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The Environmental and Economic Impact of the Carbon Tax in Australia

  • Year: 2013
  • Author: Meng, S., Siriwardana, M., McNeill, J.
  • Journal Name: Environmental and Resource Economics
  • Journal Number: Vol.54, No.3
  • Publisher: Springer Netherlands
  • Country: Australia

To fulfil its emission reduction target pledged in the Copenhagen accord, the Australian Government has determined to introduce a carbon tax from July 1st 2012. This paper simulates the effects on the environment and on the economy of a carbon tax of A$23 per tonne of carbon dioxide proposed by the government with, and without, a compensation policy. We employ a computable general equilibrium model with an environmentally extended Social accounting matrix. According to the simulation results, the carbon tax can cut emissions effectively, but will cause a mild economic contraction. Because the price signal is intact, the proposed compensation plan has little impact on emission cuts while significantly mitigating the negative effect of a carbon tax on the economy.

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