Differentiated Carbon Prices and the Economic Cost of Decarbonization

Landis, Florian; Kosch, Mirjam

doi:10.1007/s10640-017-0130-y

“…Such a transformation will not come without cost, and economists have been looking at how to reach the targets in the optimal way for a while now. Several studies using numerical models have been carried out in order to analyze the technological and economic cost of Swiss climate targets and to compare different policy options for reaching them (see, e.g., Marcucci and Turton (2012); *Correspondence: adriana.marcucci@sccer-soe.ethz.ch 1 Center of Economic Research, ETH Zurich, Zürichbergstrasse 18, 8092, Zurich, Switzerland Full list of author information is available at the end of the article Sceia et al (2012); Bretschger and Lin (2017); Bretschger et al (2011); Landis et al (2018); Böhringer and Müller (2014); Kannan and Turton (2016); Ecoplan (2012); Prognos (2012)).…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, we assess the cost of reaching Swiss climate targets for 2050 using different carbon pricing options including economy-wide uniform carbon taxes and tax designs in line with recent 3 See "Switzerland's intended nationally determined contribution (INDC) and clarifying information" by the Federal Office for the Environment (BAFU): https://www.newsd.admin.ch/newsd/message/attachments/38517.pdf 4 The price signal that the uniform carbon tax sends helps distribute emission reductions cost-effectively in economies with undistorted markets and perfect competition. If markets are distorted by pre-existing taxes, deviations from the uniform tax may be in order (Bovenberg and Goulder, 1996;Landis et al, 2018). Böhringer et al (2019) argue that the Swiss emission reduction targets can be reached at significantly lower cost if carbon taxes are increased than by implementing more stringent forms of other currently implemented policies.…”

Section: Introductionmentioning

confidence: 99%

Multi-model comparison of Swiss decarbonization scenarios

Landis

¹

,

Marcucci

²

,

Kannan

³

et al. 2019

Swiss J Economics Statistics

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Collaborating under the Swiss Energy Modeling Platform (SEMP), five modeling teams (employing an energy systems model and four macroeconomic models with a focus on energy) have carried out a multi-model comparison to assess the economic and technological consequences of reaching emission reduction targets for 2050 in the context of Switzerland. We consider different designs of carbon taxes to compare their economic cost: economy-wide or sector-specific carbon taxes with or without an emission trading system (ETS) in place. All models find that the climate targets can be reached at modest welfare reductions of 0.15–0.37% (if targeting 1.5 tonnes of CO 2 per capita) or 0.24–0.48% (if targeting 1.0 tonnes per capita) compared to a business-as-usual scenario in which the emission level of 1.5 tonnes per capita is exceeded by 83–137%. In contradiction to the additional target of reducing Swiss electricity use, most models find it cost-effective to replace some of the energy supplied by fossil fuels by electricity and thus do not recommend a decrease in electricity use.Most models find that a uniform carbon tax is the most efficient instrument to achieve the emission reduction targets. Those models with a detailed representation of pre-existing mineral oil taxes find that in early periods of climate policy, taxing emission from transport fuels at lower rates than other emissions may be cost-efficient. This effect vanishes as the stringency of targets and thus CO 2 taxes increase over time.

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“…First, we contribute to papers analyzing the efficiency of tax differentiation, and second, we add to analyses on Swiss climate policy. Several papers have analyzed the efficiency of tax differentiation using theoretical and numerical models, see for instance Hoel (1996), Markusen (1975), , Boeters (2014), Landis et al (2018), and Abrell et al (2018). This paper complements these analyses by using a numerical (2019) 155:9 Page 3 of 13 model with endogenous growth that represents the positive impacts from climate policies on the economy driven by the endogenously determined R&D. Different studies using numerical models have evaluated the realization of different carbon reduction goals in Switzerland, see for instance Marcucci and Turton (2012); Sceia et al (2012); Böhringer and Müller (2014); Kannan and Turton (2016); Bretschger and Zhang (2017b); Karydas and Zhang (2017); Landis et al (2018).…”

Section: Introductionmentioning

confidence: 99%

Growth impacts of Swiss steering-based climate policies

Marcucci

¹

,

Lin

²

2019

Swiss J Economics Statistics

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This paper studies the growth impacts of realizing two long-term carbon targets in Switzerland (reducing CO 2 emissions in 2050 by 72% and 80% relative to 1990 levels) with alternative steering-based climate policies that include a uniform tax on the whole economy and differentiated tax schemes. For this analysis, we use the Computable Induced Technical change and Energy (CITE) model, a computable general equilibrium (CGE) model with endogenous growth. We find that achieving the climate targets could lead to a slight decrease in utility and an increase in investments through the shift of labor from manufacturing to research. Higher investments coming from higher innovation could compensate the reduction in output due to the carbon policies, leading to relatively unaffected economic output. The economic structure adjusts following three drivers: energy intensity, substitutability from energy in the production of the intermediate varieties, and the relative attractiveness of research. Moreover, the results from the CITE model show that the economy-wide carbon tax is the most effective option when we consider the effects on utility. Differentiating the sectors regulated by the emission trading system (ETS) has relatively low impact while applying lower taxes on transport fuels results in lower utility driven by inefficiencies in the sectoral mitigation efforts. Finally, we find that the effects of increasing the stringency of the target (in terms of foregone utility) are independent from the policy instrument.

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“…First, we contribute to papers analyzing the efficiency of tax differentiation, and second, we add to analyses on Swiss climate policy. Several papers have analyzed the efficiency of tax differentiation using theoretical and numerical models, see for instance Hoel (1996), Markusen (1975), , Boeters (2014), Landis et al (2018), and Abrell et al (2018). This paper complements these analyses by using a numerical model with endogenous growth that represents the positive impacts from climate policies on the economy driven by the endogenously determined R&D. Different studies using numerical models have evaluated the realization of different carbon reduction goals in Switzerland, see for instance Marcucci and Turton (2012); Sceia et al (2012); Böhringer and Müller (2014); Kannan and Turton (2016); Bretschger and Zhang (2017b); Karydas and Zhang (2017); Landis et al (2018).…”

Section: Introductionmentioning

confidence: 99%

Growth Impacts of Swiss Steering Based Climate Policies

Marcucci

¹

,

Zhang

²

2019

SSRN Journal

1

0

View full text Add to dashboard Cite

This paper studies the growth impacts of realizing two long-term carbon targets in Switzerland (reducing CO 2 emissions in 2050 by 72% and 80% relative to 1990 levels) with alternative steering-based climate policies that include a uniform tax on the whole economy and differentiated tax schemes. For this analysis, we use the Computable Induced Technical change and Energy (CITE) model, a computable general equilibrium (CGE) model with endogenous growth. We find that achieving the climate targets could lead to a slight decrease in utility and an increase in investments through the shift of labor from manufacturing to research. Higher investments coming from higher innovation could compensate the reduction in output due to the carbon policies, leading to relatively unaffected economic output. The economic structure adjusts following three drivers: energy intensity, substitutability from energy in the production of the intermediate varieties, and the relative attractiveness of research. Moreover, the results from the CITE model show that the economy-wide carbon tax is the most effective option when we consider the effects on utility. Differentiating the sectors regulated by the emission trading system (ETS) has relatively low impact while applying lower taxes on transport fuels results in lower utility driven by inefficiencies in the sectoral mitigation efforts. Finally, we find that the effects of increasing the stringency of the target (in terms of foregone utility) are independent from the policy instrument.

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Differentiated Carbon Prices and the Economic Cost of Decarbonization

Cited by 18 publications

References 38 publications

Multi-model comparison of Swiss decarbonization scenarios

Multi-model comparison of Swiss decarbonization scenarios

Growth impacts of Swiss steering-based climate policies

Growth Impacts of Swiss Steering Based Climate Policies

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