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A publication of

CHEMICAL ENGINEERING TRANSACTIONS
VOL. 89, 2021

The Italian Associationof Chemical Engineering
Online at www.cetjournal.it

Guest Editors: Jeng Shiun Lim, Nor Alafiza Yunus, Jiří Jaromír Klemeš
Copyright © 2021, AIDIC Servizi S.r.l.
ISBN 978-88-95608-87-7; ISSN 2283-9216

DOI: 10.3303/CET2189018

Assessing the Impacts of Introducing of Carbon Tax andTechnologies for Road Transportation in Laos
Boun Eua Khamphilavanha,*, Toshihiko MasuibaSchool of Industrial Engineering and Economics, Tokyo Institute of Technology, 2 Chome-12-1 Ookayama, Meguro City,
Tokyo 152-8550, Japan.
bNational Institute for Environmental Studies, 16-2 Onogawa, Tsukuba, Ibaraki 305-0053, Japan.
euamaster@gmail.com

This paper applied the AIM/CGE [Laos] model to assess impacts of introduction CO 2 mitigation actions in thetransport sector through the comparison for energy consumption, GDP growth and CO2 emissions in Laos. The
introduction of CO2 mitigation actions/countermeasures (CMs) include carbon tax, electric vehicles (EV),biofuels, and subsidy. The model results of BAU scenario show the total final energy consumption will increasein 2050 by 123 %. By introducing EV and biofuels exogenously with carbon tax and subsidy, it is observed thatthe final energy consumption will reduce gradually in the long-term. GDP will gradually decrease with a loss of
1.9 % by 2050 in case of the countermeasures scenario comprising EV and biofuels plus carbon tax and subsidy
policy. The CO2 emission in BAU scenario will increase remarkably at a growth rate of 184 %. EV and biofuel
plus carbon tax will result in 57 % decline of CO2 emission in 2050, and the subsidy policy will lead to thegreatest fall of CO2 emission. Introduction of carbon tax alone in transport sector will not have any influence onhousehold behavior for energy consumption in both short-term and long-term, resulting in no impact on CO2emission. Nevertheless, applying mitigation actions (EV and biofuel) plus carbon tax, and subsidy
countermeasures can be a significant driver for influencing final energy consumption and CO 2 emission
reduction. But introducing the mitigation countermeasures, except for carbon tax, will result in a gradual declineof the GDP growth in the long-term.

1. Introduction
In the Vision 2030 document, Laos has a clear pathway for green and sustainable social-economic
development, Laos foresees to transition from a least developed country a developing country with upper-middle
income and with innovative, green and sustainable economic growth (MPI, 2016). The ten-year National SocialEconomic Development Strategy for 2016-2025, in consistent with the Vision 2030, also emphasizes inclusive
and sustainable growth as being the way forward (MPI, 2016). Following the long-term vision and plans, The
Decree on Climate Change was formulated and adopted in 2019, which defines principles, regulations, andmeasures on management, monitoring of climate change matters (Lao PDR, 2019).
Based on the direction of long-term policies, Laos has taken ambitious steps towards reducing its emission in
its Nationally Determined Contribution (NDC) (Lao PDR, 2015). For example, targets such as increasing theshare of small-scale renewable energy to 30 % of total energy consumption by 2030 and promoting bio-energy
consumption in 10 % of transport sector by 2030, are introduced (Lao PDR, 2011).
Nowadays, Laos is a country with low greenhouse gas emissions and is also a country with the absorption
capacity higher than the emissions and the greenhouse gas emissions in the Lao PDR has slightly decreased
from 50,700 Gg CO2-eq in 2000 to 24,100 Gg CO2-eq in 2014 (MONRE, 2013, 2021). The estimated GHG
emission under baseline scenario, is projected to reach around 82,000 Gg CO2-eq in 2020 and 125,000 Gg CO2eq in 2050, (MONRE, 2020). One of the drivers of this high expansion rate is an increase of vehicles. The mainmode of transport in Laos is private vehicles. The number of vehicles is expected to reach around 3.8 M in 2030
and 6.6 M in 2050 (Khamphilavanh and Masui, 2021). Energy-related emission is a significant emission source.
In 2014, energy-related emission sources were the second largest, at 3,700 Gg CO2-eq, accounting for 15 % of

Paper Received: 23 May 2021; Revised: 28 August 2021; Accepted: 24 November 2021
Please cite this article as: Khamphilavanh B.E., Masui T., 2021, Assessing the Impacts of Introducing of Carbon Tax and Technologies forRoad Transportation in Laos, Chemical Engineering Transactions, 89, 103-108 DOI:10.3303/CET2189018

104

national emission. The emission from fuel combustion in transportation accounted for 62 % of the energy-related
emission (MONRE, 2021).
Carbon tax is an effective mitigation tool for curtailment of emission, and several developed and developing
countries have applied this mechanism globally. The state of the National Green Growth Strategy (NGGS) of
Laos stated that carbon tax could be a significant measure to restrict the import and use of personal vehicles(NGGS secretariat, 2018). This was also consistent with the objective the Environmental Protection Law thataims to ensure balance between social and natural environment (Lao PDR, 2013). But carbon tax has not been
considered as a mitigation countermeasure in Laos, so in order to provide a scientific evidence for policy to spurgreen production and consumption in the country, there is a need to assess the impacts of carbon tax policy.
The objectives of this paper are to assess the impacts of introducing CO2 mitigation actions/countermeasures(CMs) such as carbon tax, mitigation technologies (EV and bioenergy) and subsidy through the comparison ofenergy consumption, annual GDP growth rate and CO2 emissions in Laos by using national scale computable
general equilibrium (CGE) model.

2. Data and Method
2.1 Method
The AIM/CGE [Laos] model which was developed by Asia-Pacific Integrated Model (AIM) team (Masui et al.,2011), (Okagawa et al., 2012), is applied to assess the introducing GHG mitigation actions for private vehicles,
namely, electric vehicles and biofuel use, and adopting a carbon tax and subsidy for limiting emission fromtransport sector in Laos, in this study. The AIM/CGE [Laos] is a national scale computable general equilibrium
model with recursive dynamics, and total 42 commodities have been considered, as shown in Table 1. Eachsector has nested production function with conventional/advanced technology and new/existing capital as
shown in Figure 1. GHG emissions from fuel combustions and activities such as IPPU, waste and agriculture
are taken into account in the model.
Table 1: List of 41 commodities in AIM/CGE [Lao]Commodity
Cropping
Livestock
Forestry
Fishing
Mining and quarrying
Food, beverages, and tobacco
Textiles and textile products
Leather, leather products, andfootwear
9. Wood and products of woodand cork
10. Pulp, paper, paper products,
printing, and publishing
11. Coke and nuclear fuel12. Refined petroleum
13. Chemicals and chemical
products
14. Rubber and plastics
15. Other non-metallic minerals
16. Basic metals and fabricatedmetal
17. Machinery, nec
1.
2.
3.
4.
5.
6.
7.
8.

Commodity
18. Electrical and optical equipment
19. Transport equipment
20. Manufacturing, nec; recycling
21. Electricity [Hydropower and Coalthermal power]
22. Water
23. Construction
24. Sale, maintenance, and repair of motor
vehicles and motorcycles; retail sale offuel
25. Wholesale trade and commission
trade, except of motor vehicles andmotorcycles
26. Retail trade, except of motor vehicles
and motorcycles; repair of householdgoods
27. Hotels and restaurants
28. Inland transport
29. Water transport
30. Air transport
31. Other supporting and auxiliarytransport activities; activities of travel
agencies

Commodity
32. Other supporting andauxiliary transport
activities; activities oftravel agencies
33. Post andtelecommunications
34. Financial
intermediation
35. Real estate activities
36. Renting of M&Eq andother businessactivities
37. Public administrationand defense;
compulsory social
security
38. Education
39. Health and social work
40. Other community,social, and personal
services
41. Private householdswith employed persons
42. Biofuel

Hydro electricity and biofuels are treated as clean energy options. The electricity in Laos is produced from two
main sources; renewable energy generated by hydro power plants, and electricity generated by coal power
plants. The future capacity of each power plant is set as a scenario, but the production of electricity is calculatedendogenously. Biofuel is a substitute for fossil fuels in transport sector. The necessary material inputs for
producing biofuels are agricultural products such as palm and jatropha fruits. The production process still
generates CO2 emission since fossil fuel is needed for palm mill processing and blending palm oil with fossil
fuels.
In transport service, conventional technology comprises vehicle which needs fuels, and currently the share ofconventional vehicles in Laos is 100 %. The advanced technology vehicle has multiple advanced options; forexamples, vehicle with more efficient energy combustion that less CO 2 emission, when compared to the105conventional vehicle (Shukla and Dolcera, 2009). In this analysis, EV is regarded as advanced vehicle. It needs
only electricity and its dissemination will be able to contribute to reduce CO2 emissions, since it consumes
cleaner energy, particularly electricity that is generated from hydropower plants. New 36 hydro power projects
are being constructed with capacity to produce energy of 20,890 GWh/y (MEM, 2018). Introduction of EV isregarded as a mitigation option for transportation. Based on government target, the share of biofuel is assumed
to increase from 10% in 2025 to 40% in 2050. Figure 2 shows the CGE model structure of energy demand inhousehold sector.

Figure 1: CGE structure for production sector

Figure 2: CGE structure of energy consumption in household sector
2.2 Data
The main data to develop the AIM/CGE [Laos] model is based on Laos input-output (IO) table in 2014, which
was developed and published by ADB in 2018 (ADB, 2018) with a total of 35 sectors. The decision to choose
this dataset as the main data is due to the most recent national GHG inventory availability. In this study, some
sectors are disaggregated into more detailed sectors such as hydro power plant and coal thermal power plant
based on their energy sources. In addition, biofuel production sector is added. The information related to the
bioenergy production is obtained from renewable energy development strategy of Lao government (Lao PDR,
2011). Besides the data mentioned above, other socio-economic data like GDP, trade balance, power
generation capacity, and population growth are needed for the simulation.
2.3 Scenario
In this study, Business as Usual (BAU) scenario and countermeasure scenarios are prepared as shown in Table
2. In both scenarios, the annual GDP growth rate from 2020 to 2050 is assumed to be 5.7 %/y. Population
growth rate from 2020 to 2050 is assumed to be 1.2 %/y.
BAU scenario is a reference case with no mitigating countermeasures policy. In countermeasure scenarios, thesocio-economic assumptions are the same except introduction of mitigating countermeasures, namely, carbon
tax (10 USD/t CO2), mitigation options such as EV technology with certain market penetration levels, biofuelwith carbon tax (10 USD/t CO2), and subsidy for mitigating the cost of EV technology. The EV technology, which

106

had a 1 % penetration in 2020, is assumed to replace conventional vehicles in households by 14 % in 2025, 30% in 2030, and 50 % in 2050, in the countermeasure scenario (MEM, 2020). In this analysis, it is assumed thatcarbon tax will be introduced endogenously as a mitigation measure for supporting biofuel promotion. In the
countermeasure scenario, the biofuel production will increase by 5 %/y. The technology plus carbon tax will also
exogenously stimulate the increase of biofuel by 5 %/y. In this scenario, the subsidy will endogenously reducethe EV cost (table 2). It is assumed that Lao government will introduce the carbon tax and subsidy for EV
technology. In order to introduce the EV, each sector will need to pay more as an “additional cost” in Figure 1.
In this analysis, the cost of EV is taken as 50 % more as compared to the conventional vehicle, which is the costof electric equipment including battery. To diminish the cost, the government should consider subsidy. However,the conventional vehicles user will need to pay for carbon tax. Through the comparison of energy consumption,
GDP and CO2 emissions in these scenarios, the impacts of introducing carbon tax and mitigation technologies
for road transportation in Laos is assessed in this analysis.
Table 2: Scenario in this analysis
ScenarioBAU
Tax$10Tech+$10
Subsidy

Carbon tax
10 USD/t CO2
10 USD/t CO2-

SubsidysubsidyEV
endogenous
exogenous
endogenous

Biofuel5%5%-

3. Result and Discussion
This section presents the results of the scenario analysis for road transport sector in Laos. The results for BAU
and countermeasure scenarios are presented along the lines of energy consumption, CO 2 emissions, andimpact on GDP growth.
3.1 Comparison of final energy consumptionenergy consumption (ktoe)

Figure 3 presents the total final energy consumption in the BAU and countermeasure scenarios between 2014
and 2050. It can be seen that, in BAU scenario, the final energy consumption will increase from 2,600 ktoe in2014 to 3,800 ktoe, 4,800 ktoe and 5,900 ktoe, representing total growth rates of 45 % in 2030, 80 % in 2040,
and 123 %, in 2050. However, the scenario of introduction of carbon tax countermeasure alone at 10 USD/t
CO2 will have no significant impact on energy consumption. This is because 10 USD/t CO2 may not be enoughto replace the conventional vehicle by EV.
AIM CGE is recursive dynamic model in which energy efficiency improvement and energy switch are derived
from the introduction of new equipment. However, the additional cost of EV is very high and therefore it is hard
to select EV endogenously. By introducing EV and biofuels exogenously with carbon tax or subsidy, it isobserved that, compared with BAU scenario, the final energy consumption will gradually reduce in 2040 and
2050. The total final energy consumption in 2040 will fall from 4,800 ktoe in BAU to 4,600 ktoe in thatcountermeasure scenario, accounting for 3 % reduction. In 2050, final energy consumption will decrease from5,900 ktoe in BAU to 5,700 ktoe in the countermeasure scenario, accounting for 4 % reduction.
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2014

2025

BAU

Tax$102030

tech+$10

2040

2050

Subsidy

Figure 3: Total final energy consumption in BAU and countermeasures scenario.
3.2 Comparison of annual GDP growth rate
GDP growth in BAU and that in the scenarios with introduction of the EV and biofuel with carbon tax and subsidy
are compared. Since the cost of the electric vehicles is higher than the cost of the conventional ones, promoting107

EVs may have some negative economic impact. Carbon tax and subsidy policies may also create some impacts
on annual GDP growth rate. Figure 4. shows that the carbon tax at 10 USD/t CO2 scenario will have no negative
impact on GDP growth. This carbon pricing will not impact the consumption behavior of households. This might
be because the people will have not much options for fuels selection and there will be limited public transport
services, and consequently travel by their own private vehicles will still be the most convenient way. But the
GDP value will gradually decrease during 2030-2050 in the countermeasure scenario comprising EV andbiofuels plus carbon tax. The GPD loss will be about 353 M USD, accounting for 1 %, in 2030; 900 M USD,
accounting for 1.6 %, in 2040; and 1,780 M USD, accounting for 1.9 %, in 2050. The GDP loss may be due tothe introduction of subsidy policy by the government. Specifically, the government will lose the tax income frommitigating import tax for import of EV technology and will spend more foreign currency for importing EV since
the cost of EV is higher than conventional vehicles.
The subsidy scenario will have smaller disadvantage than mitigations plus carbon tax scenario. For examples,
the GPD loss will be about 25 M USD, accounting for 0.1 %, in 2030; 249 M USD, accounting for 0.4 %, in 2040;
and 750 M USD, accounting for 0.8 %, in 2050.

GDP value (million
USD)

100,000

50,000

0
2014

2025

BAU

2030

Tax$102040

tech+$10

Subsidy

2050

Figure 4: Comparison of GDP value in the BaU and countermeasures scenarios
3.3 Comparison of carbon dioxide emission
Figure 5. displays the CO2 emission in Laos’s transport sector in BAU and countermeasure scenarios. As seenin the energy consumption results (Figure 3), CO2 emission in transport sector shows the same trend. Due toincreasing energy demand and high fossil fuel consumption, resulting CO 2 emission in BAU scenario will
increase from 600 Gg CO2 in 2014 to 800 Gg CO2 in 2030, with a total growth rate of 65 %. Thereafter, CO 2
emission in BAU will sharply increase to 1,400 Gg CO2 in 2050, with a remarkable total growth rate of 184 %.
Adopting the countermeasures, on the other hand, will result in noticeable decrease of CO2 emission, especially
due to the mitigation measures plus carbon tax and subsidy. However, the carbon tax policy alone will not
mitigate CO2 emission significantly. The reason might be that in the short-term, the public transport will not
improve much, and most of citizens will still travel by their own private vehicles.

CO2 emission (Gg CO2)

1,500
1,000
500
0
2014

2025

BAU

Tax$102030

2040

tech+$10

Subsidy

2050

Figure 5: Comparison of CO2 emission from BAU and countermeasures scenarios
The CO2 mitigation countermeasure of extenuation technology plus carbon tax will result in decline of CO 2
emission from 800 Gg CO2 in BAU scenario to around 500 Gg CO2 in 2030, with the reduction accounting for
36 %; and in 2050, the emission will noteworthily drop from 1,400 Gg CO2, in BAU scenario to about 680 Gg
CO2, the reduction amount being 720 Gg CO2, accounting for 52 %.
Among all countermeasure scenarios, the subsidy policy will lead to the most significant fall in CO2 emission,
particularly during 2030 to 2050. Comparing to the BAU, the emission in subsidy scenario will go down as
follows: from 800 Gg CO2 to 500 Gg CO2, accounting for 38 % drop, in 2030; from 1,000 Gg CO2 to 470 Gg

108CO2, with reduction amount of 530 Gg CO2, accounting for 56 % drop, in 2040; from 1,400 Gg CO2 to 600 Gg
CO2, accounting for 57 % drop and an amount of reduction around 800 Gg CO2, in 2050.

4. Conclusion
This paper analyses the CO2 mitigation potential in the transport sector for Laos by assessing the effectivenessof certain policy packets/countermeasures (CMs). The model results of BAU scenario show the total energy
consumption will increase in 2050 by 123 %. By introducing EV and biofuels exogenously with carbon tax or
subsidy, it is observed that the final energy consumption will gradually reduce in the long-term. GDP will
gradually decrease with a loss of 1.9 % by 2050, in case of the countermeasures scenario comprising EV andbiofuels plus carbon tax and subsidy policy. In BAU scenario, CO2 emission will increase remarkably with agrowth rate of 184 %. EV and biofuel plus carbon tax will result in 56.7 % decline of CO 2 emission in 2050. The
subsidy policy will lead to the greatest fall of CO2 emission. In sum, introduction of carbon tax alone in transport
sector will not influence household behavior for energy consumption in both short-term and long-term, resulting
in no impact on CO2 emission. This carbon price rate may not be enough to replace the conventional vehicle byEV, so higher carbon price should be analyzed for future analysis. Nevertheless, applying mitigation actions (EVand biofuel) plus carbon tax, and subsidy countermeasures can be a significant driver for influencing final energy
consumption and CO2 emission reduction. But introducing mitigation countermeasures, except for carbon tax,
will result in a gradual decline of the GDP growth in the long-term.
Acknowledgment
This research was performed by the Environment Research and Technology Development FundJPMEERF20192008 of the Environmental Restoration and Conservation Agency of Japan.
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