Gauging the impact of CO2 taxes on GDP
Carbon dioxide (CO2) taxes are an economic instrument designed to help reduce CO2 emissions. Several countries are considering implementing such taxes as part of their strategy to meet their Kyoto targets. Computer models can provide useful insight into the economic and environmental impacts of such pollution taxes, yet all models are not the same. In the context of the TRANSUST project, the response of a number of different models to CO2 taxes was evaluated. Specifically, the Environmental Studies arm of Vrije Universiteit Amsterdam (VUA.IVM) performed a model intercomparison regarding the effect of CO2 taxes on Gross Domestic Product (GDP) and energy production. While the results were generally inconclusive with respect to GDP, the Dutch researchers did learn that the only route to a positive GDP effect was to intelligently recycle the CO2 tax revenue. Some variation between models was identified, for example the inelasticity of the econometric models led to limited CO2 reductions. An investigation of the way in which CO2 reductions were achieved revealed that energy savings were of primary importance. The degree to which low carbon and Renewable Energy Sources (e.g. wind) were substituted for carbon-intensive fuels like coal depended on how well these aspects were treated by the model. The VUA.IVM scientists have collected the TRANSUST findings in a summary paper to facilitate dissemination of the new knowledge.
