BAKU, Azerbaijan, Sept.24
By Leman Zeynalova – Trend:
Applying carbon taxes to imports from oil and gas exporting countries has the effect of extracting part of the rents from these countries that could be used to diversify their economies and/or be invested in technologies that reduce CO2 emissions, Trend reports with reference to Oxford Institute of Energy Studies (OIES).
Shifting the burden to producers alone will disincentivise them from pursuing large scale CCS projects. Therefore, it is important to focus on mechanisms that allow these costs to be shared with importers/users, the company believes.
Franks, Edenhofer, and Lessmann show that since the ownership of fossil fuel resources gives rise to scarcity rents, from an importing country perspective, a carbon tax is more advantageous than a capital tax since it allows importing governments to capture part of that rent, OIES said in its recent report.
The authors recognise that this could cause resistance from the resource owners and incentivize them to accelerate the extraction of resources with adverse environmental impacts (known as the green paradox, a term coined by Sinn 24 ). “However, in contrast to Sinn, Franks, Edenhofer, and Lessmann find that under a realistic set of assumptions, the carbon tax will not give rise to a green paradox and instead the resource owners will react by reducing the rate of extraction and therefore carbon taxes have beneficial environmental implications. Some of these revenues could be channelled back to exporting countries to incentivise them to cooperate, adapt their economies, and invest in emissions reduction technologies. Presently there is no such commitment from importers applying the carbon tax. Applying such taxes is nothing new as importing countries, especially in Europe, and Japan, have always taxed fossil fuels heavily. Although this was not motivated necessarily by environmental but by budgetary reasons, the underlying motivation makes no difference in terms of importing countries capturing part of the rent.”
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