According to a study carried out by the Foundation for Applied Economic Studies (Fedea) in collaboration with BBVA Research and published last Monday, it was concluded that a progressive increase in carbon tax per ton emitted until reaching 227 euros in 2050 would be necessary to meet the objective of net zero emissions carbon.
The report, which evaluates the macroeconomic and social welfare effects in Spain of various strategies to achieve neutrality in carbon emissions by 2050, highlights that the effective implementation of economic policies aimed at facilitating the transition towards decarbonization will have a significant impact on macroeconomic dynamics and will entail costs in the short term, although the long-term balance could be positive.
The study on the carbon tax
The study compares various mitigation strategies and concludes that, in terms of generating significant reductions in emissions, green investment subsidies are the most time-consuming option compared to other policies. On the other hand, increasing the prices of fossil fuels to discourage their use would result in the highest costs in terms of well-being, both during the transition to 2050 and in the long term.
In this context, emissions taxes emerge as the most preferable policy in terms of well-being during the transition until 2050. However, unlike taxes, green investment subsidies can generate substantial welfare gains in the very long run, even without coordination of emissions reduction policies across economies.
Therefore, using revenues derived from carbon taxes to finance subsidies for green investment could achieve a more balanced effect on well-being between the short and long term, although it would imply penalizing the redistribution of income towards the households most affected by the transition. energy.
In addition to achieving the emissions reduction required to meet the Net Zero Emissions (NZE) target, a progressive increase in taxes per ton of carbon would relatively decrease the average welfare loss derived from these policies during the transition period. This loss, which is -0.44% in terms of equivalent consumption from 2019 to 2050, would briefly reach 1.5 percentage points of equivalent consumption loss that year.
What is the carbon tax?
The carbon tax is an environmental tax that is applied to emissions of carbon dioxide, a greenhouse gas, with the aim of reducing its release into the atmosphere. This tax acts as a disincentive for polluting emissions by making those who emit pay in proportion to the amount of pollutants released.
The impact of the tax is reflected in the final prices of the products, increasing them according to the emissions generated during their production, thus encouraging the consumption of products with a lower carbon footprint in their manufacturing. A gradual, planned increase in the tax can direct long-term investments, giving consumers and businesses the time needed to adapt.
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