Computable General Equilibrium Techniques for Carbon Tax Modeling

American Journal of Environmental Sciences, Vol. 5, No. 3, pp. 330-340, 2010

Posted: 8 Jun 2011

See all articles by Abul Quasem Al-Amin

Abul Quasem Al-Amin

​Universiti Tenaga Nasional (UNITEN)

Chamhuri Siwar

National University of Malaysia (UKM)

Abdul Hamid Jaafar

National University of Malaysia

Date Written: June 7, 2010

Abstract

Problem statement: Lacking of proper environmental models environmental pollution is now a solemn problem in many developing countries particularly in Malaysia. Some empirical studies of worldwide reveal that imposition of a carbon tax significantly decreases carbon emissions and does not dramatically reduce economic growth. To our knowledge there has not been any research done to simulate the economic impact of emission control policies in Malaysia.

Approach: Therefore, this study developed an environmental computable general equilibrium model for Malaysia and investigated carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using a Malaysian social accounting matrix.

Results: The carbon tax policy illustrated that a 1.21% reduction of carbon emission reduced the nominal GDP by 0.82% and exports by 2.08%; 2.34% reduction of carbon emission reduced the nominal GDP by 1.90% and exports by 3.97% and 3.40% reduction of carbon emission reduced the nominal GDP by 3.17% and exports by 5.71%.

Conclusion/Recommendations: Imposition of successively higher carbon tax results in increased government revenue from baseline by 26.67, 53.07 and 79.28% respectively. However, fixed capital investment increased in scenario 1a by 0.43% and decreased in scenarios 1b and 1c by 0.26 and 1.79% respectively from the baseline. According to our policy findings policy makers should consider 1st (scenario 1a) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP and government revenue.

Keywords: Emission, environmental general equilibrium, Malaysian economy

JEL Classification: N50, N35, D60

Suggested Citation

Al-Amin, Abul Quasem and Siwar, Chamhuri and Jaafar, Abdul Hamid, Computable General Equilibrium Techniques for Carbon Tax Modeling (June 7, 2010). American Journal of Environmental Sciences, Vol. 5, No. 3, pp. 330-340, 2010 . Available at SSRN: https://ssrn.com/abstract=1859064

Abul Quasem Al-Amin (Contact Author)

​Universiti Tenaga Nasional (UNITEN)

​Institute of Energy Policy and Research (IEPRe)
JALAN IKRAM
KAJANG, 43000
Malaysia
389212383 (Phone)

Chamhuri Siwar

National University of Malaysia (UKM) ( email )

43600 Bandar Baru Bangi
Bangi, Selangor
Malaysia

Abdul Hamid Jaafar

National University of Malaysia ( email )

43600 Bandar Baru Bangi
Bangi, Selangor 06010
Malaysia

HOME PAGE: http://www.ukm.my

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