“Multiple Dividends with Climate Change Policies: Evidence …
101
The first scenario makes it possible to tax carbon emissions linked to energyintensive sectors and production processes in a fixed amount of 20 USD per ton of
carbon emissions. Polluting production processes (e.g. agriculture and cattle production) and energy consumption, as intermediate inputs as well as final goods, are taxed
by this carbon tax. For instance, the energy consumed by the transport sector as input
will be charged the ad-valorem equivalent 38% tax; and in the case of the agriculture
and fishing sector, its energy intermediate consumption will be taxed up to 24% in
ad-valorem equivalent plus a tax of 10.4% over its own production according to its
carbon generation (for further details, see the annex of Chisari and Miller 2015).
The introduction of this carbon tax will be simulated under two different situations
in order to identify possible dividends of this ETR. First, we assume the application
of this carbon tax without assuming any change in the current tax structure of the
country. Then, in a second simulation, we compensate the reduction in distortionary
taxes by the additional revenue due to the increase in the carbon tax. In order to look
for a double (greater GDP) and third (lower unemployment and poverty) dividend,
we reduce taxes on labour.
The second scenario concerning an ETR simulates the improvement in the EGS
market access in Argentina as part of the plurilateral EGS negotiation (i.e. Environmental Goods Agreement—EGA).
4 According to the sector disaggregation of
Argentina’s SAM, we have assumed that industry, electricity and water, and other
services are EGSs. This ETR assumes tariff reduction/elimination on EGS, capping
them to 5% as a maximum tariff on EGS. According to the initial tariffs in Table 1,
we eliminate those which are lower than 5% and we reduce to 5% those tariffs which
are initially greater than 5%. Tariff reduction/elimination on EGS is applied on intermediate, final and investment goods. Tariffs on EGS are also eliminated/reduced by
other EGA trade partners, leading to an increase in EGS world prices. The magnitude of the shock assumed was a 5% increase in EGS world prices. The purpose
of this scenario is to induce changes in relative prices that incentivise the substitution from polluting to environmental goods for any of the aforementioned usages.
This scenario appears in the context of the trade liberalization of EGS, where doubts
emerge concerning the possibility of achieving the trade, development and the environment dividends simultaneously (WTO 2001). As discussed in previous literature,
this goal is challenging for developing economies given their structural and macroeconomic constraints and, particularly, where the current state of technology is not
adequate to mitigate climate change (Laborde and Lakatos 2012) and where the
implementation of a cleaner technology could be costly (De Melo 2017).
Thus, the first ETR scenario directly targets carbon emissions and the second one
indirectly introduces incentives to reduce the carbon emissions through a greener
trade policy reform.
Other environmental policy scenarios could also be simulated, such as subsidies on
renewable energy production, but they imply additional fiscal costs that a developing
4 The countries currently involved in the negotiation of an EGA are Australia, China, Costa Rica,
the European Union, Hong Kong, Iceland, Israel, Japan, Korea, New Zealand, Norway, Singapore,
Switzerland, Chinese Taipei, Turkey and the USA.
101
The first scenario makes it possible to tax carbon emissions linked to energyintensive sectors and production processes in a fixed amount of 20 USD per ton of
carbon emissions. Polluting production processes (e.g. agriculture and cattle production) and energy consumption, as intermediate inputs as well as final goods, are taxed
by this carbon tax. For instance, the energy consumed by the transport sector as input
will be charged the ad-valorem equivalent 38% tax; and in the case of the agriculture
and fishing sector, its energy intermediate consumption will be taxed up to 24% in
ad-valorem equivalent plus a tax of 10.4% over its own production according to its
carbon generation (for further details, see the annex of Chisari and Miller 2015).
The introduction of this carbon tax will be simulated under two different situations
in order to identify possible dividends of this ETR. First, we assume the application
of this carbon tax without assuming any change in the current tax structure of the
country. Then, in a second simulation, we compensate the reduction in distortionary
taxes by the additional revenue due to the increase in the carbon tax. In order to look
for a double (greater GDP) and third (lower unemployment and poverty) dividend,
we reduce taxes on labour.
The second scenario concerning an ETR simulates the improvement in the EGS
market access in Argentina as part of the plurilateral EGS negotiation (i.e. Environmental Goods Agreement—EGA).
4 According to the sector disaggregation of
Argentina’s SAM, we have assumed that industry, electricity and water, and other
services are EGSs. This ETR assumes tariff reduction/elimination on EGS, capping
them to 5% as a maximum tariff on EGS. According to the initial tariffs in Table 1,
we eliminate those which are lower than 5% and we reduce to 5% those tariffs which
are initially greater than 5%. Tariff reduction/elimination on EGS is applied on intermediate, final and investment goods. Tariffs on EGS are also eliminated/reduced by
other EGA trade partners, leading to an increase in EGS world prices. The magnitude of the shock assumed was a 5% increase in EGS world prices. The purpose
of this scenario is to induce changes in relative prices that incentivise the substitution from polluting to environmental goods for any of the aforementioned usages.
This scenario appears in the context of the trade liberalization of EGS, where doubts
emerge concerning the possibility of achieving the trade, development and the environment dividends simultaneously (WTO 2001). As discussed in previous literature,
this goal is challenging for developing economies given their structural and macroeconomic constraints and, particularly, where the current state of technology is not
adequate to mitigate climate change (Laborde and Lakatos 2012) and where the
implementation of a cleaner technology could be costly (De Melo 2017).
Thus, the first ETR scenario directly targets carbon emissions and the second one
indirectly introduces incentives to reduce the carbon emissions through a greener
trade policy reform.
Other environmental policy scenarios could also be simulated, such as subsidies on
renewable energy production, but they imply additional fiscal costs that a developing
4 The countries currently involved in the negotiation of an EGA are Australia, China, Costa Rica,
the European Union, Hong Kong, Iceland, Israel, Japan, Korea, New Zealand, Norway, Singapore,
Switzerland, Chinese Taipei, Turkey and the USA.