Impact of Carbon Tax levy on Electricity Tariff in Thailand using Computable General Equilibrium Model

Abstract

In recent years, issues of climate change and CO₂ mitigatation have become more and more important. Since the electric power generation is one of the key major greenhouse polluters. Measures and technologies to mitigate its emissions are of interest to most countries. This study aims to investigate effects and economic implications of levying carbon tax on electricity generation in Thailand by using the dynamic Computable General Equilibrium (CGE) model.

In this study, economic activities of Thailand were categorized into 40 sectors, with 49 commodities. Four scenarios were assumed: Business as usual (BAU), Low carbon tax rate (LT), 150 baht per ton CO₂ , Average carbon tax rate (AT), 450 baht per ton CO₂ , and High carbon tax rate (HT), 750 baht per ton CO₂. The result shows that, although the imposition of the high carbon tax rate can yield a greater impact on the economic growth, particularly for a short term, its effect is moderate. In addition, its impact on CO₂ is much more effective in a long term than a low tax rate. A tax rate of 150 baht per ton of CO₂ can reduce only 0.50% of CO₂ emission from the BAU case, and the rate is kept constant for the entire period of tax implementation. At a higher tax rate of 450 baht per ton of CO₂, it can reduce 2.2% of CO₂ emission from the BAU case, and it can reduce more in a longer term.  The result also shows that, even with the high tax tariff, its impact on the economic growth is moderate, and the effect gradually declines over the years. It can slow down the economic growth by -0.14% from the BAU case on the first year of tax imposed and gradually reduces to -0.12% after a ten-year period.

In conclusion, it was found that an imposition of carbon tax tariff on electricity price to migitate CO₂ emission is possible, provided that a prudent policy to reallocate the tax to improve more efficient production must be deployed as a counter part of this tax regime.

Keywords: Computable General Equilibrium (CGE), carbon tax, electricity