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Using a Stackelberg game model, this research examines the impact of government-imposed carbon taxes on the sustainability of a two-echelon supply chain. The analysis focuses on the interactions between upstream suppliers and downstream manufacturers, taking into account how manufacturers’ carbon emissions influence market demand, as well as how sustainability levels and price affect this demand. The results show that a centralized system has a lesser potential for total profit development in the supply chain than a decentralized system. To encourage investment in green technologies throughout the supply chain, this paper proposes two coordination mechanisms: a green subsidy and a two-part tariff contract. Numerical study reveals that a win–win scenario for the supply chain requires suppliers to share part of the costs. Furthermore, under a two-part tariff contract, successfully managing fixed costs can result in total profit levels comparable to those in a centralized system. The research also makes strategy recommendations, such as differentiating carbon levies, improving supply chain coordination, and assessing fixed costs. These aim to provide theoretical and practical implications for supply chain management in order to assist businesses and policymakers in effectively responding to the problems of climate change.

The Kyoto Protocol was the outcome of many years of multilateral negotiation and political compromise with the ultimate aim of reducing the risk of dangerous climate change. Unfortunately, most of the countries that ratified the Kyoto Protocol have not taken effective action to curb greenhouse gas emissions, with many Kyoto countries not looking likely to reach their targets. There is also a lack of enthusiasm from major developing countries to take on the binding targets that form the basis of the Kyoto Protocol Approach. This has raised serious doubts about the viability of the Kyoto policy of committing countries to targets and timetables especially as a model for the current negotiations. As the science becomes more compelling that action is needed to curb greenhouse gas emissions, countries are beginning to look for more sustainable alternatives for the period beyond 2012. This paper outlines the key features that are needed in a new climate change framework beyond Kyoto drawing on lessons from monetary history. Using the analogy to the way modern central banks run monetary policy, it outlines an alternative to the Kyoto Protocol, which is a system of national climate policies coordinated around a common global price for carbon.

Carbon tax and energy tax are among the hot discussions in China. This study conducts simulation studies on them with a CGE model and analyzes their economic impacts, especially on the energy-intensive sectors. The Chinese economy is affected at an acceptable level by the two taxes in different scenarios. The import and export of energy-intensive industries are changed, leading to improved domestic competitiveness. Compared with implementing a single tax, a combined carbon-energy tax reduces more emissions with relatively smaller economic costs. For China, the sooner such taxes are launched, the smaller the economic costs and the more significant emission reductions.

This study tries to find new insights of implementations of carbon tax policy as a suitable way to reach the long-term zero-carbon plan. This paper explores how carbon tax can affect the macroeconomy in Japan through the structural vector autoregression (S-VAR) technique conducted for the quarterly data throughout 2005–2020. A theoretical general equilibrium model backs the empirical analysis. The major findings reveal that any increase in energy price from the carbon tax will lead to an increase in interest rate, exchange rate, and consumer price index while there is a negative relationship between energy price increase from carbon tax and real gross domestic product (GDP) in Japan. Carbon Policy Refolution ($\mathrm{\text{Reform}}+\mathrm{\text{Evolution}}$), refunding carbon tax revenues, and adaptation of long-term policy of net zero GHG emissions by 2050 with the current situation of Japan’s power sectors are the major practical policies of this study.

This paper explores how reductions in carbon dioxide (CO₂) emissions of Indian manufacturing would impact the export competitiveness of Indian manufacturing firms, by estimating production functions of alternate specifications using data on manufacturing companies for 2007–2008. The results indicate substantial scope for reduction in CO₂ emissions through factor substitution and reduction in technical inefficiency. The analysis presented in the paper indicates that a reasonable carbon tax of US$ 4–15 per tonne of CO₂would cause costs in industrial companies to increase, on average, by 0.36%–1.33% and the consequent loss of exports because of the carbon tax is likely to be small.

Putting a price on carbon is critical for climate change policy. Increasingly, policymakers combine multiple policy tools to achieve this, for example by complementing cap-and-trade schemes with a carbon tax, or with a feed-in tariff. Often, the motivation for doing so is to limit undesirable fluctuations in the carbon price, either from rising too high or falling too low. This paper reviews the implications for the carbon price of combining cap-and-trade with other policy instruments. We find that price intervention may not always have the desired effect. Simply adding a carbon tax to an existing cap-and-trade system reduces the carbon price in the market to such an extent that the overall price signal (tax plus carbon price) may remain unchanged. Generous feed-in tariffs or renewable energy obligations within a capped area have the same effect: they undermine the carbon price in the rest of the trading regime, likely increasing costs without reducing emissions. Policymakers wishing to support carbon prices should turn to hybrid instruments — that is, trading schemes with price-like features, such as an auction reserve price — to make sure their objectives are met.

This paper examines the changes in land use in the U.S. likely to be induced by biofuel and climate policies and the implications of these policies for greenhouse gas (GHG) emissions over the 2007–2022 period. The policies considered here include a modified Renewable Fuel Standard (RFS) by itself as well as combined with a cellulosic biofuel tax credit or a carbon price policy. We use a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to endogenously determine the effects of these policies on cropland allocation, food and fuel prices, and the mix of first- and second-generation biofuels. We find that the RFS could be met by diverting 6% of cropland for biofuel production and would result in corn prices increasing by 16% in 2002 relative to the business-as-usual baseline. The reduction in GHG emissions in the U.S. due to the RFS is about 2%; these domestic GHG savings can be severely eroded by emissions due to indirect land-use changes and the increase in gasoline consumption in the rest of the world. Supplementing the RFS with a carbon price policy or a cellulosic biofuel tax credit induces a switch away from corn ethanol to cellulosic biofuels and achieves the mandated level of biofuel production with a smaller adverse impact on crop prices. These supplementary policies enhance the GHG savings achieved by the RFS alone, although through different mechanisms; greater production of cellulosic biofuels with the tax credit but larger reduction in fossil fuel consumption with a carbon tax.

We examine the relative attractions of a carbon tax, a "pure" cap-and-trade system, and a "hybrid" option (a cap-and-trade system with a price ceiling and/or price floor). We show that the various options are equivalent along more dimensions than often are recognized. In addition, we bring out important dimensions along which the approaches have very different impacts, including some dimensions that have received little attention in prior literature. Although no option dominates the others, a key finding is that exogenous emissions pricing (whether through a carbon tax or through the hybrid option) has a number of important attractions over pure cap and trade. Beyond helping prevent price volatility and reducing expected policy errors in the face of uncertainties, exogenous pricing helps avoid problematic interactions with other climate policies and helps avoid potential wealth transfers to oil-exporting countries.

Substantially reducing carbon dioxide (CO₂) emissions from electricity production will require a transformation of the resources used to produce power. Several different incentive-based policies have been proposed ranging from setting minimums for clean generation sources to maximum emission rate standards and caps on CO₂ emissions, all of which are allowed under the EPA’s Clean Power Plan. This paper analyzes the economic consequences of a suite of different flexible and comprehensive policies to reduce CO₂ emissions from the power sector, including a carbon tax, a tradable emissions rate performance standard, and two versions of a clean energy standard (CES). Modeling results suggest that policies that encourage emissions reductions along multiple margins can be substantially more cost-effective than less flexible policies. The margins are intra and inter fuel, and technology substitution, electricity demand, and generator fuel efficiency. Despite cost differences, all of the policies result in substantial increases in social welfare.

The issue of climate change is often framed as one in which contemporary actions, often with affixed costs, are necessary in order to prevent even greater costs being paid during a period in the future. Under such a framework it is thus necessary to calculate the rate in which future benefits are discounted to reflect current values. In this paper we examine how individual level discount rates affect their support for a policy tool that incurs contemporary costs in an effort to prevent future environmental damages. We find that individuals with higher discount rates are significantly less likely to support the imposition of a carbon tax in comparison with individuals that have lower discount rates. Even when controlling for other individual level attributes such as party affiliation a person’s rate for discounting the future is shown to be a strong predictor of their support for a carbon tax.

This paper is an introduction to, “The EMF 32 Study on U.S. Carbon Tax Scenarios,” part of the Stanford Energy Modeling Forum (EMF) Model Inter-comparison Project (MIP) number 32. Eleven modeling teams participated in this study examining the economic and environmental impacts of various carbon tax trajectories and differing uses of carbon tax revenues. This special issue of Climate Change Economics documents the results of this study with four cross-cutting papers that summarize results across models, and ten papers from individual modeling teams.

The Energy Modeling Forum (EMF) 32 study on carbon tax scenarios analyzed a set of illustrative policies in the United States that place an economy-wide tax on fossil-fuel-related carbon dioxide (CO${}_2)$ emissions, a carbon tax for short. Eleven modeling teams ran these stylized scenarios, which vary by the initial carbon tax rate, the rate at which the tax escalates over time, and the use of the revenues. Modelers reported their results for the effects of the policies, relative to a reference scenario that does not include a carbon tax, on emissions, economic activity, and outcomes within the U.S. energy system. This paper explains the scenario design, presents an overview of the results, and compares results from the participating models. In particular, we compare various outcomes across the models, such as emissions, revenue, gross domestic product, sectoral impacts, and welfare.

This paper presents a multi-model assessment of the distributional impacts of carbon pricing. A set of harmonized representative CO₂ taxes and tax revenue recycling schemes is implemented in five large-scale economy-wide general equilibrium models. Recycling schemes include various combinations of uniform transfers to households and labor and capital income tax reductions. Particular focus is put on equity — the distribution of impacts across household incomes — and efficiency, evaluated in terms of household welfare. Despite important differences in the assumptions underlying the models, we find general agreement regarding the ranking of recycling schemes in terms of both efficiency and equity. All models identify a clear trade-off between efficient but regressive capital tax reductions and progressive but costly uniform transfers to households; all agree upon the inferiority of labor tax reductions in terms of welfare efficiency; and all agree that different combinations of capital tax reductions and household transfers can be used to balance efficiency and distributional concerns. A subset of the models go further and find that equity concerns, particularly regarding the impact of the tax on low income households, can be alleviated without sacrificing much of the double-dividend benefits offered by capital tax rebates. There is, however, less agreement regarding the progressivity of CO₂ taxation net of revenue recycling. Regionally, the models agree that abatement and welfare impacts will vary considerably across regions of the U.S. and generally agree on their broad geographical distribution. There is, however, little agreement regarding the regions which would profit more from the various recycling schemes.

This paper provides a detailed, cross-model analysis and discussion of the implications of carbon tax scenarios on changes in sectoral output, energy production and consumption and the competitiveness of the United States’ economy. Our analysis focuses on the broad patterns apparent across models in both qualitative and quantitative terms at the sector level, with a focus on energy-intensive, trade-exposed sectors. We identify how variations in carbon tax trajectories and different options for using the revenue from the tax drive these results.

I examine the general equilibrium costs of climate policies that levy taxes on carbon dioxide (CO₂) emissions in the United States and return the revenue in the form of lump-sum rebates and tax relief over the years 2020 to 2040 using the US regional version of the Applied Dynamic Analysis of the Global Economy (ADAGE-US) forward-looking dynamic Computable General Equilibrium (CGE) model. I approximate the value of co-benefits to these policies that arise from concomitant reductions in nongreenhouse gas (GHG) emissions using the CO-Benefits Risk Assessment model (COBRA). There is significant heterogeneity in costs and co-benefits from climate policies across space and income. Policy costs are generally less than 0$.$5% in equivalent variation terms (between a few tens of dollars and several hundred per household, depending on the income quintile), can be fully neutralized for the lowest- quintile households at a modest increase in overall policy cost, and tend to be lower for upper-quintile households in coastal regions. The policy co-benefit values range widely across regions, approximately $150–1250 per household, exceeding the gross cost of the policy for many households, particularly those in the Midwest. Last, I identify a marginal welfare cost of $58$∕$tCO₂ and a marginal co-benefit of $31$∕$tCO₂ at a national level over all households, which implies a required climate benefit of $27$∕$tCO₂ or less to justify the level of abatement achieved by a $25$∕$tCO₂ tax growing at 5%.

We examine the lifetime incidence and intergenerational distributional effects of an economy-wide carbon tax swap using a numerical dynamic general equilibrium model with overlapping generations of the U.S. economy. We highlight various fundamental choices in policy design including (1) the level of the initial carbon tax, (2) the growth rate of the carbon tax trajectory of over time, and (3) alternative ways for revenue recycling. Without revenue recycling, we find that generations born before the tax is introduced experience smaller welfare losses, or even gain, relative to future generations. For sufficiently low growth rates of the tax trajectory, the impacts for distant future generations decrease over time. For future generations born after the introduction of the tax, the negative welfare impacts are the smallest (largest) when revenues are recycled through lowering pre-existing capital income taxes (through per-capita lump-sum rebates). For generations born before the tax is introduced, we find that lump-sum rebates favor very old generations and labor (capital) income tax recycling favors very young generations (generations of intermediate age).

This paper documents application of the Future Agricultural Resources Model (FARM) to stylized carbon tax scenarios specified by the Stanford Energy Modeling Forum (EMF). Model results show that the method of tax revenue recycling makes a difference. Either labor-tax, or capital-tax, recycling can reduce the welfare cost of a carbon tax policy relative to lump sum recycling. Of the two tax recycling options, reducing capital taxes provides the greater reduction in welfare costs. However, carbon tax revenues decline with stringent carbon dioxide (CO₂) emission targets and the availability of a negative-emissions technology such as bio-electricity with CO₂ capture and storage (BECCS). As BECCS expands, net carbon tax revenues peak and decline due to an offsetting subsidy for carbon sequestration, limiting the potential for labor- or capital-tax recycling to reduce welfare costs of a climate policy.

This paper examines carbon tax design options in the United States using an intertemporal computable general equilibrium model of the world economy called G-Cubed. In this paper, we discuss four policy scenarios that explore two overarching issues: (1) the effects of a carbon tax under alternative assumptions about the use of the resulting revenue, and (2) the effects of a system of import charges on carbon-intensive goods (“border carbon adjustments” or BCAs).

Consistent with earlier studies, we find that the carbon tax raises considerable revenue and reduces CO₂ emissions significantly relative to baseline, no matter how the revenue is used. Gross annual revenue from the carbon tax with lump sum rebating and no BCA begins at $110 billion in 2020 and rises gradually to $170 billion in 2040. By 2040, annual CO₂ emissions fall from 5.5 billion metric tons (BMT) under the baseline to 2.4 BMT, a decline of 3.1 BMT, or 57%. Cumulative emissions over 2020 to 2040 fall by 48 BMT.

Also consistent with earlier studies, we find that the carbon tax has very small overall impacts on gross domestic product (GDP), wages, employment, and consumption. Different uses of the revenue from the carbon tax result in slightly different levels and compositions of GDP across consumption, investment and net exports. Overall, using carbon tax revenue to reduce the capital income tax rate results in better macroeconomic outcomes than using the revenue for lump sum transfers.

Counter to their purported purpose of protecting U.S. trade strength, for a given revenue policy, BCAs tend to produce lower net exports than the carbon taxes alone. This is generally because the BCAs raise the value of the dollar relative to other currencies, thus lowering exports more than they lower imports. This is consistent with standard results in the international trade literature on the effects of import tariffs and export subsidies on real exchange rates, a result that is often overlooked in the discussion of domestic carbon policy.

In a finding new to the literature, our results show that BCAs can have strikingly different effects depending on the use of the revenue. Under a lump sum rebate, BCAs exacerbate the impact of the carbon tax by lowering domestic output further than it would fall under the carbon tax alone. Under a capital tax swap, however, BCAs have a moderating effect: they reduce the impact of the tax on most industries.

Future carbon dioxide (CO₂) emissions under a carbon tax depend on the time-path of the economy under baseline (business-as-usual) conditions as well as the extent to which the policy reduces emissions relative to the baseline. Considerable uncertainties surround the baseline forecasts for fuel prices, energy efficiency (energy-GDP ratios), and GDP, as evidenced by the significant ranges in the forecasts by government agencies and research institutions in the U.S. This paper assesses the significance of these uncertainties to the path of CO₂ emissions under a carbon tax. We do this by examining the emissions levels and quantities of abatement that result from the E3 general equilibrium model under a range of alternative baseline forecasts for fuel prices, energy efficiency, and GDP, where the different baselines are produced through suitable changes to key model parameters. In addition, we consider how the time-profile of the carbon tax needed to achieve specified CO₂ abatement targets is affected by such forecast-linked changes in parameters.

We find that the sensitivity of baseline emissions to alternative forecasts depends on the particular forecasted variable under consideration. Baseline CO₂ emissions are highly sensitive to alternative scenarios related to the rate of energy efficiency improvements in the nonenergy sector and the rate of general economic growth. In contrast, such emissions are much less sensitive to alternative scenarios related to the productivity of fossil fuel production. The extent of abatement from the baseline is generally fairly insensitive to changes in the scenarios for time-paths of fuel prices, energy-efficiency and GDP. We also find that short-term emissions targets can be achieved with relatively moderate carbon taxes under all of the baseline scenarios considered.

We show results from the National Energy Modeling System generated during the Energy Modeling Forum 32 study — focusing on macroeconomic responses to different methods of recycling carbon tax revenue. We find that recycling such revenue directly to consumers in the form of lump sum payments results in smaller negative GDP impacts than using the revenues to reduce business taxes.