How Effective Was the UK Carbon Tax? - A Machine Learning Approach to Policy Evaluation

CER-ETH – Center of Economic Research at ETH Zurich Working Paper 19/317

51 Pages Posted: 14 May 2019

See all articles by Jan Abrell

Jan Abrell

ETH Zurich

Mirjam Kosch

ETH Zürich

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Date Written: April 15, 2019

Abstract

Carbon taxes are commonly seen as a rational policy response to climate change, but little is known about their performance from an ex-post perspective. This paper analyzes the emissions and cost impacts of the UK CPS, a carbon tax levied on all fossil-fired power plants. To overcome the problem of a missing control group, we propose a novel approach for policy evaluation which leverages economic theory and machine learning techniques for counterfactual prediction. Our results indicate that in the period 2013-2016 the CPS lowered emissions by 6.2 percent at an average cost of € 18 per ton. We find substantial temporal heterogeneity in tax-induced impacts which stems from variation in relative fuel prices. An important implication for climate policy is that a higher carbon tax does not necessarily lead to higher emissions reductions or higher costs.

Keywords: Climate Policy, Carbon Tax, Carbon Pricing, Electricity, Coal, Natural Gas, United Kingdom, Carbon Price Surcharge, Policy Evaluation, Causal Inference, Machine Learning

JEL Classification: C54, Q48, Q52, Q58, L94

Suggested Citation

Abrell, Jan and Kosch, Mirjam and Rausch, Sebastian, How Effective Was the UK Carbon Tax? - A Machine Learning Approach to Policy Evaluation (April 15, 2019). CER-ETH – Center of Economic Research at ETH Zurich Working Paper 19/317. Available at SSRN: https://ssrn.com/abstract=3372388 or http://dx.doi.org/10.2139/ssrn.3372388

Jan Abrell (Contact Author)

ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8032
Switzerland

HOME PAGE: http://www.janabrell.de

Mirjam Kosch

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

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