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Abstract
Ukraine has one of the highest levels of CO2 emissions per gross domestic product (GDP) in the world. However, the country committed itself to reduce emissions from stationary sources. To this end, the Ukrainian government passed a law to impose a carbon tax on the use of energy commodities, with a current tax level of 0.26 Ukrainian Hryvnia (UAH) per tCO2 (US$ 0.02 per tCO2). Against this background, it is questioned whether such a low tax level can be expected to have any impact on CO2 emissions at all and which tax level would be consistent with the policy goal of a 22% emission reduction compared with 2007. Thus, using a computable general equilibrium (CGE) model for Ukraine, this article assesses the impact of different carbon tax levels on the Ukrainian economy and the environment. The results confirm that the effects of the current tax level are negligible. In order to achieve the reduction target a carbon tax of around UAH 40 per tCO2 (US$ 3.46 per tCO2) would be necessary. Furthermore, there is also evidence for a strong double dividend.
Policy relevance
Similar to Ukraine, most of the former Soviet Union countries in Eastern Europe and Central Asia have traditionally been very energy intensive. Accordingly, they are also among the highest polluters in the world. However, the case of Ukraine shows that even a relatively low carbon tax could reduce the use of energy and emissions significantly. In this respect, the present article might serve as a motivation also for those countries to work on energy-saving and climate-protection policies.
Keywords:
Acknowledgements
The author thanks the editor, four anonymous referees, Antje Himmelreich, Jürgen Jerger, Patrizio Lecca, Andreas Löschel, Zoryana Olekseyuk, Manuela Troschke and seminar and conference participants in Mannheim, Melbourne and Regensburg for valuable comments and helpful suggestions.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1. Among the Former Soviet Union countries only Kazakhstan (1.22 kgCO2 per $), Uzbekistan (1.29 kgCO2 per $) and Turkmenistan (1.45 kgCO2 per $) have a higher level of CO2 emissions per GDP (IEA, Citation2013).
2. The law is entitled ‘On the Fundamental Principles (Strategy) of Ukraine's State Environmental Policy for the Period until 2020.'
3. This is not the only way to reduce emissions in Ukraine. Another important issue in this regard is to tackle the problem of high energy subsidies as they foster energy consumption and therefore increase emissions (Deutsche Beratergruppe, Citation2014).
4. For a general discussion on carbon taxes see Sumner, Bird, and Dobos (Citation2011).
5. However, there are papers that deal with other aspects of energy and environmental policy in Ukraine (see Chepeliev, Citation2014 and Diukanova, Citation2011).
6. For a more detailed model description see Appendix 1
7. For an example of the role of market structure in modelling environmental taxation see Böhringer, Löschel, and Welsch (Citation2008).
8. See in Appendix 1 for information about the sectoral aggregation.
9. Renewables are not considered here as they are still of minor importance in Ukraine.
10. To avoid the influence of the world economic crises, we chose 2007 as the base year for our analysis.
11. For a detailed data description see Frey and Olekseyuk (Citation2014).
12. For a detailed description of the energy data preparation see Appendix 2.
13. For more details on the calculation see Appendix 3.
14. Indirect taxes are modelled as product-specific taxes on private, investment, intermediate and public demand and exports.
15. The magnitude of the strong double dividend might even be greater if we taxed the production of carbon instead of the usage of carbon and if we had specific (immobile) factors in more energy producing sectors (Fraser & Waschik, Citation2013).
16. The positive effect on sector-specific capital returns in pipeline transit arises because this sector is not subject to carbon taxation and at the same time benefits from the drop in indirect taxes.
17. For details on the benchmark parameterization see in Appendix 1.
18. This means, for example, that coal can more easily be substituted with refined petroleum, if the price of coal would rise relative to the price of refined petroleum.
19. Given our welfare measure, conclusions about the welfare effects of the carbon tax should be considered with caution, as the Hicksian welfare index does not account for an improvement in environmental quality.
20. For an algebraic representation of the model see Frey and Olekseyuk (Citation2014).
21. Labour is assumed to be fully employed. Sector-specific capital is used in the state-owned mining (a04) and pipeline transportation (a24P) sectors.
22. EU15 comprises the EU countries prior to 2004. EU12 refers to the countries of the 2004 and 2007 enlargement of the EU.
23. Non-poor households are endowed with both capital and labour (skilled and unskilled) whereas poor households are only endowed with unskilled labour.
24. Note that in the IEA energy balances table entries have positive or negative signs. Energy commodities used in the transformation processes or as energy industry own use are indicated by a negative sign as their use must be subtracted from total primary energy supply. After taking account of distribution losses and statistical differences, the remaining amount of each energy commodity should be equal to the sum of total final consumption. Therefore, the use of an energy commodity by any sector apart from the energy industries is indicated by a positive entry in the table. Because of this, in the following detailed description, positive and negative figures occur.