Integrated Carbon Policy Design for Achieving Net-Zero Targets

Several countries have set net-zero targets, and many more will announce in the next few years. Countries have used carbon pricing as an instrument to cut Greenhouse Gas (GHG) emissions and provide a price signal to attract private investments to achieve net-zero targets. However, current carbon policy in countries with net-zero targets remains inadequate and asymmetrical to overcome net-zero challenges; there are visible gaps in the carbon price level, sectoral coverage, and mechanism to reward carbon-neutral initiatives. This paper proposed an integrated carbon policy design covering economic, technical, and social dimensions and discussed how an integrated policy design approach could be effective in helping countries achieve net-zero objectives. The paper makes recommendations for net-zero policymakers. First, a stable and appropriate carbon price must be in place to attract private investments in carbon offset measures and commercialize clean technologies. Second, governments should use an effective revenue recycling mechanism to engage firms and citizens in mitigating the side effects of the carbon price regime and win their trust. Third, countries should promote behavioral changes and carbon footprint reduction measures through citizen participation. 

Green Tax Reform and Employment Double Dividend in Australia Should Australia Follow Europe’s Footsteps? A CGE Analysis

Australia has one of the highest per capita carbon emissions, and its energy sector contributes significantly to the country’s carbon emissions. Renewable energy and climate change call for a shift from fossil fuels to low-carbon technologies for energy production. Policies aiming to reduce carbon emissions are perceived by many people as leading to higher living costs, but changes in energy policies can also lead to economic gains in the presence of revenue recycling. This article applies a computable general equilibrium approach to study the effect of energy tax in the Australian economy. Four different scenarios of green tax reform (GTR) are simulated to test the employment double dividend (EDD) potential. All four scenarios simulate changes in energy tax and one of four tax revenue recycling policies including (a) value added tax reduction, (b) payroll tax reduction, (c) goods and services tax (GST) reduction and (d) a mixture of all three recycling policies. The results show strong EDD potential of GST and payroll tax reduction when used along with energy tax in a revenue-neutral GTR approach. The study also presents a comparison of an optimal EDD inducive policy design between the European and Australian GTR approaches. JEL classifications: H23, C68, H21, Q48

CLIMATE CLUBS WITH TAX REVENUE RECYCLING, TARIFFS, AND TRANSFERS

The E3ME-FTT model is applied to assess the impacts of alternative climate club structures. We consider two kinds of climate club memberships: the World Climate Club (WCC), where every country in the world joins the club, and the Core Climate Club (CCC), with seven likely club members: EU[Formula: see text][Formula: see text][Formula: see text]5, Japan, South Korea, Canada, Brazil, Mexico, and Australia. First, we find that both the WCC and domestic revenue-neutral recycling matter a lot. The global CO2 emissions in 2050 could be reduced by 50% from BAU under the WCC. With domestic revenue-neutral recycling, there will be large positive impacts on GDP under both the WCC and the CCC. Secondly, the negative effects of trade sanctions on cumulative global GDP and global CO2 emissions make it unwelcome to be used as part of the club design. Lastly, the introduction of international transfers will result in a win–win solution that will not only increase the cumulative global GDP and reduce global CO2 emissions but also enhance the equality among club members and induce more likely participation in the climate club.