Assessing the Role of Carbon Taxes in Driving Low-Carbon Transformations: A Comparative Analysis of Implementation Policies

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Assessing the Role of Carbon Taxes in Driving Low-Carbon Transformations: A
Comparative Analysis of Implementation Policies
Rumanintya Lisaria Putri1*, Desak Nyoman Sri Werastuti2, Ni Wayan Rustiarini3, Agung Sutoto1, Eko Wahyono4,
Budi Wardono1, Armen Zulham1, Amos Lukas5, Raden Djoko Goenawan6, Sofia Anita7, I. Ketut Ardana1,
I. Nyoman Normal1 , Moehar Daniel1 , Lisa Yuniarti4 , Khojin Supriadi8, Dodi Al Vayed9
1 Research Center for Cooperative, Corporation and People's Economy, National Research and Innovation Agency (BRIN),
Jakarta Pusat 10340, Indonesia
2 Department of Accounting, Universitas Pendidikan Ganesha, Bali 81117, Indonesia
3 Department of Accounting, Universitas Mahasaraswati, Bali 81117, Indonesia
4 Research Center for Social Welfare, Village, and Connectivity, National Research and Innovation Agency (BRIN), Research
Center for Social Welfare, Village and Connectivity National Research and Innovation Agency, Jakarta Pusat 10340, Indonesia
5 Research Center for Agroindustry, National Research and Innovation Agency (BRIN), Jakarta 10340, Indonesia
6 Research Center for Climate and Atmospheri, National Research and Innovation Agency (BRIN), Jakarta 10340, Indonesia
7 Department of Chemistry, Universitas Riau, Riau 28293, Indonesia
8 Research Center for Food Crops, Research Organization for Agriculture and Food, National Research and Innovation Agency
(BRIN), Jakarta 10340, Indonesia
9 Master of Government and Administrative Affairs, Jusuf Kalla School of Government, Muhammadiyah University,
Yogyakarta 57169, Indonesia
Corresponding Author Email: rumanintya.lisaria.putri@brin.go.id
Copyright: ©2024 The authors. This article is published by IIETA and is licensed under the CC BY 4.0 license
(http://creativecommons.org/licenses/by/4.0/).
https://doi.org/10.18280/ijsdp.190335
ABSTRACT
Received: 5 June 2023
Revised: 24 November 2023
Accepted: 1 December 2023
Available online: 29 March 2024
Innovations in the utilization of alternative energy sources to replace coal and oil-based
production methods have a direct impact on the volume of carbon dioxide (CO2) emissions
released into the atmosphere and subsequently contributing to the greenhouse effect.
Addressing these negative externalities of greenhouse gas emissions is most effectively
achieved through a universal global carbon tax system applied uniformly across all nations.
This study seeks to explore the implementation of a carbon tax as an alternative policy for
curbing carbon emissions and promoting a transition to a sustainable green economy. The
research adopts a qualitative approach with a focus on comparative analysis, examining
carbon tax policies across various countries in Europe, America, and Asia. Research data was
primarily gathered through an extensive review of relevant literature, with a major data source
being the World Bank's reports on the status and trends of carbon pricing. The study's findings
underscore the efficacy of a carbon tax as a policy instrument to reduce carbon emissions.
Furthermore, it has the potential to induce shifts in both household and industrial decision-
making behaviors, leading to reduced energy consumption with high emissions. Ultimately,
this policy approach can foster sustainable development and facilitate the transition to a green
economy characterized by low-carbon practices, resource efficiency, and social inclusivity.
These policies are instrumental in addressing environmental and social challenges, thus
safeguarding the well-being of future generations.
Keywords:
carbon emmissions, cost-effectiveness,
carbon tax, transformation, carbon
emissions, sustainable development and
green economy
1. INTRODUCTION
Innovations in alternative energy use from coal and oil
production are impacting increased carbon dioxide (CO2)
emissions into the atmosphere and trapping heat, posing
potential threats to the economy and the environment, such as
rising sea levels, risks to human health, reduced agricultural
productivity, damage to ecosystems and climate change risks
[1]. Atmospheric concentrations of greenhouse gas emissions
have increased significantly over the past 50 years, from 312
parts per million (ppm) in 1950 to 401 parts per million (ppm)
in 2015 [2]. Climate change can cause disastrous
consequences for human survival and socio-economic
activities that ultimately affect global economic output.
Externalities are the impact of a person's or one party's
economic actions on another person or party without being
accompanied by a flow of compensation [3]. Negative
externalities deserve joint attention considering the
importance of air as the main support for human, animal and
plant life, as well as its characteristics which are public goods
[4]. Efforts to reduce the impact of external diseconomies such
as climate change due to production and consumption actions
International Journal of Sustainable Development and
Planning
Vol. 19, No. 3, March, 2024, pp. 1171-1180
Journal homepage: http://iieta.org/journals/ijsdp
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that are not environmentally friendly within the framework of
the concept of sustainable development, can be carried out
through three methods; First, through direct regulation,
namely setting certain standards that require supervision.
Second, through voluntary measures, namely by providing
incentives without penalty, while at the same time reducing
monitoring costs. The third is market instruments (market
economic instruments), namely encouraging efficient
behavior based on the dynamics of supply and demand through
market price mechanisms, such as taxes [5].
One type of market economy approach to address the
external diseconomies of carbon emissions is a carbon tax. A
carbon tax is an environmental tax on the consumption of fuels
(coal, oil and gas) and is one of the important aspects of
environmental accounting. The goal of this carbon tax is to
reduce emissions, especially carbon, and eliminate the use of
fossil fuels due to human activities in the production process
[6].
Debuted in 1991, Sweden implemented one of the world's
earliest carbon taxes, second only to Finland's, which was
established a year prior. Sweden imposes the highest global
carbon tax rate at SEK 1,190 (equivalent to US $126) per
metric ton of CO2. This taxation primarily pertains to fossil
fuels utilized for heating and transportation.
In the three decades since the carbon tax was introduced in
Sweden, the country has seen carbon emissions fall alongside
steady economic growth. Although carbon tax revenues
remain significant, they have declined slightly over the past 10
years. It should be noted that Sweden's carbon tax only covers
about 40% of total national greenhouse gas emissions due to
various exemptions. Some of these exempted industries are
subject to the European Union Emissions Trading System (EU
ETS), which typically imposes a lower carbon price, while
others are not affected by any pricing mechanism Which
carbon? Implementing a uniform carbon tax across all sectors
could rectify these disparities and potentially result in further
emission reductions. It's worth noting that Sweden administers
various environmental levies, including the energy tax,
aviation tax, and vehicle tax, and also actively participates in
the EU ETS [7].
One of the 2018 Nobel Economics recipients, William D.
Nordhaus stated that the most efficient remedy for dealing
with negative externalities of greenhouse emissions is the
global carbon tax scheme which is applied uniformly in all
countries [8]. Previously, Fischhoff, a professor of public
policy at Carnegie Mellon University, also advocated a carbon
tax approach. Fischhoff argues that taxes are simpler, more
transparent, and more reliable, and are likely to produce an
immediate response to established goals. According to He et
al. [9], economists favor carbon prices because they are less
technologically prescriptive, easier to administer, and do not
use public funds. They like carbon pricing because it gives
emitters the flexibility to find their own ways to reduce
emissions. It is important to understand that polluters who
release greenhouse gases must pay for the impact they have on
climate change [10].
The application of a carbon tax directly or indirectly reduces
economic activities that pollute the environment and prevents
environmental damage by encouraging environmentally
friendly production/consumption methods. The
implementation of a carbon tax aims to initiate a greener
economic transition and reduce future emissions faster.
Additionally, carbon taxes are necessary to protect
environmental integrity to facilitate sustainable economic
growth. This is consistent with the principle of sustainable
development, which states that future generations should have
economic prospects at least equal to those of the present
generation, thereby allowing them to build on their economic
well-being. Green economic transformation or green economy
means that the economy is not aimed at continuous growth and
development but is an economy in stable, socially (human)
friendly conditions that are not threatening other species or the
planet itself.
In the 2015 Paris Agreement, 196 countries agreed to
combat climate change and increase efforts to limit
temperature increases to 1.5 degrees Celsius. No fewer than 57
countries have imposed a price on carbon, through the System
emissions trading system (ETS) or through the Emissions
Trading System (ETS) or by collecting a tax on carbon
emissions (carbon tax). A 2015 study of a carbon tax in British
Columbia found that the tax reduced greenhouse gas emissions
by 5 to 15% [11]. The British Columbia Sustainable Prosperity
Report for 2013 shows that since the carbon tax was enacted
in 2008, there has been a decrease in fossil fuel consumption
of 17.4% per capita and this does not endanger economic
growth. A carbon tax survey showed several developed
countries such as Finland, Denmark and Sweden showing that
these countries were able to reduce emissions ranging from
about 1.5% to almost 6% by using carbon taxes. Japan was
also able to reduce carbon emission levels by 8.2% from 2013.
Likewise, based on the 2018 Carbon Tax Center (CTC), the
United Kingdom has succeeded in reducing their carbon
emission levels by using carbon taxes. In 2015-2016, the UK's
carbon emissions fell from 600 MtCO2e to 374 MtCO2e or
around 7%. Overall, from 1990-2016 UK CO2 emissions have
decreased by 37%. There is also Ireland witness a reduction in
emissions more than 15% since 2008. Experts say the
country's emissions fell by 6.7% in 2011 even though it
experienced little economic growth.
Based on the study and the success of other countries in
implementing a carbon tax, the researchers wanted to conduct
an analysis of how a carbon tax is an alternative policy to
address the external economic problem due to carbon
emissions and its impact on a green and sustainable economy
develop.
2. THEORETICAL REVIEW
2.1 Externality concept
The consideration of external factors, also known as
“spillover effects”, originated from a formal investigation by
two British economists, namely Henry Sidgwick (1838-1900)
and Arthur C. Pigou (1877-1959), who established the concept
of external factors externalities. As Duan et al. [12] elaborates,
externalities represent either costs that need to be assumed or
indirect advantages conferred by a party as a consequence of
economic actions. These externalities arise from disparities
between the item's marginal cost and marginal benefit [13].
Externalities manifest when the manufacturing and use of a
product have a direct impact on enterprises or individuals who
are not engaged in the purchase and sale procedures. These
effects result from overflow impacts that are not represented
in market prices. In the context of natural resources and the
environment, the presence of externalities leads to an
inefficient and suboptimal allocation and administration of
these resources [14].
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Baharuddin et al. [15] classifies externalities based on their
impact into two, namely as follows:
a. Positive Externalities (external economies) occurs when
one person's activity benefits another indirectly. Positive
externalities provide external advantages that cannot be
reflected in market prices [16].
b. Negative Externalities (external diseconomies) occurs
when the activities of one person cause harm to another.
Negative externalities raise external costs which are costs
to third parties that cannot be reflected in market prices
[17]. Natural resource and environmental problems
include negative externalities (detrimental externalities).
2.2 Global public goods concept
The concept of global public goods is an extension of
American economist Paul Samuelson's classic idea of public
goods in a globalized economy. Global natural conditions such
as a good atmosphere are global public goods. Likewise with
environmental elements such as water, air, and others that can
be enjoyed by every living thing and it is impossible to prevent
someone from consuming these public goods [16].
2.3 Stakeholder theory
The concept of stakeholder theory aims to help companies
strengthen relationships with external parties and cultivate
competitive advantage. Stakeholder theory involves granting
each stakeholder privileged access to information related to
corporate actions that can influence corporate decision making.
Stakeholders also have the right to choose not to use this
information and not to hold a direct position in the company.
Disclosure of information related to social and environmental
responsibility can effectively engage stakeholders, leading to
their support for the company. In turn, this support can affect
the sustainability of the business [17].
2.4 Signaling theory
Signaling theory, initially introduced by Spence in his
research on the job market signaling, posits that the party
possessing the information aims to convey pertinent
information to the recipient through signaling. The recipient
subsequently adapts their actions based on their interpretation
of the signal. Information made public as an announcement
serves as a signal in the decision-making process. When the
announcement conveys a positive value, it is anticipated that
the market will respond upon receiving the announcement [18].
Offering transparent price data regarding carbon tax represents
a form of informative signaling since it has the potential to
influence the decision-makers' behavior.
2.5 Decision making theory
According to the Big Science Dictionary, decision making
is a form of choosing from many different actions that can be
chosen, this process goes through a certain mechanism in the
hope of making the best decision. Effective decisions are
shown by the absence of resistance to implementers and
parties directly related to decisions [19].
2.6 Carbon emissions
Carbon emissions are gases resulting from the combustion
of compounds containing carbon and hydrogen, which are
discharged into the Earth's atmosphere. The primary
contributor to carbon emissions is the combustion of fossil
fuels, accounting for 67% of global emissions [18].
Carbon emissions, commonly known as greenhouse gases,
represent the gases that have the potential to cause global
warming [19]. Remarkably, all of these greenhouse gases
released into the atmosphere are byproducts of human
activities. The escalation of carbon emissions has experienced
a substantial surge since the onset of the initial industrial
revolution in 1751. This rise in carbon emissions persisted
through the second industrial revolution and continues to the
present day.
2.7 Carbon tax
The level of carbon content of each fuel will determine the
value of the tax. Taxes on fossil fuels will trigger an increase
in the price of these fuels. In theory, one would use less fuel
when the price went up. In other words, the government can
protect the environment by implementing this tax measure
[20].
Carbon taxis a type of environmental tax and one of the
important aspects of environmental accounting apart from
insurance and regulations and external financial information.
He et al. [9] stated that environmental taxes are included in
monetary environmental accounting. Environmental
accounting describes efforts to incorporate environmental
benefits and costs into economic decision making.
Environmental Management Accounting: Procedures and
Principles explains the classification of environmental costs
and revenues, in this case output, taxes and costs incurred by
companies based on the volume of air emissions.
2.8 Sustainable development and the green economy
Co-published by World Nature (WWF) in 1980. It gained
widespread recognition through the report of the World
Commission on Environment and Development, titled "The
Bruntland Report: Our Common Future ta", published in 1987.
Sustainable development is defined as the result of improving
current well-being without reducing prospects for future
prosperity. In simpler terms, this implies that future
generations should benefit from at least the same economic
opportunities as the current generation to ensure their own
economic well-being [21].
The term “green economy” was first introduced in 1989
when a group of prominent environmental economists, in their
report titled “Towards a Green Economy”, presented it with
the British government. In a green economy, the emphasis is
not on continuous growth but on achieving a stable economy
in which human societies coexist harmoniously with other
species and government. This crystal, the main goal of the
green economy is to improve human well-being, ensure equity,
minimize environmental damage and facilitate economic
development within the ecological limits of the environment.
3. RESEARCH METHODS
This research is a qualitative research using a
phenomenological research approach comparative analysis,
namely an analysis that describes and compares carbon tax
policies in several countries. This research was conducted in
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10 countries that have successfully implemented carbon taxes
in the European, American and Asian continents, which
consist of Finland, Sweden, Norway, Denmark, British
Columbia, Ireland, Japan, England, Mexico and France.
Research data obtained by literature study from various
literatures with the main data source being the state and trends
of carbon pricing report issued by the World Bank.
4. RESULT AND DISCUSSION
Analysis of Carbon Tax as an Alternative Policy in Reducing
Carbon Emission External Diseconomies
a. Carbon Tax Policy Design
Since the carbon tax places a price on every ton of
greenhouse gas emitted, it will send price signals that
gradually cause market responses throughout the economy,
creating incentives and flexibility for emitters to find their own
ways of reducing emissions [22].
In implementing carbon tax, the government must decide
which fuel or resource to be taxed and whether to place the tax
on the upstream or downstream emission sources [23]. Taxing
upstream sources of emissions that are less subject to tax can
provide an administratively efficient tax collection method,
while taxing downstream such as electricity consumption can
provide a more direct signal to consumers but may incur
greater administrative costs. The following Table 1 relates to
the basis for the imposition of carbon tax in various countries
based on the emission sources covered and exceptions, as
follows:
Table 1. Basic tax imposition in various countries
Country
Type*
Covered Sectors and/or Fuels
Exception
Finland
National
CO2 Emissions, All Fossil Fuels
mainly from the Industry,
Transportation and Building
sectors
fuel for electricity production, commercial aviation and commercial
cruise ships (Partially) exempt from carbon tax. Use of fuel in
refineries and CHP or use of coal and natural gas in industrial
processes. The carbon tax also does not apply to peat
Sweden
National
CO2 Emissions, All Fossil Fuels
mainly from the Transportation
and Building sectors
fossil fuels for generating heat in addition to manufacturing and in
combined heat and power generation. Also, certain industries, fuel
exports are covered, modes of transportation (rail, shipping,
aviation), electricity production, forestry and agriculture.
Norway
National
GHG emissions from all sectors,
including liquid and gaseous
fossil fuels
Operators covered by the EU ETS, including Agriculture and waste
incineration, international flights and international shipping, exports
of covered fuels, and the share of biofuels in mineral oil (Partial) are
exempt from carbon tax.
Denmark
National
GHG emissions are mainly from
the building and transportation
sectors, applicable to all fossil
fuels
Operators covered by the EU ETS are exempt from carbon taxes
British
Columbia
Sub-National
GHG emissions from all sectors,
Taxes cover all fossil fuels and
tires burned for heat or energy.
Fuel exported, fuel consumption by flights and shipments outside of
British Columbia, and colored petrol and colored diesel purchased
by farmers.
Ireland
National
CO2 emissions from all sectors,
covering all BBF
Operators in EU ETS in part, Certain industrial processes, covered
fuel exports, electricity production, shipping and aviation (in part).
Japan
National
CO2 emissions from all sectors,
covering all BBF
The use of certain fossil fuels in industry, electricity, transportation,
agriculture and the forestry sector is exempt from carbon taxes.
English
National
CO2 emissions from the power
sector
Small electric generators, stand-by generators and electricity
production in Northern Ireland are exempt from the carbon tax.
Also, the electricity consumption of efficient and partially
inefficient combined heat and power plants (CHP) is excluded.
Mexico
National
CO2 emissions for all sectors,
including all fossil fuels except
natural gas
-
France
National
CO2 emissions mainly from the
industrial, building and
transportation sectors, apply to all
fossil fuels
Operators covered by EU ETS. Also certain industrial processes
(non-combustion use), electricity production, shipping, aviation,
public transport and freight transport (partly) are exempt from tax.
Source: Carbon Pricing Dashboard World Bank, 2018; *background note carbon tax.
Table 2. GHG emission rate (MtCO2e), share of covered emissions (MMT %), and price rates in various countries
Jurisdiction / Country
Year
% MMT Covered
Country MtCO2e (2012)
Japan
2012
68%
1,479
Mexico
2014
46%
663
British Columbia, Canada
2008
70%
61
France
2014
35%
499
Finland
1990
37%
69
Sweden
1991
40%
66
Ireland
2010
49%
62
Denmark
1992
40%
54
Norwegian
1991
62%
64
English (United Kingdom)
2001
23%
586
Source: World Bank Carbon Pricing Dashboard, 2018
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Table 3. Global carbon tax revenue system
Carbon Tax
System
Annual
Revenue
(Millions)
Income per
Capital
Share of
GDP
Green
Shopping
General
Fund
Revenue
Recycling
Government
Revenue 2018
(Millions)*
Sweden
$3,680
$381
0.67%
0%
50%
50%
$2,572
Norway
$1,580
$307
0.31%
30%
40%
30%
$1,644
English
$1,530
$24
0.09%
0%
85%
0%
$1,091
British
Columbia
$1,100
$239
0.49%
0%
0%
102%
$1,056
Denmark
$1,000
$177
0.29%
8%
47%
45%
$543
Mexico
$870
$7
0.06%
0%
100%
0%
$306
Finland
$800
$146
0.29%
0%
50%
50%
$1,459
Ireland
$510
$111
0.03%
13%
88%
0%
$489
Japan
$490
$4
0.01%
100%
0%
0%
$2,361
France
$452
$7
0.02%
100%
0%
0%
$8,142
Source: Carl and Fedor, 2016; *Carbon Pricing Dashboard World Bank, 2018.
It is important to recognize the potential impacts of
upstream and downstream sources when designing a carbon
tax. The tax should be applied to upstream coal suppliers,
natural gas processing facilities and refineries, rather than to
electric utilities or industries, households and vehicles uses a
lot of energy. According to research, if tariffs are placed
“upstream” in the energy chain, there will in principle be many
different market options for responding to price signals.
Additionally, monitoring costs can be relatively low because
many resources can be used.
1) Tax Rates
Theoretically, tax rates are applied to fuels that contain
carbon or are related to CO2 emissions from industry or
domestic consumers [24]. This theory also suggests that tax
rates will increase as the rate of increase in marginal damages
from emissions increases. In practice, carbon tax rates vary
across countries depending on the theoretical regulations,
functions, and objectives the tax needs to achieve [25]. Higher
carbon tax rates can provide a stronger signal of changing
people's behavior, while lower tax rates are less likely to
change behavior but can provide funding for programs Carbon
taxes aim to reduce carbon emissions. The government has an
objective in determining tax rates, namely to maximize social
welfare or minimize the total amount of pollution [26]. In the
Inter-Agency Panel on the Social Cost of Carbon (2010), tax
rates were determined by estimating the social cost of carbon.
By using the social cost of carbon to determine the initial tax
rate, tax rates can be set at a relatively low level and increased
over time to minimize economic disruption. Carbon pricing
tariff programs are implemented at the country, region, state,
or even city level with varying rates (see Table 2).
Border Adjustment Rates, Prohibitions, and Exception
Rates: Several policies have been proposed to address the
problem of competitive disadvantage resulting from one
country adopting a carbon tax while another does not [27].
Proposed policies to encourage countries to implement carbon
taxes include adjusting border taxes, trade tariffs and trade
bans. Adjusting border tax rates according to Shen et al. [28]
shows that in this case exports will be tax refunded, while
imports will be taxed according to the national carbon tax rate.
Schultes et al. [29] also revealed that, to accommodate the
carbon tax for domestic use, fuel imports would be taxed and
exports would be eligible for a tax credit refund.
A tax exemption or exemption would reduce tax rates for
certain fuels or sectors, reducing the economic effectiveness
of the carbon tax and leading to increased tax rates for other
sectors in order to achieve the target reduce emissions.
Research shows that the costs associated with exemptions or
exclusions can be so significant that even if the industry's
market share were fully released, economic activity would
reduce emissions carbon to a small extent. However,
eliminating tax exemption rates could be relatively costly for
industries that benefit from these exemptions.
2) Income Distribution
Carbon tax revenue is targeted in a variety of ways.
Managing the revenue generated by a carbon tax is an
important factor in increasing the acceptability and possibly
even the cost-effectiveness of other instruments. Fiscal
neutrality aims to change people's behavior while reducing
other taxes. Greater savings can also be achieved when tax
revenues are repaid through deductions from other distorted
taxes (such as income taxes) rather than when they are repaid
as cash or used for other public expenditures. These results
have been proven by economic theory and supported by
numerical simulations [30]. Research results show that
revenue from a global carbon pricing system is used for
various purposes. Below is Table 3 regarding the global
carbon tax revenue system with additional government
revenue values in 2018, as follows:
3) Impact on Consumers
A carbon tax might be more easily accepted if the revenues
were used to promote other social concerns. In this case, the
impact on low-income households is considered due to
concerns about the regressive nature of a carbon tax,
specifically the disproportionate negative impact on low-
income households. low income. One of the main obstacles to
a carbon tax is that the burden will fall more heavily on the
poor (low-income consumers). Low-income consumers tend
to spend more than their income to meet basic needs (such as
heating and electricity) and lack options to replace these needs
[31].
Several policies, including income tax cuts and credits for
low-income households, could be used to alleviate these
concerns. For example, British Columbia offers a climate
action tax credit (a 5% tax reduction on the first two personal
income tax rates) and proposes to give northern and rural
property owners a subsidy, grants of up to 200 Canadian
dollars (CAD) to the people, the most vulnerable, and high-
income households (Ministry of Finance, British Columbia,
2008). Similarly, in France, the country proposed a plan to
return all income to households and businesses through tax
deductions [32].
Carbon taxes also have an impact on businesses. Companies
may choose carbon taxes for their carbon mitigation policies
because they provide a long-term price signal and are therefore
more relevant and easier to incorporate into carbon spending
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forecasts. To address concerns about the impact of a carbon
tax on businesses, certain regulations allow businesses to
reduce tax rates. Sweden cut tax rates for businesses by 0.8%,
while in Denmark, about 40% of tax revenue is used for
environmental subsidies and 60% is allocated to industry.
4) Ensuring Emissions Reduction
Ensure emissions reductions can be achieved by earmarking
carbon tax revenue to fund climate change mitigation.
According to Semieniuk et al. [33], voters want to allocate tax
revenue and use it to further reduce greenhouse gas emissions.
Governments can help by providing effective information on
emissions trends, distributional impacts of taxes and co-
benefits. An example is the French carbon tax introduced in
2014: in the first year, 100% of revenues were earmarked for
the green transition plan, but the allocation decreased over
time, to 44% in in 2015 and 38% in 2016, with the remaining
percentage of tax revenue going to the general fund. In this
case, governments remain committed to spending a certain
amount of money to reduce emissions, although there may be
competition between actual spending needs and increased
revenue. Some countries also occasionally increase carbon tax
rates, but no country has implemented a policy of
automatically increasing tax rates if emissions reduction goals
are not met. For example, British Columbia's carbon tax is
expected to be phased in over four years, and the government
has said it will revise the tax over time to meet carbon
emissions targets. However, no efforts have been made to
change tax rates [34].
b. Carbon Tax Policy Design
Based on the policy design given earlier, it shows that
carbon tax provides certainty in terms of the marginal costs
faced by emitters per tCO2e. Carbon tax is applied through a
tax that is added to the selling price of a product or service
according to the amount of greenhouse gas emissions
contained (emitted during production and/or use). There is
much agreement among economists, financial experts, and
climate experts that carbon taxes are the most efficient and
effective way to curb climate change, with the least
detrimental impact on the economy [35]. In former research,
how accountants support carbon tax due to the positive impact
it has on the environment.
Several studies revealed that compared to reducing fuel
subsidies in terms of costs, with the same amount of budget,
the implementation of carbon taxes produces better value and
impacts on income inequality and poverty, as well as being
faster and more effective in reducing emissions. carbon
dioxide (CO2).
Other approaches often focus on specific emission sources
such as electricity, heating or transport. In contrast, a carbon
tax could be applied to all fossil fuels, thereby covering the
major sources of emissions. Second, carbon taxes provide a
distinct price signal to businesses and households, allowing
them to make more informed choices in their purchases and
investments. Thaller et al.’s [36] research shows that when
provided with transparent detailed information on carbon
pricing, consumers and businesses are more likely to take
energy-saving measures and increase investments in
technologies energy saving. Therefore, carbon taxes can
increase their influence on consumer behavior by providing
accurate price signals. Additionally, a carbon tax could
generate two economic benefits. One benefit is minimizing the
harmful side effects of fossil fuels. This implies that additional
benefits of a carbon tax will arise when the revenue generated
by the tax offsets other tax revenues. This benefit is often
referred to as the “double dividend” and is an important feature
of carbon taxes [37]. Carbon taxes can maximize their impact
on consumer behavior by providing clear price indications.
Ultimately, a carbon tax could generate two economic
benefits. One of these benefits comes from reducing harmful
side effects associated with fossil fuels. This implies that
additional benefits of a carbon tax will arise when the revenue
generated by the carbon tax offsets other tax revenues. This
aspect is often called the “double dividend” and is an
important feature of carbon taxes [38].
Since the carbon tax places a price on each tonne of
greenhouse gas emitted, it will send price signals that
gradually cause a market response. Indeed, the imposition of a
carbon tax in a country can cause polemics because of the
potential for a tradeoff between the economy and carbon
levels. Like the application of taxes in general, carbon taxes
can reduce economic distortions. There are even studies which
state that carbon taxes can reduce economic growth, reduce
welfare, and undermine industrial competitiveness [39].
Therefore, before making a decision, it is important to study
and understand the design/implications of implementing
carbon tax in the target sectors (World Bank, 2017).
Even though it looks quite simply, the implementation of
this carbon tax really requires strong regulations and a
complete database. In many cases, the implementation of
carbon tax faces major obstacles in the field of regulation,
where challenges usually come from industry players and
other emission sources as tax objects. In some cases, carbon
taxes were developed in preparation for the full
implementation of the Emission Trading System.
Impact of Implementing Carbon Tax as an Alternative Policy
in Sustainable Development and Green Economy
Sustainable development includes many different elements
that are classified into three main aspects, namely
environmental, economic and social aspects or also known as
the triple bottom line (TBL). Carbon taxes encourage
individuals to use less fossil fuels and seek new energy sources
by increasing the cost of fossil fuel use, leading to a reduction
in carbon dioxide emissions through the price mechanism.
Carbon taxes thus allow for the internalization of negative
externalities caused by fossil fuel consumption [40]. The
existence of a market instrument-based carbon tax by creating
direct costs for emissions and taxing the carbon fuel content,
has supported the concept of sustainability [41].
The proper design of a carbon tax is actually significant as
a cost-effective instrument for reducing emissions. The
application of a carbon tax serves to initiate a "greener"
transformation of the economy and reduce emissions more
quickly in the future [42]. In line with this, the application of
a carbon tax will not only mitigate environmental externality
diseconomies due to carbon emissions, but also the results of
the carbon tax can be used strategically to provide long-term
and stable assistance in research and development efforts for
energy sources, energy use, and mitigation [43].
The Organization for Economic Cooperation and
Development (2001) shows that carbon taxes can be an
attractive policy option for maintaining environmental quality
in sustainable economic development. There are three main
indicators in sustainable development namely Environment,
Economy, and Social. Former research evaluated the design of
a carbon tax related to the impact on consumers. This refers to
social indicators on sustainable development.
a. Impact on Consumers
When designing a carbon tax, it is important to plan from
1176

the outset how much the tax should be set, how the tax might
change over time, and its impact on consumers. A carbon tax
may be more easily accepted if the revenue is used to promote
other social concerns [44]. As in the previous discussion, the
principle used to determine the appropriate tax rate is
equivalent to the marginal social damage cost of one additional
ton of CO2 and the marginal social benefit of one ton of CO2
reduction [45]. Higher carbon tax rates can send a stronger
signal of changing people's behavior, while lower tax rates are
less likely to change behavior but can provide funding for tax
programs carbon to reduce carbon emissions.
Several policies, including income tax cuts and credits for
low-income households, could be used to alleviate concerns
about the regressive nature of carbon taxes. To make
incremental progress through recycling carbon tax revenues,
make: 4,444 one-time transfers distributed among households
in equal proportions (per capita) and one-time transfers
Eligible for an amount determined on an equitable scale, Low
Carbon subsidy/subsidy for low-income households, income
earner, households and public transport use [46].
b. Impact on Consumers
Economic Impact (Accounting) for the Use of Tax Revenue
Primary costs. A carbon tax would increase the price of fossil
fuels proportional to its carbon content. Rising fuel prices will
lead to higher production costs and ultimately higher prices for
goods and services across the economy. The main underlying
costs of a carbon tax include two types of economic
consequences: 4,444 production effects and substitution
effects. The production effect occurs when rising fossil fuel
prices reduce real wages and returns on investment, resulting
in less total economic output than needed. The substitution
effect occurs when changes in the composition of goods and
services consumed and in the way they are produced change
the relative demand for labor and physical capital (such as
housing) heavy machinery and equipment used to produce
electricity).
Tax interaction costs are the consequences of a carbon tax
adding to the economic costs associated with existing taxes,
such as personal and corporate income taxes. The interaction
costs of a carbon tax can be significant relative to the baseline
costs of a carbon tax.
Burden on specific groups. The carbon tax burden, i.e., the
hardship caused by rising fossil fuel prices and emissions-
intensive goods and services as well as falling wages and
investment returns, will significantly affect some parties,
specifically can be low-income households, workers and
investors in high-emission industries and people living in areas
of the country that depend on high-emission industries for their
livelihoods or who use the most emissions-intensive fuels to
produce electricity production [47].
Previous research evaluated the design of carbon taxes
related to economic impacts, of which there are two, namely
competitiveness and distribution. To achieve sustainable
development related to economic indicators (competitiveness
and distribution impact). In more detail, it is explained as
follows:
1) Impact of Competitiveness
On a corporate level, competitiveness pertains to the
capacity of a company to uphold or enhance its market share
and financial performance, whether on the global or domestic
stage. A company's competitive standing is subject to various
influences, including cost considerations, product quality,
branding, service provisions, logistical networks, as well as
micro and macro elements, such as currency exchange rates
and trade regulations [48]. The influence of the carbon tax is
discernible in the company's cost framework, making it just
one of the determinants that impact competitiveness. The main
choice in designing a carbon tax on competitiveness issues so
that it can be considered reduced is to pay attention to the level
of taxation, border tax adjustments, recycling of carbon tax
fiscal revenues, and high exclusions in certain sectors.
2) Distribution Impact
Distribution considerations pose a significant challenge
within the context of implementing carbon taxes within a
political framework. Research on fiscal policy highlights
substantial opposition to the introduction of taxes targeting
households with lower incomes. The impact of carbon taxation
on distribution can be assessed from various perspectives,
including the distribution among households with differing
income levels, various household types, rural and urban
households, and disparities across generations. Most of the
research conducted to date has concentrated on examining the
distributional consequences concerning varying income
groups [49].
According to Schultes et al. [29], there are four factors
impacting the distribution of carbon tax, which are as follows:
i. The structure of household spending includes direct
energy purchases (oil, coal, natural gas, motor fuel) as
well as purchases of goods from production that require
large quantities of fossil fuels for the production
process.
ii. Who is effective in shouldering the tax burden, i.e., will
the carbon tax be passed entirely on to consumers
through higher prices for energy and used products or
will fuel producers and workers Will fossil fuel use in
turn bear the brunt of falling incomes and wages?
iii. Distribution benefits from better environmental quality.
A carbon tax has two environmental benefits: first, CO2
emissions are reduced, thereby reducing damage
caused by climate change. Second, the environmental
benefits of reducing fossil fuel consumption, can
improve air quality, by reducing emissions of air
pollutants.
iv. Using tax revenue generated from a carbon tax could
reduce the regressive impact.
3) Impact on the Environment
The main reason for implementing a carbon tax is the
possibility of achieving environmental goals, especially
overcoming the external economic situation and reducing
carbon dioxide emissions, while increasing economic
efficiency. For example, price signals provided by taxes can
be taken into account in future investment decisions when they
are replaced by new technologies. The environmental
effectiveness of a carbon tax will also depend on at least two
other factors, namely:
i. Use revenue from carbon tax. In terms of
environmental efficiency, two main options can be
considered. First, carbon tax revenues could be used to
subsidize renewable energy. In the second option, tax
revenues could be used to invest in energy efficiency
and research and development.
ii. Basis for applying carbon tax. If tariffs were placed
upstream in the energy chain, there would in principle
be many market options for responding to price signals.
Additionally, monitoring costs can be relatively low
due to the many transmission sources.
Benefits and Costs of Carbon Tax
Regarding the realm of accounting, it is essential to
1177

recognize the costs and advantages associated with
environmental and social matters and, where applicable,
undertake the measurement and quantification of these aspects
[45]. Financial reporting concerning carbon tax adheres to the
guidelines outlined in the International Financial Reporting
Standards (IFRS) as promulgated by the International
Accounting Standards Board (IASB). The specifications for
acknowledging and quantifying carbon tax-related account
entries, including income, inventory, and liabilities, are in
compliance with the guidelines articulated in IAS 37.
In principle, in the absence of other taxes, there is no
spillage of emissions to other areas, and there are no benefits
or costs unrelated to CO2 (beyond the net environmental costs
reflected in the social costs of carbon and the primary
economic costs of carbon taxes as elucidated. If there is no
uncertainty regarding the Social Cost of Carbon (SCC), setting
an identical carbon tax rate for the SCC would be considered
"efficient" from a global economic perspective. However, in
reality, the economically efficient carbon tax rate is contingent
on how policymakers utilize tax revenues, the extent of
emissions leakage, and the additional benefits and costs
stemming from taxation [46].
5. CONCLUSION
Based on the research results obtained, it can be concluded
as follows:
1. Carbon Taxis the right policy in overcoming external
diseconomies (negative externalities) to the environment
due to carbon dioxide (CO2) emissions resulting from
human activities (Production and Consumption) through
the burning of fossil fuels (petroleum, natural gas, and
coal). The principle is that whoever produces the emission
must pay for each equivalent ton of CO2 emitted
(expressed per tCO2e). In addition to being able to reduce
emissions, Carbon tax also generates additional benefits
but depends on how to recycle fiscal revenues such as
offsetting other tax revenues for example income tax. This
additional benefit is called a double dividend. This double
dividend then has a positive impact on economic growth,
creating new jobs, and developing technology.
2. Implementing a carbon tax has emerged as an appealing
policy choice to safeguard environmental integrity during
the transition towards a green economy and sustainable
economic progress. The adoption of a carbon tax is
grounded in its classification as an environmental tax and
its utilization as a market-driven instrument, facilitated by
price mechanisms. Consequently, this approach bears
consequences on factors such as competitiveness,
distributional effects, and environmental outcomes. The
study's findings reveal that sustainable development
entails creating a society characterized by high social
standards, economic viability, the preservation of life-
sustaining ecosystems on a long-term basis, and the
ability to ensure the well-being of future generations.
Furthermore, the transition to a green economy denotes a
shift towards development that is both low in carbon
emissions, efficient in resource utilization, and socially
inclusive. This transformation is envisioned to serve as a
public policy to rectify misallocation of resources and
address environmental and societal concerns.
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