Economics and environmental implications of carbon taxation in malaysia a computable general equilibrium approach

owdownintheeconomicperformance.Meanwhile,intheIndonesianeconomy,Y us uf 2008alsofoundaslightfallintheGDPandprivateconsumptionafterthecarbontaximplementation... 2016demonstratedthatwithou

EconomicsandEnvironmentalImplicationsofCarbonTaxati oninMalaysia:AComputableGeneralEquilibriumApproach

w i d e i m p a c t s ofc a r b o n taxationi n M a l a y s i a n economy.Theinevitableuseofenergyinputsinproductionchainsandconsumptionnecessitatesanassessmentcoveringe c o n o m y -

w i d e framework.Thepaper,hasthereforeapplied,computablegeneralequilibriummodelforthee

m p i r i c a l

analysis.ThemodeladoptsMalaysiaInput-OutputTables2010asthemaindatabaseinthesimulation.T h e investigationa ss umes threehypothetica

lc a r bo n taxationr a n g e d f r o m RM5 0/t onne toRM 3 0 0 / t o nn e (~USD12-70/

utstoproducepetroleumproductsandelectricity.ThesimulationresultshowsthatthecarbontaxationiseffectivetocontroltheriseinCO2emissionsinapositiveeconomicperformance,ifthetaxrevenuei

s recycledbacktotheeconomyascompensationscheme.Comparedtothestandalonecarbontaxationpolicy,thetaxrecyclingreformdoesappearmoreeconomicallyacceptableconsideringinflationimpactande m p l o y m e n t rate.Atsectorallevel,theenergyintensiveindustriesbecomemoreefficientinmanagingtheirenergyuse,asintended.Asthepolicyimplications,thepaperrecommendsthatthecountrymay considerimplementingcarbontaxationbyphased-

ingraduallytopromoteenergysavingandemissioncontrolwhilekeepingeconomiccompetitiveness.Inconclusion,Malaysiamayintroduceapolicypackagewithacarefullydesignedc a r b o n taxationsystem,i n combinationw i t h r e v e n u e recyclingm e a s u r e s , fora morebalancedeconomiceffi c ie nc y ande nv i r o n me nt c o ns e r v a t i o n in transitioningt o w a r ds a moresustainablee c o n o m i c growth

Keyword:emissioncontrol;energyconservation;environmentalfiscalreform;doubledividende

ffect

1.Introduction

enincreasingt h r o u g h o u t theperiod( I E A , 2 0 1 6 ) T h e closee c o n o m i c

-e n -e r g y r-elationm a y h a s r -e s u l t -e d a n irr-ev-ersibl-eimpactonth-eglobal-economyinth-efutur-e,ifthereisnomitigationactionistakenagainstther i s i n g useofenergycommoditiesi nproductionactivities.The concernforacontinuouseconomic benefit r e fl e c t s theurgencyoft a c k l

i n g t h e e n e r g y

-e n v i r o n m -e n t a l i m p a c t , a t b o t h l o c a l a s w -e l l a s globall -e v -e l s Impl-em-entationofth-eParisAgreementin2015contributestotheachievementofSustainableDevelopmentGoalswhichhelpstore

duceemissionsandbuildsclimateresilienceinternationally.Amorepracticalkeyissuei s totraceappropriateinstrumentsformakingprogressontheemissionmitigationpledgeatcountrylevel,bothdevelopedandemergingeconomies

InM a l a y s i a , thecountryh a s incurreda c o n t i n u o u s e c o n o m i c g r o w t h s i n c e p h r a s i

n g t o w a r d s industrializationin1980s.Coincidingwitheconomicdevelopmentandagrowingpopulation,thecountryhasbeenexperiencingacontinuousenergyuseovertime(DepartmentofStatisticsMalaysia,2018;EC,2016;IEA,2 0 1 6 ) Comparedto2000,NationalEnergyBalance2015statesthatfinalenergyconsumptionhasrisennearly8 0 % in2015.TheInternationalEnergyAgencyreportsfurtherthatCO2e mi ss i

o ninMalaysiahasreached220m i l l i o n tonnesin2015,whichisalmostdoublecomparedto2000

Onemajorcontributingfactorfortherisingemissioninthecountryisthefailureofmarketstotakeintoaccounttheenvironmentalimplicationsintoprices,eitherdirectlyonenergycommodityitself,orongoodsa n d s e r v i c e s Theoretically,theemissionc o s t , orsimplyc a l l e d externalities,shou

pastliteraturecommonlyagreesthatcarbontaxationisoneeffectiveeconomicinstrumentfora c h i e v

i n g e n e r g y s a v i n g a n d e n v i r o n m e n t c o n s e r v a t i o n w i t h thec o n d i t i o n thatitwouldcontinuetogenerateeconomicgrowth(WangandChen2015)

Thec a r b o n taxationp l a y s a rolei n signalinga n e ffi c i e n t us e ofenergyinputa n d output,w h i c

h theni n fl u e n c e s thel o n g t e r m d i r e c t i o n ofe c o n o m i c d e v e l o p m e n t (Ekinsa n d S p e c

k , 1 9 9 9 ) a n d e n v i r o n m e n t a l quality(Wolfson& Koopmans1996).Theoretically,thetaxrateisdeterminedinproportionwithquantityofe m i s s i o n produced,forinstancepertonneofcarbon6(S

pricetoitsm a r k e t level,thecarbontaxationwouldautomaticallyadjustoutputproductionbacktoefficientlevel,whichm a y thencutdownemissiontosomeextent(Wolfson&Koopmans1996).Atthesametime,thecarbontaxp r o v i d e s onemeantogeneratetaxrevenueforhandlingfiscaldeficits.Thegovernmentcouldallocatethetaxr e v e n u e toimprovee c o n o m i c pe r f o r ma nc e a n d e nv i r o nme nt a lquality.T hee c o no mi c a nd e nv i r o nme nt a l benefits,orthes o c a l l e d doubledividende ff e c t , makesthec a r b o n taxationo n e attractiveinstrumentfore m i s s i o n controllingwhilekeepingeconomiccompetitiveness

RefertoTable11,transportationsectoralonehasaccountednearlyonethirdofCO2emissionovertheyears2

0 0 1

-2 0 1 5 (Table11).Petroleumproductisthemostcrucialenergytypeusedinthetransportationsector.Intermsofenergymix,crudeoilrepresentsthemostimportantenergyinputforpetroleumproducts’productioni nMalaysia(EC,2016).Meanwhile,naturalgasand coalaccounts morethan80%oftotalenergyinputsusedi n powerstations(EC,2016).Thiscallsforanexaminationtoimposecarbontaxationoncrudeoil,naturalgas,a n d coaltoencourageanefficientuseofpetroleumproductsandelectricity

Otherenergyindustryo

w n use

Manufacturingindustriesandconstruction

Transport

LandTr ansport

Othersectors

o n taxi s t he re fo re necessary,be f o r e a c t u a l implementation.Thestudyfirstconductstheinvestigationbyretainingallthetaxrevenuesingovernment’sc o ff e r s Thereasonsare,firstly,totracethesoleimpactsofcarbontaxationontheeconomy;andsecondly,duetotheincreasingpressuretoreducethelargegovernmentdeficit.

maybecomenecessarytoreducetheeconomiccostofcarbontaxation,if

any.N e v e r t h e l e s s , thesignificanceofthec a r b o n taxationi n emerginge c o n o m i e s especiallyi s j u s t i fi e d byi t s c a p a c i t y tor a i s e taxr e v e n u e Fromliterature,p o l i t i c a l e c o n o m i

c constraintp o s i t s thatr e c y c l i n g c a r b o n taxationr e v e n u e b a c k toeconomy,orthes o

-c a l l e d e n v i r o n m e n t a l fi s -c a l r e f o r m , i s a l w a y s e ffi -c i e n t thans t a n d a l o n e -carbontaxationincompensatingeconomicloss.Thestudythereforeintendstore-

examinetheeconomicimpactsofcarbontaxationafter

allocatingbackallthetaxrevenuesascashtransfertohouseholds.T h e purpose istoconfirm whethertaxrevenue reallocation throughenvironmental fiscal reform(EFR)i sa l w a y s betterthanthestandalonecarbontaxationinyieldingdoubledividendeffect

Thestudya d o p t s c o m p u t a b l e generalequilibrium( C G E ) modela s methodf o r thea s s e s

s m e n t T h e

simulationresultspresentadifferencebetweenthezero-taxscenarioandthetaxscenario.Thestudyconductsthesimulationusing thelatestMalaysiaIOTables

,2010,asthemaindatabase.Theflowofinvestigationisguidedwithtwohypothesesasstatedbelow

.AnswersforthesetwohypothesesgivehintsforthepolicymakerstoevaluatewhetherthecarbontaxationisoneeffectivesolutionforslowingdowntherisingCO2emissionsinthecountry

: Thetaxrevenuereallocationismoreeffectivetogeneratedoubledividendeffect

Thefindingsofthispaperallowpolicymakerstotakebetterandmoreinformeddecisions,byprovidingan

e c o n o m y - w i d e

impactandcross-sectoralanalysisofreducingemissionsbyimplementinganationalcarbontax.Efficientenergyconsumptionandstabilizinggreenhouseemissionscouldcometogetherwithcontinuouseconomicgrowthwithpolicyenforcementsareundertakenappropriately.Theemissionscontrolshouldber e d u c e d byminimizingt h e unnecessarye n e r g y u s e , nota t thec o s t ofa l o w e r outputp r o d u c t i o n T h e

e m i s s i o n s decoupling s ho ul d occura ta l ow e r e ne r gy use a nd e mis si ons control whilekeepingec onomic competitiveness

Therestofthispaperisstructuredasfollows.InSection2,thestudypresentssomerelevantliteraturer e v i e w tostressouttheneedofconductingthisresearch.Section3providessomebackgroundsoftheCGEmodela n d s i m u l a t i o n s e m p l o y e d tor u n thec a r b o n taxationp o l i c y T h e n e

x t s e c t i o n p r o v i d e s e m p i r i c a l analysisofthesimulations.T h e analysisr e v o l v e s e c o n o m i c s

a n d e n v i r o n m e n t a l i m p a c t s ofthed i ff e r e n t c a r b o n taxsimulationsatbothmacroandindustriallevel.Thepaperproceedswithsomecorrespondingpolicyrecommendationsandsuggestions.Thefinalsectionprovidessomeconcludingremarks

Thecarbontaxationitselfplaysasignificanceroleinenergysavingandenvironmentconservationthroughamoreefficientuse ofenergyandasubstitutiontowardslesscarbonintensiveenergy.Thecarbontaxmayinfluencecarbonemissionthroughachangeinenergyprice.Lookingfromeconomic

perspective,thecarbontaxmayincreaseenergyprices,asitisimposeddirectlyonenergyinputsorenergyintensiveproducts.Duetocostconsideration,someproducersmaypassonthecostincreasestocustomersbycharginghigheroutputp r i c e s onenergyinputitselforfinalgoodsandservices.Thepriceincreasemayleadtoadrop-

indemandfori t , forcingitsproductionlevelsdown,andsubsequentlytheemissionlevel

Ateconomy-wideperspective,thesubsequentimpactoninflationandindustrialcompetitivenesslossmayresultinsomeeconomiccost.Theextentofimplicationsmayvarywithenergyshareinproduction,energystructure,industrialstructure,aswellassocioeconomiclevel(Zhangetal.,2016).Theimpactsmaythenspreadtothewholeeconomythroughenergyefficiency,energysubstitution,productioncost,industrycompetition,a

n d labormarketadjustment(BruvollandLarsen,2004).TheempiricalstudieshavethereforelongadvocatestheCGEmodelasoneappropriatemethodforexaminingtheeconomy-widecarbontaxationpolicy.Currently,thereareahandfulofliteratureoneconomicandenvironmentalimpactsofcarbontaxation.Attheearlierperiods,therelevantliteratureisdominatedbydevelopedcountries.Thedevelopingcountrieshaveshownanincreasingconcerninmakinguseofcarbon taxationforemissionmitigationinrecentyears.Ingeneral,theliteratureagreesthatcarbontaxisonepolicyeffectiveforhandlingtherisingemission

ArecentliteraturebyGuoandLiu(2016)foundoutthatthecarbontaxwaseffectivetocutdownenerg

yu s e inespeciallytheenergyintensivesectorssuchasmanufacturingandtransportationindustries.Orloveta l

(2013)wrotethattheincreaseinenergypricescausedafallindemandforelectricityandnaturalgasinRussiawithcoalasthemostpronounced

BruvollandLa rse n (2004)foundthatcarbon taxw as effectivetoleadtoafallinemissionintensityinN o r w e g i a n economythroughachangeinenergymix.SimilarevidencewasobtainedbySiriwardana etal

( 2 0 1 1 ) fromAustralianeconomythatenergyconsumptionandemissionswerelowercomparedtowithouttheca r bo n tax.Nordhaus(2007)demonstratedthatthelongruneffectonemissionreductionshouldbegreaterthanitsshortruneffect.Onereasonisthatthecarbontaxpolicybecomesmorelikelytoinduceenergysavingorgreenertechnologyinnovationsastimepasses.Thesefindingsconfirmtheeffectivenessofcarbontaxonenergysavings,aswellasbringingdownemissionslevel

Furtherempiricalstudiesshowthatthecarbontax,however,maycauseataslowereconomicgrowthasi t s o p p o r t u n i t y c o s t W h e t h e r i n d e v e l o p e d countriesord e v e l o p i n g countries,theliteraturer e v e a l s thatl e v y i n g a c a r b o n t a x m a y generatea n e g a t i v e i m p a c t one c o n o m i

c growth.A s statedbyN u r d i a n t o a n d R e s o s u d a r m o (2016),thecarbontaxationwaseffectiveforenvironmentalgaininsomeAsiacountries,yetitcouldcomeat

(2015)alsostatedthatthecarbontaxationmayresultinagainfortheenvironmentwhichisintended,withacostintermsofGDPcontractionaswellashouseholdincomereductioninthePhilippineeconomy

owdownintheeconomicperformance.Meanwhile,intheIndonesianeconomy,Y us uf (2008)alsofoundaslightfallintheGDPandprivateconsumptionafterthecarbontaximplementation.

McDougall(1993)estimatedtheshortrunsectoralandeconomy-wideeffectsofacarbontaxatarateof$25p e r 92.Coincidingwithstudiesatlaterperiods,theresultsrevealedthattheCO2emissiondidfallasexpected,butrealGDPperformedlessercomparedtowithout

tonneinAustralianeconomyintheearlierperiod,1991-thecarbontax.Othermacroeconomicindicatorssuchasemploymentandexportalsorespondednegativelytothecarbontax.Theresultsbasicallyyieldedaconsensusthatthecarbontaxreducedenergyconsumptiona n d emissions,withaslightfallineconomicgrowth.

However,ifgovernmentsarepersistent,thecarbontaxpolicymaygenerateapositiveimpactoneconomya n d environmentoneday.Subsequentthecarbontax,theincreaseinproductioncostmayinducesectorstoadoptmoree n e r g y e ffi c i e n t technologiesortos h i f t towardsa c l e a n e r inputmixa

m o n g i n d u s t r i e s a n d h o u s e h o l d s (Orlovetal.,2013),whichacceleratestheCO2emissiontofall.Inrecentyears,theconcernonindustries’competitivenesslosshasbeenfrequentlyquotedasonere

fordisproportionatei m p a c t includeheavymanufacturingandenergyintensiveindustries,whichdeservesadeeperconsiderationi n policymaking.Zhangetal(2016)revealedasignificantcontractioninenergyintensivesectors’output.Liange t al

(2016)demonstratedthatwithout anycomplementary measures,acarbon taxmaynegativelyaffect exportcompetitivenessofalmosta ll tradablesectors Andersona nd Ekins(2009)showedfurther thattheintroductionofcarbontaxationmayimpairthecompetitivenessofsomeaffectedcompanies.M e n g (2012)mentionedthattheintroductionofcarbontaxinAustraliafrom1July2012hadtriggeredatremendousfeari n resourcessectors.Therefore,somecountriesoffertaxexemptiononacertainsectororanenergyinputtype,i n

o r d e r toretaintheindustries’competitiveness,asbeforethecarbontaxintroduction.Inempiricalstudies,Abrell(2012)foundoutthattheexemptionoftransportsectorgeneratedalesserwelfarelossinEuropeancountriescomparedtowithoutthetaxexemption

Thepastliteraturecommonlyagreesthat,carbontaxisaneffectivesteptoreduceemission,butitsrateshouldbeimposedatappropriaterateforittotakeeffect.Guoetal

(2014)revealedthatamoderatecarbontaxwassufficienttoreducecarbonemissionandenergyconsumption,despiteitmaystillcameataslightfalli n economicgrowth.WangandLiang(2014)arguedthatthecarbontaxpolicycouldbeintroducedwithalowr a t e attheinitialstageasitmaynotstronglyexacerbateinquietlyinprimaryincomedistribution.Ahigherc a r b o n taxwasnotsuggestedattheinitial

implementationduetoitspossibleimpacttojeopardizeeconomici m p a c t andsocialwelfare.SunandKuang(2015)arguedthatthehigherthetaxrate,thehigherthelossofGDPgrowth.Chiuet al

wangasolinemarket.Thepaperfoundoutthatahigherlevelofcarbontaxwasmoreeffectivetoinduceareductioningasolineconsumption,throughareflectioninhighergasolineprice.Despitetheeffectiveness,Siriwardanaetal

(2011)notedthatsectoraloutputstendtocontractatanincreasingratewiththelevelofcarbontax

Onereasontoexplaintheeconomicloss,asfoundoutinthepriorliterature,is

becausethetaxrevenueisbeingr e t a i n e d i n t h e economya s government’se x t r a income.T h e p r

i o r i t i e s o n e c o n o m i c d e v e l o p m e n t , povertyreduction,andimprovementoflivingstandardsoftenleadtoanoppositionwhenthecarbontaxationpolicycomestoactualimplementation(LiangandWei,2012).Thefeasibilityofcarbontaxationintherealeconomyh a s becomea sourceofcontroversyb e

t w e e n e c o n o m i s t s a n d politiciansw h i c h a r e oftent h e policymakers.B o t h p a r t i e s agreeono n e c o n s e n s u s i f thec a r b o n t a x a t i o n c o u l d stimulatea c o n t i n u o u s economicd e v

e l o p m e n t Inthec a s e , thec a r b o n taxationp o l i c y m a y continueaccessiblei f t h e r e i s a n

y i n s t r u m e n t thatcouldatleasteliminateorhinderthesubsequenteconomiccosts.Theliteratureagreesthatc a r b o n taxationisstilleffectivetoreduceenergyuseandemissions,withtheconditionthatthetaxrevenueisbeingrecycledtoaccelerateeconomicgrowthandincreaseemployment

Thetaxrevenueraisingcapacity(Speck,2013)isoneattractivekeyfeaturethatconvincesthepoliticianstoi m p l e m e n t orr e t a i n i t s i mpl e me nt a t i o n Abdullaha nd M o r l e y ( 2 0 1 4 ) founds o m e evidencesofs h o r t -

r u n causalityr u n n i n g f r o m t h e increasedr e v e n u e f r o m thee n v i r o n m e n t a l taxt o economicgrowthi n s o m e E u r o p e a n a n d OrganizationforE c o n o m i c C o -

o p e r a t i o n a n d D e v e l o p m e n t c o u n t r i e s R e c y c l i n g thet a x r e v e n u e toeconomicagentsseemsnecessarytocompensateorimproveeconomicperformancesubsequenttheintroductionofcarbontaxation.

Theeconomicsandenvironmentalimplicationsofrevenuerecycling,betterknownasEFR,dependsonh o w thetaxrevenuesarebeingrecycled.ERTenablesthecarbontaxpolicytobecarriedoutinarevenue-

n e u t r a l way,thatisleavingtotaltaxrevenuesunchanged.TheessenceofETRistheshiftingoftheburdenoftaxationawayfromsociallydesirableeconomicactivitiessuchasonlaborandcapitaltosociallylessdesirablea c t i v i t i e s whichentailnegativeenvironmentalexternalities(VandyckandVanRegemorter,2014).NotethatE T R isnottheintroductionofnewtaxes

Orlovetal

(2013)conductedathoroughstudytoaccessthedoubledividendhypothesisfromthesectorala n d macroeconomicimpactofcarbontaxationontheRussianeconomy.Theempiricalresultsshowedthatsubstitutingthec a r b o n taxationf o r thelabortaxp r o v i d e d a s i m u l t a n e o u s e c o n o m i c a n d e n

v i r o n m e n t a l benefit,therebysignifyingtheexistenceofthedoubledividendeffect.Conefreyetal

(2013)alsofoundoutthatthec a r bo n taxationw a s abletoreduc e emissiona nd s t a b i l i z e economi

cg r o w t h i nIreland,i f thetaxr e v e n u e wasproperlyrecycledtoreduceexistingdistortionarytaxintheeconomy.Specifically,thepaperfoundthattheEFRwaseffectivetoyieldadoubledividendeffectifthecarbontaxationrevenuewasrecycledthroughreducedincometax,butlesslikelythroughalump-

sumtransfertohouseholds.MurrayandRivers( 2 0 1 5 ) supportedthatEFRthroughtaxcutsandlumpsumtransfertohouseholdsgeneratedaweakdoubledividendeffect inBritish Columbiaa s therevenue recyclingdidmitigatesome economiclossesf r o m the c a r b o n taxationpolicy

Further,WelschandEhrenheim(2004)foundthatEFRyieldedamoderatedoubledividendeffectintermsofreducedemissionswithstabilizedemploymentandeconomicgrowthinGermany.Theempiricalworksbasicallysupportpolicycoordinationasalwaysdominantoverthe standalonecarbontaxationinthe realeconomy.M a r k a n d y a e t a l

( 2 0 1 3 ) r e v e a l e d a similarresultwa sobtainedfort he c a s e ofSpa i n wherether e v e n u e

-r e c y c l i n g effectofusingthetax-revenuesto-reducetaxesonlabo-ro-rcapitalo-rtomakelumpsumtransferstohouseholdswasmorelikelytoyieldadoubledividendeffectcomparedtoastandalonecarbontaxationp o l i c y Compensationforpotentiall o s e r s s e e m s necessaryt o increasetheacceptanceofc a r b o n taxationpolicyasthetaxreallocationalwaysyieldbettereconomicimpacts

TheempiricalstudybySiriwardanaetal

(2011)identifiedfurtherthatthesubstitutionforthelabortaxyieldedadoubledividendeffectintheAustralianeconomy.Particularly,thepaperdemonstratedthatcashtransferstoh o u s e h o l d s g e n e r

a t e d l e s s e x p a n s i o n a r y p r e s s u r e ont h e d o m e s t i c economyc o m p a r e d toa r e d u c t i

o n incommoditytax.Thenegativeimpactoneconomicgrowthandfactorincomelosswasreducedwithacutinothertaxes,whichisfurthersupportedbyLiangandWei(2012).Baranzinietal

cost-effectiveinstrumentforreducingemissionsinsomeEuropeancountriesafteri t s mainnegativeimpactsmaybecompensatedthroughthedesignofthetaxandtheuseofthegeneratedfi s c a l revenues.Therevenuerecyclingcouldnotonlyimprovetheenvironmentqualitybutalsoitreducesthed i s t o r t i o

n ofexistingtaxforinstanceincomeorlabortax.Thesefindingsprovedfurtherthathowtousethegeneratedfiscal revenueisoffundamentalimportanceindeterminingthefinaleconomicimpactofcarbontaxation

Int h e M alaysia’sl i t e r a t u r e , d e s p i t e i t s l i m i t e d n u m b e r , i s e m e r g i n g l a t e l y A m o n g

t h e m o s t r e l e v a n t studies,NurdiantoandResosudarmo(2016)foundthatMalaysiacouldbenefiteconomicallyfromcarbontaxa s itcounteractedpricedistortionsduetotheexistenceoffuelsubsidyinthecountry.Solaymanietal

(2015)a n d itsextendedpaper,Solaymani(2017)foundthatthecarbontaxwasmoreeffectivethantheequivalentenergytaxtor e d u c e c a r b o n e m i s s i o n s a s i t i n v o l v e d lessercosti n termsofr e a l GDPa n d investment.Solaymanietal

(2015)showedthatlumpsumhouseholdtransferwasmoreeffectivethanlabortaxrecyclingi n compen

satingtheeconomiccostofcarbontaxationwiththereasonthatthetaxinteractioneffectwaslessr e m

a r k a b l e comparedtothetaxrecyclingeffect.Privateconsumptionandhouseholds’welfareincreasedafterthetaxrevenuewasreallocatedtotheeconomythrough lump sumtransfer.Incomparison, t

wherethehousehold’sconsumptionandw e l f a r e seemfailedtoincreaseuptothelevelasbeforethecarbontaxationintroduction

ThepresentstudyadoptsCGEmodeltosimulatetheeconomicandenvironmentalimpactofthecarbontaxation.Duetothecloselinkbetweenenergycommoditiesandthewholeeconomy,thecarbontaxationisbetteranalyzedusingageneralequilibrium

framework.Themodelcouldprovideacomprehensiveanalysisoftheeconomy-wideimpactsofthecarbontaxation.TheCGEmodelispreferredoverpartialequilibriummodeloreconometricsbecauseofthiscapacityofrepresentingthecomplexinterdependenciesinthewhole

economy(LinandOuyang,2014).TheinvestigationemploysMalaysiaInput-OutputTables2010asthemaind a t a b a s e inthesimulation.Thereareoriginally124industriesan

dtypeofcommoditiesintheIOtable.Tosuittheneedofsimulation,thepaperhasdisaggregatedthepetroleumrefinerycommodity intofour:gasoline,d i e s e l , biodiesel,a n d otherf u e l T h e parametersofthefunctionsi n them o d e l a r e a d a p t e d mainlyf r o m literatureonotherCGEmodels,andintelligentguessingwhenliteratureisnotavailable

3.1CO 2Emissions

Whileenergyinputsinfluence outputproduction,thecombustionofenergyreleasesemissionsintotheatmosphere.ThepresentstudyhasincorporatedCO2e m i s s i o n smatrixtosimulatetheeconomicimpactsofc a r b o n taxation.ThisstudyfocusesspecificallyonCO2,sinceitmakesupthelargestproportionofpollutants.FollowingtheformulausedbytheIntergovernmentalPanelonClimateChange(Temurshoev2006),thisstudy

TheCO 2E mi ss io n f r o m FuelCombustionH i g h l i g h t s 2 0 1 6 E d i t i o n ,publishedbyt h e Internation

alE n e r g y Agency,haslongrecognizedtransportation,andelectricitysectorsamongthelargestCO2emittersinMalaysiafordecades.ThehighCO2emissionsinthetransportationsectorisattributabletoheavyrelianceonpetroleumproducts(EC,2016),forinstancepetrolanddieselasenergysource.Giventhehighshareofnaturalgasandc o a l i n totale n e r g y mix,i t explainst h e r e a s o n CO2e m i s s i o n sa l w a y s i n c r e a s e i n p o w

e r plant.T h e CO2e m i s s i o n sfromtheelectricitysectorisverylikelytoriseinthefutureifservicesectorcontinuestoexcel.Thisindicatesa necessitytoe n c o u r a g e a f u r t h e r e ffi c i e n t energyu s e i ntheses e c t o r s fora c h i e v i n g a m o r e sustainableeconomicdevelopment

Thesetaxratesareimposedoncrudeoil,naturalgas,andcoal,whicharethemainenergyinputstoproducepetroleumproductsandelectricity.Thecarbontaxationonthesethreekindofenergyinputscoversnearly9 0 % oftotalprimaryenergysupply

inMalaysiaforthe2015(EC,2016).Insteadoftaxingpetroleumproductitself,thepaperputsanarbitrarytaxoncrudeoilfortworeasons;politicalresistanceandpossiblyunequaldistributionimpactsonlow