Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/157346
Authors: 
Renner, Sebastian
Lay, Jann
Greve, Hannes
Year of Publication: 
2017
Series/Report no.: 
GIGA Working Papers 301
Abstract: 
We analyse the effects of environmental taxes on welfare and carbon emissions at the household level for the case of Mexico. The integrated welfare-environmental analysis, which is based on a censored energy consumer demand system, extends previous work in two ways. First, the estimation of a full matrix of substitution elasticities allows us to test the necessity of incorporating second-order effects into the welfare analysis. Second, the substitution elasticities derived from the demand system are used to estimate the shortrun CO2 emission-reduction potential. We find that first-order approximations of welfare effects provide reasonable estimates, particularly for carbon taxes. Analog to evidence in other low- and middle-income countries, the taxation of all energy items is found to be regressive, with the exception of motor fuels. The inclusion of CH4 and N2O in a carbon tax regime comes with particularly regressive impacts because of its strong effects on food prices. The analysis of the emission implications of different tax scenarios indicates that short-run emission reductions at the household level can be substantial - though the effects depend on how revenue is recycled. This effectiveness combined with moderate and manageable adverse distributional impacts renders the carbon tax a preferred mitigation instrument. Considering the large effect of food price increases on poverty and the limited additional emission-saving potential, the inclusion of CH4 and N2O in a carbon tax regime is not advisable.
Subjects: 
climate policy
energy policy
Mexico
poverty
distributional effects
Document Type: 
Working Paper

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