this chapter extracts an implied carbon price from the Australian electricity derivative market and models its volatility interaction with the utility index in Australian Stock Exchange (ASX).We find that Autoregressive Conditional Heteroscedasticity (ARCH) model can adequately simulate and forecast the dynamics of implied carbon price. As the cost of carbon emissions was fully transparent and passed onto the market, carbon pricing pushed up electricity prices, which subsequently enhanced expected stock returns of electric utility companies. While shocks from implied carbon price caused immediate response in the stock market, transfer of volatility from the latter to electricity derivative market was lagged. The persistent shift of volatility level further demonstrates the effect of carbon pricing and related policy uncertainty on the Australian electric utility sector. Findings from this chapter provide insight into market sentiment on carbon pricing policy and can contribute to financial risk management.