Carbon Tax and Emissions Transfer: a Spatial Analysis

With the rising role of globalization, assessing the impacts of carbon taxation on emissions embodied in trade becomes a key question. Our contribution consists of examining the effect of the carbon tax on emissions embodied in trade, in the framework of the input-output tables. We use variation in the economic sector of each country to first, identify the most and least polluting sectors, and second, investigate the spatial correlation due to carbon taxes in the emission embodied in trade using the SDA (structural decomposition analysis), MRIO (multi-regional input-output model), and spatial econometric models, for 56 sectors and 43 countries (32 OECD and 11 Non-OECD) from 2000 to 2014. Our findings show the “Electricity, gas, steam and air conditioning supply” as the highest emitter sector. When the carbon tax is imposed in OECD countries, emissions embodied in exports (EEE) to and imports (EEI) from neighboring countries increase by 7.4 percent and 83.2 percent respectively, For Non-OECD countries, the results are 20.7 percent for exports and 79 percent for imports. Our policy recommendation is to coordinate the level of tax at least by region in order to avoid an increase in EEE.