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The Unintended Consequences of a Global Carbon Tax

Gustav Engström, Johan Gars, Chandra Kiran, Raphael Calel, Therese Lindahl, Badri G. Narayanan and Daniel Spiro


Human activities are putting greater pressure on the climate system, on biological integrity, on biogeochemical systems, and many other earth system processes. There is demand for ambitious policy interventions to reduce each one of these pressures, but the challenge for the international community may be even more difficult than just trying to ‘apply the brakes.’ The problem is rather more like parallel parking, where backing away from one obstacle may put us on a collision course with another. Staying within a ‘safe operating space’ for humanity requires that, as we take steps to reduce the pressure on one earth system process, we do not inadvertently increase the pressure on others. In this paper, we present a novel stylized multi-sector general equilibrium model with multiple earth system processes, and calibrate it with data from the Global Trade Analysis Project (GTAP) to study the global consequences of key policy proposals. Our main finding is that a global carbon tax, aside from reducing carbon emissions, would have many unexpected benefits, single-handedly easing pressure on nearly all of the critical earth system processes. It however also carries with it an increased demand for land in agriculture and further pressure on fisheries, such that supplementary policies may be needed as a safeguard.

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