Economic Growth and CO2 Emissions with Endogenous Emission Regulations: A Computable General Equilibrium Analysis

It is widely known that emissions of greenhouse gases from anthropogenic activities have been dramatically increasing at the unprecedented rate over the past several decades, and causing the global climate change. To assess the future trends of such global climate change, it is necessary to project future greenhouse gas emissions. In this paper, we explore the effects of further economic growth on CO2 emissions with the use of a multi-sector, multi-region global CGE model, and with explicit consideration to the endogeneity of emission regulations, i.e. the dependence of regulations on the level of income. The relationship between income level and emission regulations are derived from the consequence of the Kyoto Protocol type emission regulations. Our main finding is summarized as follows. Carbon taxes rise in all regions with economic growth because all regions, especially LDC regions, enjoy the rise in per capita income. However, the responsiveness of carbon taxes to income change is too weak to restrain the increase in emissions. In other words, given the degree of the responsiveness of regulations inferred from the acceptance of the Kyoto Protocol type regulations, carbon emissions are likely to increase all over the world along with further economic growth.