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Tax distortions and global climate policy

We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first show that the weak double dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. A small analytic general equilibrium model is constructed to demonstrate this result. We then present a large-scale computable general equilibrium model of the world economy with distortionary taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.

© 2003 Elsevier Science

Tax Distortions and Global Climate Policy

We consider the efficiency implications of policies to reduce global carbon emissions in a world with pre-existing tax distortions. We first show that the weak double dividend, the proposition that the welfare improvement from a tax reform where environmental taxes are used to lower distorting taxes must be greater than the welfare improvement from a reform where the environmental taxes are returned in a lump sum fashion, need not hold in a world with multiple distortions. A small analytic general equilibrium model is constructed to demonstrate this result. We then present a large-scale computable general equilibrium model of the world economy with distortionary taxation. We use this model to evaluate a number of policies to reduce carbon emissions. We find that the weak double dividend is not obtained in a number of European countries. Results also demonstrate the point that the interplay between carbon policies and pre-existing taxes can differ markedly across countries. Thus one must be cautious in extrapolating the results from a country specific analysis to other countries.

Technical Change, Investment and Energy Intensity

This paper analyzes the role of different components of technical change on energy intensity by applying a Translog variable cost function setting to the new EU KLEMS dataset for 3 selected EU countries (Italy, Finland and Spain). The framework applied represents an accounting of technical change components, comprising autonomous as well as embodied and induced technical change. The inducement of embodied technical change is introduced by an equation for the physical capital stock that is a fixed factor in the short-run. The dataset on capital services and user costs of capital in EUKLEMS enables explaining capital accumulation depending on factor prices. The model can be used for explaining and tracing back the long-run impact of prices and technical change on energy intensity.

Technology and technical change in the MIT EPPA model

Potential technology change has a strong influence on projections of greenhouse gas emissions and costs of control, and computable general equilibrium (CGE) models are a common device for studying these phenomena. Using the MIT Emissions Prediction and Policy Analysis (EPPA) model as an example, two ways of representing technology in these models are discussed: the sector-level description of production possibilities founded on social accounting matrices and elasticity estimates, and sub-models of specific supply or end-use devices based on engineering-process data. A distinction is made between exogenous and endogenous technical change, and it is shown how, because of model structure and the origin of key parameters, such models naturally include shifts in production process that reflect some degree of endogenous technical change. As a result, the introduction of explicit endogenous relations should be approached with caution, to avoid double counting. © 2006 Elsevier B.V.

Technology and Technical Change in the MIT EPPA Model

Potential technology change has a strong influence on projections of greenhouse gas emissions and costs of control, and computable general equilibrium (CGE) models are a common device for studying these phenomena. Using the MIT Emissions Prediction and Policy Analysis (EPPA) model as an example, two ways of representing technology in these models are discussed: the sector-level description of production possibilities founded on social accounting matrices and elasticity estimates, and sub-models of specific supply or end-use devices based on engineering-process data. A distinction is made between exogenous and endogenous technical change, and it is shown how, because of model structure and the origin of key parameters, such models naturally include shifts in production process that reflect some degree of endogenous technical change. As a result, the introduction of explicit endogenous relations should be approached with caution, to avoid double counting.

Technology Detail in a Multi-Sector CGE Model: Transport Under Climate Policy

A set of three analytical models is used to study the imbedding of specific transport technologies within a multisector, multiregion evaluation of constraints on greenhouse emissions. The key parameters of a computable general equilibrium (CGE) model are set to mimic the behavior of a model of modal splits and a market allocation (MARKAL) model of household and industry transport activities. In simulation mode, the CGE model provides key economic data to an analysis of the details of transport technology under policy restraint. Results focus on the penetration of new automobile technologies into the vehicle market.

Technology detail in a multisector CGE model: Transport under climate policy

A set of three analytical models is used to study the imbedding of specific transport technologies within a multisector, multiregion evaluation of constraints on greenhouse emissions. The key parameters of a computable general equilibrium (CGE) model are set to mimic the behavior of a model of modal splits and a market allocation (MARKAL) model of household and industry transport activities. In simulation mode, the CGE model provides key economic data to an analysis of the details of transport technology under policy restraint. Results focus on the penetration of new automobile technologies into the vehicle market. © 2004 Elsevier

Temperature Increase of 21st Century Mitigation Scenarios

Estimates of 21st Century global-mean surface temperature increase have generally been based on scenarios that do not include climate policies. Newly developed multigas mitigation scenarios, based on a wide range of modeling approaches and socioeconomic assumptions, now allow the assessment of possible impacts of climate policies on projected warming ranges. This article assesses the atmospheric CO2 concentrations, radiative forcing, and temperature increase for these new scenarios using two reduced-complexity climate models. These scenarios result in temperature increase of 0.5–4.4°C over 1990 levels or 0.3–3.4°C less than the no-policy cases. The range results from differences in the assumed stringency of climate policy and uncertainty in our understanding of the climate system. Notably, an average minimum warming of ≈1.4°C (with a full range of 0.5–2.8°C) remains for even the most stringent stabilization scenarios analyzed here. This value is substantially above previously estimated committed warming based on climate system inertia alone. The results show that, although ambitious mitigation efforts can significantly reduce global warming, adaptation measures will be needed in addition to mitigation to reduce the impact of the residual warming.

© 2008 by The National Academy of Sciences of the USA

The "Safety Valve" and Climate Policy

In discussions of a cap-and-trade system for implementation of Kyoto Protocol-type quantity targets, a "safety valve" was proposed where, by government sales of emissions permits at a fixed price, the marginal cost of the effort could be limited to a predetermined level. The advantages seen for such a hybrid system included the shifting of the Kyoto architecture toward a price-based system, and the blunting of opposition to the Protocol on the basis of anticipated high cost. This paper reviews the theoretical underpinnings of the preference for a price instrument for controlling stock pollutants like greenhouse gases, and summarizes the arguments supporting and opposing the safety valve idea within the policy debate. If, in the face of uncertainty, emissions are to be limited to a fixed quantity target, then some means needs to be provided to avoid complete inflexibility. A safety valve can serve this function, although similar advantages can be achieved by the phasing in of quantity targets, coupled with provision for banking and borrowing.

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