Exploring Carbon Pricing in Developing Countries: A Macroeconomic Analysis in Ethiopia

This study uses a Computable General Equilibrium model to analyze policy scenarios for a carbon tax on greenhouse gas emissions from petroleum fuels and kerosene in Ethiopia. The carbon tax starts at $5 per ton of carbon dioxide in 2018 and rises to $30 per ton in 2030; these rates are translated into taxes on the different energy types covered, depending on their carbon contents. Different scenarios examine the impacts with revenue recycling through a uniform sales tax reduction, reduction of labor income tax, reduction of business income tax, direct transfer back to households, and use by the government to reduce debt. Because petroleum fuels and kerosene are a relatively small part of the Ethiopian economy,…