The potential effects of environmental tax reform in East
Asia: analysis by a CGE model

Ken’ichi MATSUMOTO
Shih-Mo LIN
Soocheol LEE

Introduction• Two models:–A global CGE model for China, Japan and Korea–A single-country CGE model for Taiwan

Method: CGE models• The global model is the same as that used in Chapter 9.
 A Global Recursive Dynamic CGE model which includes
China, Japan and Korea (no Taiwan at the moment)–Note: The reference scenario (GDP and CO2 emissions) isadjusted to meet the scenario in Chapter 10 (or the E3ME).
A single-country dynamic CGE model for Taiwan

Method: Scenarios• The scenarios are based on Chapter 10.
–The combination of x, y, and z (see table).
Emission reducing countries (x)Ea: All countries
Jp: only Japan
Cn: only China
Kr: only Korea

CO2 reduction (y)Revenue recycling method (z)S: lump-sum
L: labor tax
N: national targets
K: capital tax
T: $80/tCO2
I: income tax
C: consumption tax

Results: National targets (by country)

Results: National targets (East Asia)

Results: Common carbon tax rate (by country)

Results: Common carbon tax rate (East Asia)

Summary
The results suggest that economy will be negatively
affected by reducing CO2 emissions for climatechange mitigation.
The impact is larger when the required emission
reduction is larger (or the carbon tax rate is higher).
However, if the tax revenue is recycled for reducing
the rate of consumption tax, the impact can beslightly reduced.

The Case of Taiwan

Baseline Assumptions• We have two Baseline Scenarios, the common assumptions are
as follows– The current three nuclear power plants will be gradually phased outin 2018, 2021, and 2024.
– For hydro power technology, we assume a conservative annual
growth rate of 0.28% due to Taiwan’s limited hydro resource.
– There is only feed-in tariff policy directly supporting renewable
technology development.

Baseline Assumptions - International Energy Prices
Crude Oil
200$/bbl

150
100
5002015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030$/million BTU

LNG
35302520
1510502015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Coal
250$/tonne

2001501005002015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

• The international energy
price is an exogenous variablewhich is based on theprojection of CPC Corporation
and Institute of Nuclear
Energy Research.

Baseline Assumptions-Household• The future developmentof household is based on
the estimation of Institutefor Information Industry.

Household
8,600
8,500
8,400

8,300
2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

8,200

2015

thoudand households

8,700Baseline CO2 emission and reduction target• The difference between two baseline scenarios is the growthof LNG.
LNG No Growth Baseline Scenario

40000035000030000025000020000015000010000050000
0CO2_Target_NoGrowth

BAU_LNG_Growth

Thousand tonnes CO2Thousand tonnes CO2

BAU_LNG_NoGrowth

LNG Growth Baseline Scenario

40000035000030000025000020000015000010000050000
0CO2_Target_GrowthBaseline power generation mix
LNG No Growth Baseline Scenario
ThermalOil

Thermal Gas

Thermal Coal

NuclearHydro

PV

LNG Growth Baseline Scenario
WindPower

Cogeneration

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%0%2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

ThermalOil

Thermal Gas

Thermal Coal

Nuclear

Hydro

PV

Thermal Coal

Nuclear

Hydro

PV

WindPower

Cogeneration

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

LNG Growth & RE Targets Scenario

LNG No Growth & RE Targets Scenario
ThermalOil

Thermal Gas

WindPower

ThermalOil

Cogeneration

Thermal Gas

Thermal Coal

Nuclear

Hydro

PVWindPower

Cogeneration

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%10%

0%2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

0%2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

The comparison of CGE and E3ME with carbon tax rate toachieve the national target
CGE(From LNG Growth Baseline Scenario)

E3ME-TNN

2020

2030

2020

2030

Real GDP

-4.04%-8.63%-1.23%-1.46%

CO2-15.10%-37.01%-41.93%-65.47%

Employment-2.27%-4.60%-0.67%

0.21%

Consumption-2.25%-4.85%-4.85%-6.77%

Investment-5.60%-11.89%-1.38%

4.84%

Export-1.24%-2.65%

0.12%

0.44%

Import-2.69%-5.22%-2.66%-1.82%

Import: Oil and Gas etc.

-8.51%-18.70%-7.47%-4.67%

Consumption Price-1.09%-2.26%

6.67%

8.58%

Nominal wage and salaries-7.73%-18.19%

2.68%

4.88%

Carbon Tax Rate ($/tCO2)

49.9

107.6

586.5

1372.6

The comparison of CGE and E3ME with carbon tax rate at
735$/tCO2
CGE(From LNG Growth Baseline Scenario)

E3ME-TNN

2020

2030

2020

2030

Real GDP

-4.98%-6.91%-0.03%

0.10%

CO2-26.44%-30.41%-18.00%-35.52%

Employment-2.83%-3.98%-0.13%

0.13%

Consumption-2.95%-3.16%-0.92%-1.15%

Investment-6.49%-6.91%-0.19%

3.58%

Export-1.43%-1.58%

0.01%

0.09%

Import-2.84%-3.16%-0.82%-0.34%

Import: Oil and Gas etc.

-9.59%-12.69%-2.26%-1.11%

Consumption Price-1.36%-148.56%

1.20%

1.47%

Nominal wage and salaries-9.41%-14.86%

0.42%

0.82%

Carbon Tax Rate ($/tCO2)

73.5

87.0

73.5

87.0

The comparison of CGE and E3ME with carbon tax rate toachieve the national target
CGE(From LNG No Growth Baseline Scenario)

E3ME-TNN

2020

2030

2020

2030

Real GDP

-4.75%-8.72%-1.23%-1.46%

CO2-23.37%-42.01%-41.93%-65.47%

Employment-2.45%-0.56%-0.67%

0.21%

Consumption-2.72%-3.80%-4.85%-6.77%

Investment-5.87%-7.99%-1.38%

4.84%

Export-1.15%-1.88%

0.12%

0.44%

Import-2.59%-3.55%-2.66%-1.82%

Import: Oil and Gas etc.

-6.77%-10.69%-7.47%-4.67%

Consumption Price-1.03%-1.72%

6.67%

8.58%

Nominal wage and salaries-8.33%-14.48%

2.68%

4.88%

Carbon Tax Rate ($/tCO2)

65.7

105.8

586.5

1372.6

The comparison of CGE and E3ME with carbon tax rate at
735$/tCO2
CGE(From LNG No Growth Baseline Scenario)

E3ME-TNN

2020

2030

2020

2030

Real GDP

-5.22%-7.08%-0.03%

0.10%

CO2-25.35%-33.24%-18.00%-35.52%

Employment-2.68%-0.46%-0.13%

0.13%

Consumption-3.04%-3.26%-0.92%-1.15%

Investment-6.68%-7.15%-0.19%

3.58%

Export-1.21%-1.50%0.01%

0.09%

Import-2.74%-2.88%-0.82%-0.34%

Import: Oil and Gas etc.

-7.95%-8.03%-2.26%-1.11%

Consumption Price-1.07%-1.35%

1.20%

1.47%

Nominal wage and salaries-8.96%-11.97%

0.42%

0.82%

Carbon Tax Rate ($/tCO2)

73.5

87.0

73.5

87.0