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The effect of carbon tax on per capita CO2 emissions

As the most efficient market-based mitigation instrument, carbon tax is highly recommended by economists and international organizations. Countries like Denmark, Finland, Sweden, Netherlands and Norway were the first adopters of carbon tax and as such, research on the impacts and problems of carbon...

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Bibliographic Details
Published in:Energy policy 2011-09, Vol.39 (9), p.5137-5146
Main Authors: Lin, Boqiang, Li, Xuehui
Format: Article
Language:English
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Summary:As the most efficient market-based mitigation instrument, carbon tax is highly recommended by economists and international organizations. Countries like Denmark, Finland, Sweden, Netherlands and Norway were the first adopters of carbon tax and as such, research on the impacts and problems of carbon tax implementation in these countries will provide great practical significance as well as caution for countries that are to levy the tax. Different from the existing studies that adopt the model simulation approaches, in this article, we comprehensively estimate the real mitigation effects of the five north European countries by employing the method of difference-in-difference (DID). The results indicate that carbon tax in Finland imposes a significant and negative impact on the growth of its per capita CO2 emissions. Meanwhile, the effects of carbon tax in Denmark, Sweden and Netherlands are negative but not significant. The mitigation effects of carbon tax are weakened due to the tax exemption policies on certain energy intensive industries in these countries. Notwithstanding, in Norway, as the rapid growth of energy products drives a substantial increase of CO2 emissions in oil drilling and natural gas exploitation sectors, carbon tax actually has not realized its mitigation effects. ► DID method is employed to test the real mitigation effect of carbon tax. ► Carbon tax in Finland imposes a significant and negative impact. ► The effects of carbon tax in other four countries are limited. ► Tax exemption or tax relief is the main reason of limited effects. ► High tax rates and recycling the revenue contribute to emission reduction.
ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2011.05.050