Browsing by Subject "carbon tax"

Carbon pricing is gaining momentum across developing countries such as the Philippines. Along with its strong commitment to increase the shares of renewable energy sources and excise taxes on fuels already in place, the government passed the House Bill No. 4939 aiming to tax households Php 1 for every kilogram of $CO_2$ emission per kilowatt hour (kWh) of power consumption. This raises varying opinions in the public if carbon tax is necessary compared to the amount of emissions of the country as a whole, amounting only to .48\% of total global emissions. Existing literature yields diverse results on the progressiveness of carbon tax in terms of its distributional effects. Most developed countries with active carbon taxation prove it to be progressive across different income groups. However, in developing countries such as the Philippines, studies show varying outcomes -- some argue that carbon tax would be regressive and would hurt the most vulnerable populations. Others also say that it would most affect the middle class, while few conclude that it can progressive in some developing countries. The Almost Ideal Demand System (AIDS) is used in this thesis to determine the change in household consumption across different income groups in the Philippines. The results show a regressive reaction to the increase in the price of electricity. The simulation resulted to a nearly similar pattern in the overall changes in consumption by varying degrees. The changes are most substantial in the poorest and richest households, meanwhile slight changes in the middle groups. However, by taking the income and cross-price elasticity of demand, the commodities are determined to be whether a necessity or luxury good and a complement or substitute good. The maximizing household then decides from which commodities to cut back in order to compensate to the carbon tax on electricity. The lowest income has the most percentage increase in the consumption of electricity, compensating from the necessities such as food. The middle groups follow by less percentage increase. Meanwhile, the highest income decreases its budget share for electricity, making way to increase on its other more important expenses. The elasticity of demand for carbon-intensive goods plays a role in determining the distributional effects of a carbon tax. In this thesis, the Php 1 carbon tax would affect the lowest income household in substantial amount compared to their actual energy consumption. This concerns policy makers of the social equity, and fairness of carbon tax. The House Bill No. 4939, when approved, takes the first step to adapting carbon tax in the Philippines.