Economic and environmental effects of CO₂taxation: an input-output analysis for Spain

Abstract

CO 2 emissions induced by human activities are the major cause of climate change; hence, strong environmental policy that limits the growing dependence on fossil fuel is indispensable. Tradable permits and environmental taxes are the usual tools used in CO 2 reduction strategies. Such economic tools provide incentives to polluting industries to reduce their emissions through market signals. The aim of this work is to investigate the direct and indirect effects of an environmental tax on Spanish products and services. We apply an environmentally extended input-output (EIO) model to identify CO 2 emission intensities of products and services and, accordingly, we estimate the tax proportional to these intensities. The short-term price effects are analyzed using an input-output price model. The effect of tax introduction on consumption prices and its influence on consumers' welfare are determined. We also quantify the environmental impacts of such taxation in terms of the reduction in CO 2 emissions. The results, based on the Spanish economy for the year 2007, show that sectors with relatively poor environmental profile are subjected to high environmental tax rates. And consequently, applying a CO 2 tax on these sectors, increases production prices and induces a slight increase in consumer price index and a decrease in private welfare. The revenue from the tax could be used to counter balance the negative effects on social welfare and also to stimulate the increase 2 of renewable energy shares in the most impacting sectors. Finally, our analysis highlights that the environmental and economic goals cannot be met at the same time with the environmental taxation and this shows the necessity of finding other (complementary or alternative) measures to ensure both the economic and ecological efficiencies.

Pollution Emissions, Environmental Policy, and Marginal Abatement Costs

“…If the shares of individual industries can be identified, pertinent policies can be made in the pollution ETS, e.g., the main emitters should be covered in the first phase of the pollution ETS. At first, this paper applies the method provided by the Intergovernmental Panel on Climate Change to evaluate the emissions of SO 2 based on energy consumption and then calculates the SO 2 emissions of different industries, applying the method given by Gemechu et al [ 23 ] and He and Ou [ 8 ].…”

“…To estimate the emission contribution of SO 2 , this paper applies the input-output (I-O) method to distinguish the sectoral emissions and identify the shares of individual industries [ 8 , 23 ]. Multiple methods have been used to estimate the MACs of harmful emissions, such as Cost-Benefit Analysis, Dynamic Optimization Model, Input-Output Analysis, Computational General Equilibrium Model, Integrated Assessment Model and Shadow Price Approach [ 22 , 24 , 25 , 26 ].…”

A combined input–output/decision making trial and evaluation laboratory method for evaluating effect of the remanufacturing sector development

“…Ferrer and Ayres (2000) used the inputeoutput method to analyze influence of the remanufacturing sector on macro economy and employment of France. Gemechu et al (2014) applied environmental inputeoutput and price models into direct and indirect effect evaluation of an environmental tax on Spanish products. Dong et al (2014) used a single-regionalinputeoutput method to calculate the carbon emission from production account and consumption account with a traditional competitive inputeoutput table.…”

Economic impacts of Japan’s renewable energy sector and the feed-in tariff system: using an input–output table to analyze a next-generation energy system

“…Previous studies that have analyzed the cost-push effects of increases in energy prices using input-output pricing models include Suzuki and Uchiyama (2010), Tarancon et al (2010), Kerschner et al (2013), Jiang and Tan (2013), and Gemechu et al (2014). Suzuki and Uchiyama (2010) conduct a factor analysis of the effects of an increase in energy prices on the price of non-energy resources through the inputoutput relationship.…”

“…Jiang and Tan (2013) analyze the effect of changes in energy input prices resulting from reformed energy subsidies. Gemechu et al (2014) analyze the price effects of changes in CO 2 taxes and social security taxes using a model that incorporates tax rates for energy input coefficients and value-added components. This study, by establishing the deduction (row) vector of the FIT as a valueadded item in the ''Extended table for 2030,'' describes the FIT as a current subsidy.…”