Carbon taxes and the double dividend hypothesis in a recursive-dynamic CGE model for Spain |
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| Authors: | Jaume Freire-González Mun S Ho |
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| Institution: | 1. Department of Economics, Harvard University, Cambridge, MA, USA;2. ENT Environment and Management, Vilanova i la Geltrú, Barcelona;3. Harvard China Project on Energy, Economy and Environment, Harvard University, Cambridge, MA, USA |
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| Abstract: | A carbon tax is potentially a policy that can reduce CO2 emissions and mitigate climate risks, at lowest economy-wide costs. We develop a dynamic CGE model for Spain to assess the economic and environmental effects of a carbon tax, and test the double dividend (DD) hypothesis. We simulate the impact of three carbon taxes: €10, €20 and €30 per ton of CO2. For each tax, four ‘revenue recycling’ scenarios are examined: a reduction of taxes on capital, on labor, on value-added tax, and a scenario in which revenues are not recycled. We find a DD for taxes of €10/ton and lower, within five to seven years of implementation. We estimate an annual CO2 emissions reduction of around 10% with this tax. Under some circumstances, the DD can be achieved for a tax of €20/ton. In any case, recycling revenues to cut pre-existing taxes reduces costs of imposing carbon taxes. |
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| Keywords: | Carbon tax computable general equilibrium climate change double dividend hypothesis environmental taxation |
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