Distributional Effects of Carbon Tax in Ethiopia A Computable General Equilibrium Analysis

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 imp...

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Bibliographic Details
Main Author: Timilsina, Govinda R.
Other Authors: Sebsibie, Samuel
Format: eBook
Language:English
Published: Washington, D.C The World Bank 2023
Subjects:
Online Access:
Collection: World Bank E-Library Archive - Collection details see MPG.ReNa
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245 0 0 |a Distributional Effects of Carbon Tax in Ethiopia  |h Elektronische Ressource  |b A Computable General Equilibrium Analysis  |c Govinda R Timilsina 
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300 |a 40 pages 
653 |a Paris Climate Agreement 
653 |a Carbon Policy and Trading 
653 |a Environment 
653 |a General Equilibrium Model 
653 |a Distributional Impact 
653 |a Carbon Tax Revenue Distribution 
653 |a GDP Reduction 
653 |a Progressive Tax 
653 |a Climate Change 
700 1 |a Sebsibie, Samuel 
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520 |a 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 (USD 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