Exploring Carbon Pricing in Developing Countries: A Macroeconomic Analysis in Ethiopia

33 Pages Posted: 21 May 2019

See all articles by Andualem Telaye

Andualem Telaye

affiliation not provided to SSRN

Pablo Benitez

World Bank

Seneshaw Tamru

KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Haileselassie Amaha Medhin

affiliation not provided to SSRN

Michael Toman

World Bank - Development Research Group (DECRG)

Date Written: May 20, 2019

Abstract

This study uses a computable general equilibrium model to analyze various policy scenarios for a carbon tax on greenhouse gas emissions from petroleum fuels and kerosene in Ethiopia. The carbon tax starts at $5 per ton of carbon dioxide in 2018 and rises to $30 per ton in 2030. Different scenarios examine the impacts with revenue recycling through a uniform sales tax reduction, reduction of labor income tax, reduction of business income tax, direct transfer back to households, and use by the government to reduce debt. Because petroleum fuels and kerosene are a relatively small part of the Ethiopian economy, the carbon tax has quite small impacts on overall economic activity while having a notable proportionate impact on greenhouse gas emissions from these energy sources, depending on the recycling scenario. The carbon tax can raise significant revenue -- up to $800 million per year by 2030. The impacts on the poor through increased cost of living are not that large, since the share of the poor in total use of petroleum fuels and kerosene is small. In terms of income effects through employment changes, urban households tend to experience more impacts than rural households, but the results also depend on the household skill level and the revenue recycling scenario.

Suggested Citation

Telaye, Andualem and Benitez, Pablo and Tamru, Seneshaw and Medhin, Haileselassie Amaha and Toman, Michael, Exploring Carbon Pricing in Developing Countries: A Macroeconomic Analysis in Ethiopia (May 20, 2019). World Bank Policy Research Working Paper No. 8860, Available at SSRN: https://ssrn.com/abstract=3391600

Andualem Telaye

affiliation not provided to SSRN

No Address Available

Pablo Benitez (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Seneshaw Tamru

KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Haileselassie Amaha Medhin

affiliation not provided to SSRN

No Address Available

Michael Toman

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street N.W.
MSN3-311
Washington, DC 20433
United States

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