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The impact of carbon pricing in a multi-region production network model and an application to climate scenarios

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  • Frankovic, Ivan

Abstract

This paper builds on existing production network models to study the impact of global and sub-global carbon pricing. It uses the World Input-Output Database (WIOD) to calibrate intersectoral trade between seven regions and 56 economic sectors per region as well as EXIOBASE's sectoral accounts of greenhouse gas emissions to calibrate emission costs per sector for a given carbon price. The latter taxes emissions associated with the intermediate and final demand of fossil fuels as well as other emissions inherent to production. The global setup of the model allows the international propagation of carbon prices to be analyzed along worldwide value chains. The simulated sectoral impacts of carbon taxes are highly heterogeneous across sectors and regions, with the agricultural, mining, fossil fuel processing and transport sector exhibiting the largest impacts across all regions. For several sectors in Germany and Europe, particularly manufacturing sectors, international spillovers from carbon pricing outside of Europe can be substantial and increase value added losses by up to 100% relative to the impact of European-only carbon prices. The paper furthermore outlines a simple approach for applying the sectorally disaggregated results to global climate scenarios.

Suggested Citation

  • Frankovic, Ivan, 2022. "The impact of carbon pricing in a multi-region production network model and an application to climate scenarios," Discussion Papers 07/2022, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:072022
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    Cited by:

    1. Fahr, Stephan & Senner, Richard & Vismara, Andrea, 2024. "The globalization of climate change: amplification of climate-related physical risks through input-output linkages," Working Paper Series 2942, European Central Bank.
    2. Kohei Matsumura & Tomomi Naka & Nao Sudo, 2023. "Analysis of the Transmission of Carbon Tax using a Multi-Sector Dynamic Stochastic General Equilibrium Model," Bank of Japan Working Paper Series 23-E-2, Bank of Japan.
    3. Ernst, Anne & Hinterlang, Natascha & Mahle, Alexander & Stähler, Nikolai, 2022. "Carbon pricing, border adjustment and climate clubs: An assessment with EMuSe," Discussion Papers 25/2022, Deutsche Bundesbank.
    4. Khalil, Makram & Strobel, Felix, 2023. "Capital reallocation under climate policy uncertainty," Discussion Papers 23/2023, Deutsche Bundesbank.
    5. Frankovic, Ivan & Etzel, Tobias & Falter, Alexander & Gross, Christian & Ohls, Jana & Strobel, Lena & Wilke, Hannes, 2023. "Climate transition risk stress test for the German financial system," Technical Papers 04/2023, Deutsche Bundesbank.

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    More about this item

    Keywords

    climate scenarios; carbon pricing; input-output data; production network models;
    All these keywords.

    JEL classification:

    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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