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Border carbon adjustments imply that high-income countries set taxes on energy-intensive imports that are proportional to the carbon content of these imports, to match their own carbon taxes. This paper considers the impacts of such a policy on exporter countries, many of which have no or very low carbon taxes today. The paper first studies a policy whereby the importer allows the exporter’s border tax to be reduced by its own comprehensive carbon tax (“tax rebating”). The analysis finds that the exporter is then incentivized to set its own comprehensive carbon tax at the same rate as the border tax, up to a maximal rate. When the border tax is higher, the exporter instead reduces its carbon tax. Border tax revenues of the high-income country can be returned to incentivize higher carbon taxes in the exporting countries (“carbon crediting”). When tax rebating is not allowed but tax revenues are fully returned, even higher exporter carbon taxes can then be incentivized, possibly exceeding $60 per ton of carbon dioxide in the numerical examples. Border taxation can give rise to export diversion away from border tax-setting countries, which reduces the scope for incentivizing the exporter’s carbon tax. The paper also studies how taxes on oil extraction by oil exporters can be incentivized by oil importing countries, by increasing their oil import prices above world market rates, or more efficiently through support to investments in exporters’ renewable energy capacity.

Developing countries are increasingly giving attention to carbon pricing to reduce their emissions, particularly in meeting their nationally determined contribution under the Paris Climate Agreement. However, they would like to understand the potential economic, distributional, and environmental impacts of carbon pricing policies before they consider implementation. Using a computable general equilibrium model of Ethiopia, this study examines the effects of a hypothetical carbon tax (US$20/total carbon dioxide) under several alternative schemes to recycle carbon tax revenue to the economy. The study finds that a carbon tax would be regressive in all schemes considered except those when the tax revenue is recycled, as a cash transfer, to household income groups either equally or inversely proportional to their incomes. The schemes that make the carbon tax progressive also cause a higher reduction of carbon dioxide emissions, thereby ensuring the alignment of equity and environmental outcomes of the carbon tax. However, these schemes are not necessarily economically efficient because they cause higher reductions of gross domestic product compared to other options considered.

Developing countries are increasingly giving attention to carbon pricing to reduce their emissions, particularly in meeting their nationally determined contribution under the Paris Climate Agreement. However, they would like to understand the potential economic, distributional, and environmental impacts of carbon pricing policies before they consider implementation. Using a computable general equilibrium model of Ethiopia, this study examines the effects of a hypothetical carbon tax (US$20/total carbon dioxide) under several alternative schemes to recycle carbon tax revenue to the economy. The study finds that a carbon tax would be regressive in all schemes considered except those when the tax revenue is recycled, as a cash transfer, to household income groups either equally or inversely proportional to their incomes. The schemes that make the carbon tax progressive also cause a higher reduction of carbon dioxide emissions, thereby ensuring the alignment of equity and environmental outcomes of the carbon tax. However, these schemes are not necessarily economically efficient because they cause higher reductions of gross domestic product compared to other options considered.

This paper provides recommendations for combining the carbon budget with the carbon tax to support delivery of South Africa’s emissions reduction targets beyond 2020. The analysis involved comparing four categories of policy alignment options, including layering, ‘tax enforces budget’ option, hybrid options with trading and differential instruments, across eight core principles such as emissions reduction effectiveness, emissions certainty, cost-effectiveness, polluter pays principle, equitable treatment, distributional issues, feasibility and simplicity, and sensitivity to international competition.

Recent years have seen renewed and growing interest in carbon taxes that put a price on greenhouse gas (GHG) emissions. This resurgence in interest has come as over three-quarters of the world have developed Nationally Determined Contributions under the Paris Agreement and are looking for cost-effective ways to achieve these emission reduction goals. It has also developed alongside a gradual shift toward taxes on goods and services, with many jurisdictions seeking to use the tax system to achieve greater economic efficiency and to pursue a range of policy goals beyond raising revenue. Experience has shown carbon taxes to be versatile instruments that are capable of being adapted to a wide range of policy goals and national contexts. This Guide provides a practical tool to help policymakers determine whether a carbon tax is the right instrument to achieve their policy goals and to support them in designing and implementing a tax that is best suited to their specific needs, circumstances and objectives. The guide provides both conceptual analysis and important practical lessons learned from implementing carbon taxes around the world. ; Ces dernières années ont vu se renouveler et grandir l’intérêt pour les instruments politiques qui donnent un prix aux émissions de gaz à effet de serre (GES) par l'adoption de taxes carbone. Le regain d'intérêt pour les taxes carbone est apparu alors que plus des trois quarts des nations du monde ont développé des Contributions déterminées au niveau national (Nationally Determined Contributions, NDC) aux termes de l'Accord de Paris et qu’elles recherchent de plus en plus des manières de transformer ces objectifs en actions avec un bon rapport coût-efficacité. Il s'est également développé en parallèle d'un mouvement progressif vers la taxation des biens et services, avec un grand nombre de juridictions qui cherchent à utiliser le système de taxation pour obtenir une plus grande efficacité économique et poursuivre une série d'objectifs politiques au-delà de l'augmentation des ...

The postponement of 2012 VAT Law implementation means that the higher tax revenues expected from the measure will be delayed, and additional sources of revenue need to be considered. Model simulations suggest that implementation of the VAT Law starting July 1, 2017 at the originally proposed rate of 15 percent would have yielded additional tax revenue of about 1 percent of GDP in FY2018, and 0.8 percent of GDP in FY2019. Several measures could be considered to make up this short-fall. Automation and process simplification could bring additional tax revenues ranging from 0.3 to 0.7 percent of GDP in FY2018. There is substantial scope for efficiency gains in shifting from a type-of-tax towards a function-based tax administration, facilitating compliance. Carbon taxes could generate resources equivalent to 1 percent of GDP, and tobacco taxes could raise a further 1 to 2 percent of GDP. Rationalizing tax incentives and exemptions can also generate more revenue. The proposed administrative measures, including expanding tax withholding mechanisms, would not require legislative changes and could be implemented in the short term, boosting revenue during the current fiscal year (FY2018). The other tax policy measures could be considered for implementation in the medium term and would require corresponding legislative initiatives.

This report examines how to design effective carbon pricing mechanisms (CPMs) for the construction industry. As the world’s largest consumer of raw materials, it accounts for a significant proportion of final energy demand and is responsible for 25 percent to 40 percent of global carbon-related emissions. Demographic trends underline the need for the construction industry to do more to address its contribution to climate change. The world’s population is predicted to reach nearly 10 billion by 2050, with the majority expected to live in urban areas. This will increase demand for buildings and infrastructure; some estimates suggest that 75 percent of the infrastructure needed by 2050 must still be built.

This paper reviews the main transmission channels of an environmental tax reform shifting the tax burden from labor to carbon emission. The analysis uses a simple open-economy macro model and estimates dynamic environmental tax as well as personal income tax multiplier effects on output and employment for a panel of 75 high- and low-income countries from 1994 to 2018. Tax policy changes are identified by cyclically adjusting the tax revenues. The estimated environmental tax multiplier effects on output range from 1 on impact to 1.8 at the peak. Personal income tax multipliers are slightly higher, ranging from 1.4 to 2.3. While income taxes reduce employment, environmental taxes do not. Environmental tax multipliers are highly regime dependent: they are close to zero or statistically insignificant unless taxes are increased when output contracts, fuel prices are high, the environmental tax levels are high, or the carbon intensity of output is low. Commodity trade-exposed countries face higher tax multipliers. This analysis concludes that, compared with income taxes, environmental taxes can be a less contractionary source of revenues to support the post-COVID-19 fiscal consolidation efforts, especially in countries that are at the beginning of their decarbonization efforts.

Note: this version of the Handbook has been superseded. The updated Second Edition of the Handbook can be downloaded at the link below ("Associated URLs"). As the world moves on from the climate agreement negotiated in Paris, attention is turning from the identification of emissions reduction trajectories—in the form of Nationally Determined Contributions (NDCs)—to crucial questions about how these emissions reductions are to be delivered and reported within the future international accounting framework. The experience to date shows that, if well designed, emissions trading systems (ETS) can be an effective, credible, and transparent tool for helping to achieve low-cost emissions reductions in ways that mobilize private sector actors, attract investment, and encourage international cooperation. However, to maximize effectiveness, any ETS needs to be designed in a way that is appropriate to its context. This Handbook is intended to help decision makers, policy practitioners, and stakeholders achieve this goal. It explains the rationale for an ETS, and sets out a 10-step process for designing an ETS – each step involves a series of decisions or actions that will shape major features of the policy. In doing so, it draws both on conceptual analysis and on some of the most important practical lessons learned to date from implementing ETSs around the world, including from the European Union, several provinces and cities in China, California and Québec, the Northeastern United States, Alberta, New Zealand, Kazakhstan, the Republic of Korea, Tokyo, and Saitama.

Carbon leakage is much discussed in carbon pricing policy. Stakeholders, especially emissions-intensive industries, have expressed concern about the implications of carbon pricing when they compete with firms located in jurisdictions without equivalent policies. This technical note provides an overview of the issue of carbon leakage, discussing the theory, evidence and policy design. This issue is of interest to a range of PMR countries and is of great importance to successful design and implementation of carbon pricing policies. The technical note addresses three broad questions: – How to evaluate the expected competitiveness and carbon leakage impacts (negative and positive) due to carbon pricing policies for different sectors and the entire economy? – How to mitigate the risk of negative impacts and strengthen the positive impacts (through instrument design or complementary policies) in the short and long term, and for different levels of expected decarbonization? – How to manage the process of dialogue between a government, business and civil society on the implications for competitiveness and risks of carbon leakage, and their mitigation? It draws lessons from policymaking experience and academic evidence to provide guidance to countries on how to address issues of carbon leakage as they arise in their national contexts.