Accounting for India's Forest Wealth - Madras School of Economics

around 30 percent in the first period, and would require a carbon tax of$56 per tonne.Manresa and Sancho (2005) follow the tradition of appliedgeneral equilibrium modelling of the Walrasian static variety to study theempirical viability of a double dividend (green, welfare, and employment)in the Spanish economy. They consider a counterfactual scenario inwhich an eco-tax is levied on the intermediate and final use of energygoods. Under a revenue neutral assumption, they evaluate the realincome and employment impact of lowering payroll taxes. They performsimulations under a range of alternative model and policy scenarios toassess the extent the model structure and behavioural assumptionsinfluence the results. They conclude that a double dividend (betterenvironmental quality, as measured by reduced CO 2 emissions andimproved levels of employment) may be an achievable goal of economicpolicy.Sterner (2007) provides a review several studies for a number ofcountries and concludes; “Had Europe not followed a policy of high fueltaxation but had low U.S. taxes, then fuel demand would have beentwice as large”. Sterner observes that fuel taxes are the single mostpowerful climate policy instrument implemented to date. Environmentaltax reform can have a powerful effect on energy use.Ekins (2009) estimates the price elasticity of energy demand inthe UK at about (-) 0.64, which implies that a 10 percent increase in theenergy price will reduce energy consumption by 6.4 percent. He alsofinds that energy use tends to increase with value added with anelasticity of (+) 0.5 (meaning that a 10 percent increase in value addedwill tend to increase energy consumption by 5 percent). Other thingsbeing equal, this means that if a sector (or by implication the economy asa whole) is growing, its energy use will be growing too, unless it isrestrained by a rising energy price.7