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

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research

Mirjam Kosch

ETH Zürich

Sebastian Rausch

ZEW – Leibniz Centre for European Economic Research; Heidelberg University - Alfred Weber Institute for Economics

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)

ZEW – Leibniz Centre for European Economic Research - Environmental and Resource Economics, Environmental Management Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim
Germany

Mirjam Kosch

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Sebastian Rausch

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

HOME PAGE: http://www.sebastianrausch.com

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

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