Emissions accounting and carbon tax incidence in CGE models: Bottom-up versus top-down

Richard J. Goettle, Mun S. Ho, Peter J. Wilcoxen

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Multisector general equilibrium models are the work-horses used to analyze the impact of carbon prices in climate policy discussions. Such models often have distinct industries to represent coal, liquid fuels, and gas production where the output over time is represented by quantity and price indexes. The industries that buy these fuels, however, do not use a common homogenous quantity (e.g., steam coal vs. metallurgical coal) and have distinct purchasing price indexes. In accounting for energy use or CO2 emissions, modelers choose to attach coefficients either bottom-up to a sector-specific input index or top-down to an average output index, and this choice has a direct bearing on the incidence of carbon taxation. We discuss how different accounting methods for the differences in prices can have a large effect on the simulated impact of carbon prices. We emphasize the importance for modelers to be explicit about their methods.

Original languageEnglish (US)
Title of host publicationMeasuring Economic Growth and Productivity
Subtitle of host publicationFoundations, KLEMS Production Models, and Extensions
PublisherElsevier
Pages427-454
Number of pages28
ISBN (Print)9780128175965
DOIs
StatePublished - Nov 6 2019

Keywords

  • Carbon emissions
  • Carbon taxation
  • General equilibrium
  • Inequality
  • Progressivity
  • Revenue recycling
  • Tax incidence
  • Welfare

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

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