The possible macroeconomic and sectoral impacts of carbon taxation on Turkey’s economy: A computable general equilibrium analyses

Abstract

Although the idea of carbon tax was debated widely in the early 1970s, the first carbon taxes were imposed in some Northern European countries at the beginning of the 1990s. Since the Paris summit in 2015, there has been a growing interest in carbon tax that has begun to increase again. Although Turkey’s share of carbon emissions in terms of total global emissions is low, the rate of increase in emissions has increased in recent years and should be a cause for concern. Therefore, the aim of this paper is to analyze the possible effects of carbon taxes on Turkey’s economy by disaggregating the electricity sector ^a by using the computable general equilibrium model. Simulation results show that carbon taxation is a highly effective means to reduce carbon emissions. Despite all sectors being adversely affected, some low emission energy, textile, and other service sectors benefit from carbon pricing. The results also indicate macroeconomic costs of imposing a carbon tax at $7 per ton of carbon in terms of the decrease in GDP by 0.061% and associated with per capita utility of the representative household by 0.09% in scenario a. Imposition of successively higher carbon taxes in scenario b and scenario c results in 5.75, 12.02, and 16.95% reduction in carbon emissions at decreasing rate, respectively. However, these reductions are also accompanied by a decrease in real GDP and per capita utility from household expenditure, as macroeconomic costs, in scenarios a, b, and c at increasing rates.