Abstract

In Argentina, a low tax rate applies to carbon dioxide (CO2) emissions from some fossil fuels but excludes many greenhouse gas (GHG) emissions. So, this study analyzes the effects of implementing a tax on all CO2 equivalent (CO2eq) emissions by linking a system of demand functions and an input-output approach. First, a system of demand functions for GHG-intensive goods is estimated using data from the national household expenditure survey year 2018. Then, the environmental extension of the Leontief price model is calibrated with sectoral data from the 2018 Supply and Use Tables to simulate price changes caused by different tax rates. The percentage variation in prices is linked to the estimated own- and cross-price elasticities to assess different simulated tax rate's economic and environmental impacts. The results suggest a tax rate of approximately 20 USD/tCO2eq on all sectoral emissions would achieve Argentina's Nationally Determined Contribution target by 2030. In contrast, the current tax scenario only reduces 0.5 million tonnes of CO2eq, representing 0.2 % of the total. Consequently, it is recommended that emissions from natural gas, liquefied propane gas, and other goods intensive in CO2eq emissions, such as red meat, should be subject to the carbon tax. However, some tradeoffs between economic and environmental objectives must be balanced in the design of this climate policy.