REME Marc Vielle Co-authored by JuanCarlosAltamirano-Cabreta, DavidBicchetti, What carbontax forclimatechange Contract fortheSwiss Federal Research groupon theEconomicsand mitigation and adaptation ? Management ofthe Environment Laurent Drouet,and PhilippeThalmann PL-Switzerland EPFL - Marc Vielle [email protected] Office for theEnvironment, 2007 REME Marc Vielle • The tax must bepolitically acceptable The • ofcarbon taxtofinancethe Implication • DCs, withemphasis on: damage costs of climatechangein - Tax effectiveness: climate impact Tax - efficiency :welfareimpact Tax - Introduction 2 REME Marc Vielle AFR MID LAT ASI IND CHI MEX JAP AUZ CAN USA FSU U XE EUR Name GEMINI-E3 Regional Description • Simulations ofallrelevantma Simulations • CGE model Dynamic-recursive • (2001 GTAP,14regions) Countries Africa East Middle America andLatin Central of Asia Rest India China Mexico Japan andNew Zealand Australia Canada of America States United Former Soviet Union (except Baltic States) States) Baltic Soviet (except Union Former Countries European Other (25) Union European Model used:GEMINI-E3

rkets, incl.internationaltrade rd i oetyCapital Labour Internat. trade Products Metal and Metal Agriculture Mineral Product Forestry Electricity Chemical Rubber Plastic Refined Petroleum Non-Energy Gas Natural Crude Oil Coal Energy Sectors Dwellings Services Equipment Goods Consuming Goods Air Transport Transport Sea n.e.c. Transport Publishing Products Paper Commodities Markets 3 REME Marc Vielle Reference Scenario 4 REME Marc Vielle Reference Scenario 5 REME Marc Vielle Estimates ofDamage CostofClimate Change in%ofGDP 6 REME Marc Vielle Derived fromPAGE2002model (SternReview) Estimates ofDamageCostClimate hnet C inUS$ Change toDCs 7 REME Marc Vielle • Welfare impact=Surplusin% ofHousehold Welfare • The revenue ofthistaxisredistributed toDCs • The levelofthetaxisdefinedinrespect tothe • implementacarbontaxinOECD countries We • consumption target revenue OECD Carbon Tax Change Compensation Scenario 1 With Climate 8 REME Marc Vielle USA, Canada andAustralia/New Zealand likelyto • oppose this OECD CarbonTax Tax revenue tax in US$ Carbon Welfare Impact AUZ Welfare Impact CAN Welfare Impact USA Welfare ImpactEUR Welfare ImpactWorld World CO Change Compensation 2 Abatement With Climate 2040 -1.68% -0.74% -0.77% -0.09% -1.80% 3.6% 223 72 9 REME Marc Vielle World Change Compensation Carbon TaxWith Climate Scenario 2 10 REME Marc Vielle Tax revenue tax in US$ Carbon Welfare Impact China Welfare Impact FSU Welfare Impact USA Welfare Impact XEU Welfare ImpactCAN Welfare ImpactAUZ World CO • Effective against climate change Effective • High welfarecost forChina &FSU • World CarbonTax 2 Change Compensation Abatement OECD Tax With Climate -0.09% -0.60% -0.74% -1.2% -1.7% -1.8% 3.6% 72 223 World Tax 19.3% -2.8% -3.4% -0.4% -0.5% -0.7% -0.9% 25 11 REME Marc Vielle • We supposeadaptation cost=20%damagecosts We • Bankestimates:10to40 BillionsUS$ World • : Adaptation costs=7%to25%ofdamageestimates Tol R. • Tax RevenueRedistributiontoDCBased on Adaptation Costs 12 REME Marc Vielle OECD Carbon Tax Change Adaptation Scenario 3: For Climate 13 REME Marc Vielle Welfare ImpactWorld World CO Welfare ImpactEUR Welfare Impact XEU Welfare Impact USA Welfare Impact CAN Welfare Impact AUZ Welfare Impact CHI Welfare ImpactIND a revenue Tax Tax Carbon OECD CarbonTax 2 Abatement Change Adaptation OECD tax Damage -0.09% -0.77% -1.23% -0.74% -1.68% -1.80% -0.09% For Climate 8.15% 3.6% 223 72 Adaptation OECD tax -0.01% -0.15% -0.24% -0.15% -0.39% -0.32% -0.02% 1.82% 0.9% 45 13 14 REME Marc Vielle World Change Adaptation Carbon TaxFor Climate Scenario 4: 15 REME Marc Vielle Welfare ImpactWorld World CO Welfare ImpactXEU Welfare Impact USA Welfare Impact CAN Welfare Impact AUZ Welfare Impact CHI Welfare Impact IND a revenue Tax Tax Carbon World 2 Abatement Change Adaptation Carbon TaxForClimate Adaptation OECD tax -0.01% -0.24% -0.15% -0.39% -0.32% -0.02% 1.82% 0.9% 13 45 Adaptation World tax -0.01% -0.10% -0.07% -0.10% -0.20% -0.63% 1.32% 4.5% 4 16 REME Marc Vielle • Very different impactsfordifferent DC(e.g.Indiavs Very • worldwide CO2taxrisingto$4/tC isenoughfor DC A • The worldwide taxmustriseto$25/tCin2040 • taxingonlyindustrializedcountrieswould be But • uniformworldwidecarbon taxiscostlytomost A • China) adaptation costs order togeneratesufficient revenuefordamagecosts some countriesandsubstantial carbonleakage ineffective andinefficient, generatinghighcostsfor DCs, especiallyChina, Africa andMiddle-East Conclusions 17