What Do We Know About Carbon Taxes? An Inquiry into Their Impacts on Competitiveness and Distribution of Income

Energy Policy, Vol. 32, No. 4, pp. 507-518, March 2004

Posted: 18 Apr 2005

See all articles by ZhongXiang Zhang

ZhongXiang Zhang

Tianjin University - Ma Yinchu School of Economics

Andrea Baranzini

University of Applied Sciences Western Switzerland - Geneva School of Business Administration

Multiple version iconThere are 2 versions of this paper

Abstract

The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) has set legally binding emissions targets for a basket of six greenhouse gases and timetables for industrialised countries. It has also incorporated three international flexibility mechanisms. However, the Articles defining the flexibility mechanisms carry wording that their use must be supplemental to domestic actions. This has led to the open debates on interpretations of these supplementarity provisions. Such debates ended at the resumed sixth Conference of the Parties (COP) to the UNFCCC, held in Bonn, July 2001, and at the subsequent COP-7 in Marrakesh, November 2001. The final wording in the Bonn Agreement, reaffirmed in the Marrakesh Accords, at least indicates that domestic policies will have an important role to play in meeting Annex B countries' emissions commitments. Carbon taxes have long been advocated because of their cost-effectiveness in achieving a given emissions reduction. In this paper, the main economic impacts of carbon taxes are assessed. Based on a review of empirical studies on existing carbon/energy taxes, it is concluded that competitive losses and distributive impacts are generally not significant and definitely less than often perceived. However, given the ultimate objective of the Framework Convention, future carbon taxes could have higher rates than those already imposed and thus the resulting economic impacts could be more acute. In this context, it has been shown that how to use the generated fiscal revenues will be of fundamental importance in determining the final economic impacts of carbon taxes. Finally, we briefly discuss carbon taxes in combination with other domestic and international instruments.

Keywords: Border tax adjustments, carbon taxes, distribution of income, double dividend, emissions trading, energy taxes, international competitiveness

JEL Classification: Q25, Q28, Q43, Q48

Suggested Citation

Zhang, ZhongXiang and Baranzini, Andrea, What Do We Know About Carbon Taxes? An Inquiry into Their Impacts on Competitiveness and Distribution of Income. Energy Policy, Vol. 32, No. 4, pp. 507-518, March 2004. Available at SSRN: https://ssrn.com/abstract=565322

ZhongXiang Zhang (Contact Author)

Tianjin University - Ma Yinchu School of Economics ( email )

92 Weijin Road, Nankai District
Tianjin 300072
China
+86 22 87370560 (Phone)

HOME PAGE: http://ideas.repec.org/f/pzh243.html

Andrea Baranzini

University of Applied Sciences Western Switzerland - Geneva School of Business Administration ( email )

CH-1227 Geneva
Switzerland
+41-22-388 1718 (Phone)
+41-22-388 1701 (Fax)

HOME PAGE: http://campus.hesge.ch/baranzia/

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