The Effects of Prefectural Carbon Taxes on Local Economies and CO2 Emissions

R. Eto, Y. Uchiyama, and K. Okajima (Japan)


Energy policies and regulation, regional CGE model, carbon tax, Ibaraki Prefecture, CO2 accounts and carbon leakage


This paper applies a regional CGE model to analyze the impacts of a carbon tax on a local economy such as that of Ibaraki prefecture and its level of CO2 emissions encompassing regional and sectoral interdependency. Model parameters are calibrated based on the social account matrix of Ibaraki Prefecture as it existed in the year 2000. The carbon tax is levied on goods arriving from within Japan as well as from abroad in order to prevent carbon leakage. Three cases serve to identify the different effects of the revenue redistribution flowing from the carbon tax. We find two key findings. First, subsidizing exports clearly leads to the highest level of CO2 emissions and CO2 emissions per GRP though it also produces the highest GRP. Second, government investment appears to contribute to the lowest level of CO2 emissions and CO2 emissions per GRP in the production accounting. In the consumption accounting, however, direct transfer to households produces the lowest level of CO2 emissions. These results prove that estimating the impacts of a carbon tax upon locally produced CO2 emissions requires the use of a variety of accounting methods and that regional policy implementation needs to act in accordance with the methods.

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