The results are shown in Table 4. In this ‘Low Price’ specification, the path of the carbon tax phase-in is the same as under our main policy scenario of US$25/ton CO2e by 2030, but lower energy costs raise industry energy demand, and thus help the economy grow faster. Real private consumption is also higher in the first few years under the BAU and CEPR scenarios (also fueled by higher energy demand). Given that the region is a net energy importer, the cost of imports is lower. Consumption would, hence, be more responsive to price-based climate mitigation policy (either in the form of carbon taxes or fossil fuel subsidy phaseouts), implying a larger reduction in GHG emissions under the low-fossil fuel price scenario.

Compared to the CEPR package, lower energy prices lead to a much faster transition (see the third row of Table 4 for every economy). Fiscal revenues-to-GDP in 2030 are, thus, about 10 percentage points higher for Nepal and Pakistan. The net monetized welfare co-benefits are significantly larger: more than twice as large as in the CEPR scenario above (India, Pakistan, Sri Lanka). However, GDP is almost the same compared to the CEPR scenario (except for Sri Lanka, where it is higher). Furthermore, except for India (post-revenue recycling), the Gini coefficient falls faster for most economies (both pre- as well as post-revenue recycling), meaning that the income distribution becomes more equal as a result of the policy when initial energy prices are lower.

**Table 4. Sensitivity analysis of selected impacts relative to comprehensive energy price reform (CEPR) by economy and assumption, 2030**

|Economy|Scenario | Impact|Revenues|Net welfare<br>co-benefits|Real GDP|Gini<br>coefficient<br>decline (pre-<br>recycling)|Gini coefficient<br>decline (post-<br>recycling) *|
|---|---|---|---|---|---|---|
||Comprehensive energy price reform (CEPR), baseline energy price forecast<br>|100.0|100.0|100.0|100.0|100.0|
|Banladesh|CEPR, US$12.50 carbon tax|75.2|75.2|101.9|85.8|71.0|
|g|CEPR, low energy prices (lower bound) **|102.8|128.6|101.8|111.4|107.1|
||Comprehensive energy price reform (CEPR), baseline energy price forecast<br>|100.0|100.0|100.0|100.0|100.0|
|India|CEPR, US$12.50 carbon tax|83.9|93.3|102.7|98.2|54.4|
||CEPR, low energy prices (lower bound) **|98.6|188.5|102.7|246.2|75.5|
||Comprehensive energy price reform (CEPR), baseline energy price forecast<br>|100.0|100.0|100.0|100.0|100.0|
|Nepal|CEPR, US$12.50 carbon tax|78.6|73.1|98.0|49.9|52.2|
||CEPR, low energy prices (lower bound) **|109.2|143.3|98.9|172.9|111.9|
||Comprehensive energy price reform (CEPR), baseline energy price forecast<br>|100.0|100.0|100.0|100.0|100.0|
|Pakistan|CEPR, US$12.50 carbon tax|75.3|75.0|95.9|86.9|74.4|
||CEPR, low energy prices (lower bound) **|108.7|178.4|95.9|131.7|120.4|
||Comprehensive energy price reform (CEPR), baseline energy price forecast|100.0|100.0|100.0|100.0|100.0|
|Si Lk|CEPR, US$12.50 carbon tax|65.4|61.9|137.4|86.3|72.4|
|r ana|CEPR, low energy prices (lower bound) **|106.6|181.1|137.3|171.9|117.6|

Source: Authors’ estimates based on CPAT. Notes: Unless otherwise stated, the Table shows comparisons relative to CEPR (=100) (first row for every economy). * Deviations in the consumption-based Gini coefficient are calculated assuming all revenues are recycled via mode (c) as described in Section 3.3. ** The ‘low energy prices’ rows assume prices in 2024 remain at their lowest level this decade, namely, their value in the second quarter of 2020.

# **4.6.2 Lower carbon tax rate assumption**

As shown in Table 1, the level of the carbon tax consistent with the stated NDC pledges varies substantially, from over US$23/ton CO2e in Sri Lanka to US$0/ton CO2e in Bangladesh, India, and Pakistan. We, therefore, estimate the results assuming the carbon tax rate is half as large as under our main policy scenario, at US$12.50/ton CO2e. As briefly discussed in Section 2.2 above, this is slightly 25