Household Welfare and CO2 Emission Impacts of Energy and Carbon Taxes in Mexico

31 Pages Posted: 30 May 2017

See all articles by Sebastian Renner

Sebastian Renner

GIGA German Institute of Global and Area Studies

Jann Lay

GIGA German Institute of Global and Area Studies; University of Goettingen

Hannes Greve

GIGA German Institute of Global and Area Studies; University of Goettingen (Gottingen), Students

Date Written: April 29, 2017

Abstract

We analyse the effects of environmental taxes on welfare and carbon emissions at the household level for the case of Mexico. The integrated welfare-environmental analysis, which is based on a censored energy consumer demand system, extends previous work in two ways. First, the estimation of a full matrix of substitution elasticities allows us to test the necessity of incorporating second-order effects into the welfare analysis. Second, the substitution elasticities derived from the demand system are used to estimate the short-run CO2 emission-reduction potential. We find that first-order approximations of welfare effects provide reasonable estimates, particularly for carbon taxes. Analog to evidence in other low- and middle-income countries, the taxation of all energy items is found to be regressive, with the exception of motor fuels. The inclusion of CH4 and N2O in a carbon tax regime comes with particularly regressive impacts because of its strong effects on food prices. The analysis of the emission implications of different tax scenarios indicates that short-run emission reductions at the household level can be substantial – though the effects depend on how revenue is recycled. This effectiveness combined with moderate and manageable adverse distributional impacts renders the carbon tax a preferred mitigation instrument. Considering the large effect of food price increases on poverty and the limited additional emission-saving potential, the inclusion of CH4 and N2O in a carbon tax regime is not advisable.

Keywords: climate policy, energy policy, Mexico, poverty, distributional effects

Suggested Citation

Renner, Sebastian and Lay, Jann and Greve, Hannes, Household Welfare and CO2 Emission Impacts of Energy and Carbon Taxes in Mexico (April 29, 2017). Available at SSRN: https://ssrn.com/abstract=2977240 or http://dx.doi.org/10.2139/ssrn.2977240

Sebastian Renner (Contact Author)

GIGA German Institute of Global and Area Studies ( email )

Jungfernstieg 21
Hamburg, 20354
Germany

Jann Lay

GIGA German Institute of Global and Area Studies ( email )

Neuer Jungfernstieg 21
Hamburg, DE D-20354
Germany

University of Goettingen

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Hannes Greve

GIGA German Institute of Global and Area Studies ( email )

Jungfernstieg 21
Hamburg, 20354
Germany

University of Goettingen (Gottingen), Students ( email )

Platz der Gottinger Sieben 3
Göttingen
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
36
Abstract Views
440
PlumX Metrics