Terry Barker

Carbon taxes and carbon emissions trading

This paper surveys the literature on, and examples of current implementation of, carbon taxes and carbon emission permits. It sets out the theoretical basis for these instruments, with special reference to the revenue‐recycling and tax interaction effects. This theoretical work concludes that instruments which raise revenue which can be recycled so as to reduce pre‐existing distortionary taxes are significantly less costly than those which do not. The paper then reviews the sizable literature on the distributional effects of these instruments, especially with regard to industrial competitiveness and regressive effects on low‐income groups, evaluating attempts to mitigate these where they are perceived as unacceptable. The paper concludes that such efforts at mitigation, while possible, can substantially reduce the efficiency benefits of the instruments. The projected costs of carbon taxes depend on a wide range of assumptions. This is still a contested area, but the paper concludes that, on a range of plausible assumptions, these costs need not be high. Finally the paper notes that early evaluations of the environmental effectiveness of carbon taxes have been generally positive. This suggests that, if concern about anthropogenic climate change continues to increase, more countries will introduce carbon taxes and emission permits, with the latter increasingly auctioned.

Global warming and energy demand

List of tables List of figures List of Contributors Preface 1. Global warming and energy elasticities Terry Barker, Paul Ekins and Nick JohnstonePart 1: Estimating long-term energy elasticities 2. Alternative approaches to estimating long-run energy demand elasticities: an application to Asian developing countries Ron Smith and M Hashem Pesaran 3. A survey of international energy elasticities Neil Manning and Jago Atkinson 4. Long-run demand elasticities for gasoline Thomas Sterner and Mikael Franzen 5. Responses of energy demand in UK manufacturing to the energy price increases of 1973 and 1979/80 Alan Ingham 6. Elasticities for OECD aggregate final energy demand Lakis Vouyoukas 7. Modelling UK energy demand Derek Hodgson and Keith MillerPart II: Energy, the economy and greenhouse gas abatement 8. Endogenous technological progress in fossil fuel demand Laurence Boone, Stephen Hall, David Kemball-Cook and Clare Smith 9. UK energy price elasticities and their implications for long-term CO2 abatement Terry Barker 10. Price elasticity and market structure - overcoming obstacles to ensure energy efficiency Tim Jackson 11. Rethinking the use of energy elasticities Stefan P Schleicher 12. Revisiting the costs of CO2 abatement Paul Ekins 13. Asymmetrical price elasticities of energy demand Michael Grubb14. Conclusions Terry Barker, Paul Ekins and Nick Johnstone Bibliography Index

The Economics of Avoiding Dangerous Climate Change

The problem of avoiding dangerous climate change requires analysis from many disciplines. Mainstream economic thinking about the problem has shifted after the Stern Review from a single-discipline focus on cost-benefit analysis to a more inter-disciplinary and multi-disciplinary risk analysis, already evident in the IPCC’s Assessment Reports. This shift is more evidence of the failure of the traditional, equilibrium approach in general to provide an adequate understanding of observed behaviour, either at the micro or macro scale. The economics of the Stern Review has been accepted by governments and the public as mainstream economic thinking on climate change, when in some critical respects it represents a radical departure from the traditional treatment. The conclusions regarding economic policy for climate change have shifted from “do little, later” to “take strong action urgently, before it is too late”. This chapter sets out four issues of critical importance to the new conclusions about avoiding dangerous climate change, each of which have been either ignored by the traditional literature or treated in a misleading way that discounts the insights from other disciplines: the complexity of the global energy-economy system (including the poverty and sustainability aspects of development), the ethics of intergenerational equity, the understanding from engineering and history about path dependence and induced technological change, and finally the politics of climate policy.

A UK carbon/energy tax : The macroeconomics effects

A carbon/energy tax has been proposed by the European Commission to start as US

Costs of greenhouse gas abatement: meta-analysis of post-SRES mitigation scenarios

3 per barrel oil equivalent in 1993, rising to US

Achieving the G8 50% target: modelling induced and accelerated technological change using the macro-econometric model E3MG

10 in 2000. The effects of this tax on the UK economy can be assessed by using a large-scale energy-environment-economy model in which energy demand is treated by means of aggregate equations for energy users and fuel share equations for electricity and each of the main fossil fuels. The electricity supply industry is represented in the model by simulating the characteristics of each existing generating station and of a range of new station types, and by allowing the model to choose the fuels used from relative fuel prices and prices of capital inputs. This approach contrasts with the multimodel approach used in most studies of the effects of the tax. The tax is introduced as a tax on imports and domestic output of fossil fuels in proportion to their carbon and energy content, with the tax being passed on through the economic system depending on the use of the fuels. Thus the electricity industry is faced with higher prices for coal, gas and fuel oil and chooses to burn the different fuels according to their relative prices. Four scenarios are developed, which vary according to the way the tax revenues are recycled through reductions in VAT or in income tax rates and whether the tax is introduced throughout the European Community or throughout the OECD. If the tax is European, it is assumed that the energy intensive industries will be exempt. The outcome is that the tax is sufficient to stabilize CO2 emissions over the period 1990–2005, at 12% below base levels by the end of the period. There is an overall saving of energy compared to base and a further switch to gas in electricity generation. The effects on the macroeconomy are rather small, and as the revenues are recycled, rather than saved by the government, GDP growth is likely to increase under the tax by some 0.2% above base. This confirms other studies in which revenues are recycled, but contradicts many results from studies in which revenue recycling is ignored or incomplete. The effects on the energy intensive industries are expected to be small in all the scenarios, but 14% of tax revenues are lost if the industries are exempt.

Representing global climate change, adaptation and mitigation

Economic analyses have produced widely differing estimates of the economic implications of policies for greenhouse gas (GHG) mitigation, ranging from high costs to modest benefits. The main reason for the differences appears to be differences in approaches and assumptions. This paper analyzes the extent to which the post-SRES1 (after the IPCC Special Report on Emissions Scenarios) model results for the global costs of GHG mitigation can be explained by the model’s characteristics and the assumptions adopted. The research applies meta-analysis methodology combined with scatter plots of the data to identify the ranges of the results and outlying data points. A database of scenarios and results was compiled for the post-SRES scenarios, which has the major advantage that all seven models for which suitable data are available have been run using the same, independently defined scenarios. The results are strongly clustered, with only a few results outside the range of −4% to 0% gross domestic product (GDP), with a strong correlation between CO2 reduction and GDP reduction. A set of model characteristics is found to be highly significant (1% level), explaining some 70% of the variance. The main conclusion is that all modeling results regarding “GDP costs of mitigating climate change” should be qualified by the key assumptions leading to the estimates. The treatment of these assumptions can lead to the mitigation being associated with increases in GDP or with reductions.

Sources of Structural Change for the UK Service Industries 1979–84

This article assesses the feasibility of a 50% reduction in CO2 emissions by 2050 using a large-scale Post Keynesian simulation model of the global energy—environment—economy system. The main policy to achieve the target is a carbon price rising to

A new economics approach to modelling policies to achieve global 2020 targets for climate stabilisation

100/tCO2 by 2050, attained through auctioned CO2 permits for the energy sector, and carbon taxes for the rest of the economy. This policy induces technological change. However, this price is insufficient, and global CO2 would be only about 15% below 2000 levels by 2050. In order to achieve the target, additional policies have been modelled in a portfolio, with the auction and tax revenues partly recycled to support investment in low-GHG technologies in energy, manufacturing and transportation, and ‘no-regrets’ options for buildings. This direct support supplements the effects of the increases in carbon prices, so that the accelerated adoption of new technologies leads to lower unit costs. In addition the

The effects on competitiveness of coordinated versus unilateral fiscal policies reducing GHG emissions in the EU: an assessment of a 10% reduction by 2010 using the E3ME model

100/tCO2 price is reached earlier, by 2030, strengthening the price signal. In a low-carbon society, as modelled, GDP is slightly above the baseline as a consequence of more rapid development induced by more investment and increased technological change.