The impact of carbon taxes on growth emissions and welfare in India: a CGE analysis

This paper aims to analyse the impact of two post-Kyoto climate policy regimes on GDP growth, CO2 emissions, and welfare in India. Both regimes aim to limit the long-term average global temperature increase below 2°C. The first policy regime is a global carbon tax. The second policy regime is based on emission trading permits; their distribution is based on the Common but Differentiated Convergence approach. This study uses a recursive dynamic CGE model that incorporates features of the energy system for the analysis. The results suggest that significant reductions in CO2 emissions can be achieved under the two policy regimes. The maximum loss in GDP occurs during 2045–50. The growth rate falls from 4.3 per cent in the business-as-usual scenario to 3.2 per cent in the carbon tax scenario and 3 per cent in the Common but Differentiated Convergence scenario. In other periods, the decline in GDP growth rate is not more than 0.3 percentage points. The maximum welfare loss in terms of equivalent variation is estimated at 6.4 per
cent in the carbon tax scenario and 5.2 per cent in the Common but Differentiated Convergence scenario in 2050.

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