Neutral carbon tax and environmental targets in Brazil

Produced by: 
University of Sao Paulo
Available from: 
February 2019
Paper author(s): 
Paula Pereda
Andrea Lucchesi
Carolina Policarpo Garcia
Bruno Toni Palialol
Topic: 
Environmental Economics
Year: 
2019

We evaluate the effects of a carbon tax in the Brazilian economy using an input-output framework. First, we consider the impacts of a carbon tax of US$ 10 and US$ 50/metric ton of CO2 equivalent. As usual, the adoption of the carbon tax generates adverse effects on GDP, wages and jobs in the short term, but reduces emissions and generates new government revenues, especially in the case of the greater tax. Second, we consider a broader tax system reform. In this reform, we replace distortionary taxes by a tax on value added. To compensate for the loss of government revenue, we assume a carbon tax with equivalent revenue. We find that the net effect is a GDP increase of 0.47%, the creation of 533 thousand jobs and reduction of 1.6 million tons of CO2 emissions. Both scenarios exempt exports and levy imports to correct adverse effects on the country’s competitiveness.

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