Econometric modelling of international carbon tax regimes

Abstract

An econometric model of fossil fuel demand has been estimated for eight OECD countries, relating coal, oil and gas demands to GDP and prices. In addition a model of endogenous technical progress has been estimated, aiming to include both price induced innovation in energy and structural change in the economy as long-term determinants of energy consumption. A number of possible international carbon/energy tax agreements are simulated, showing the impacts on carbon dioxide emissions and comparing the two models. In the long run the magnitude of taxes required to stabilize or reduce emissions would be large, and there are important differences between countries in price responses, which must be taken into account in international modelling and policy formulation. © 1995.