Real Leverage or Symbolic Gesture: 3 Rubles per Tonne?
Carbon Tax Proposals for Belarus Industry Scenarios Unveiled
Scientists at Belarus' Institute for Economics within the Ministry of Economy have proposed various scenarios for instituting a carbon tax to stimulate the adoption of low-carbon technologies in the country's industries and the formation of a carbon emissions market. The Banking Herald sheds light on the potential implementation of this mechanism.
According to the scientists, the carbon tax rates should be substantially high, as suggested by foreign research. A transition to a low-carbon economy can be realized with an average global carbon tax rate of $50-$130/t CO2-eq. In contrast, a carbon price of $30/t CO2-eq is considered economically justifiable in Russia for climate projects. On Russia's voluntary carbon market, the carbon unit price ranges from 700-1000 rub./t CO2-eq ($7-10/t CO2-eq).
For Belarus, a carbon dioxide emissions tax of $10/t CO2, or 35 rub./t, could serve as a benchmark, aligning with the price of greenhouse gas emissions in Russia, a key economic partner. To prevent hampering economic growth and provide time for businesses to adapt, it is advisable to initially introduce a carbon dioxide emissions tax at lower rates, with a transparent mechanism for short- and medium-term adjustments.
Initial Rate
Considering an example, the initial base rate of the carbon tax could be established at 3 rub./t CO2, representing the minimum level of greenhouse gas emissions pricing set in foreign countries. The pace of reaching the target rate (35 rub./t CO2) would depend on multiple external and internal factors. A optimal scenario suggests achieving this value within 5 years, with the simultaneous introduction of the carbon tax amidst the country's overall tax burden.
Scientists predict that the inclusion of a carbon dioxide emissions tax in production costs could raise industrial product prices, potentially resulting in a decrease in added value (VA) and the profitability of product sales. If government regulation includes price controls, this could negatively impact financial-economic indicators for enterprises that are consumers of these products. Under the baseline scenario, assuming a CO2 emissions tax of 3 rubles/t, the carbon tax mechanism is not expected to significantly impact Belarus' economy. The increase in industrial product prices would be less than 0.1 pp, and GDP would decrease by 0.08%.
Among the most salient effects, one can anticipate an increase in the price index (by 0.7 pp) and a decrease in gross added value (by 1.7%) in the energy sector, potentially causing secondary effects on the overall economy.
Sectoral Scenarios
The target scenario (with a tax rate of 35 rubles/t of CO2) would have a significant impact on the growth of both individual sectors and the economy as a whole. Industrial product prices may increase by 1 pp, and economic growth (GDP) may slow down by 0.9 pp.
The CO2 emissions tax would have the most substantial impact on sectors like energy (a decrease in gross added value of 19.9% and an increase in the price index of 8.4 pp), oil refining (a decrease in gross added value of 12.9%), and the production of other non-metallic mineral products (a decrease in gross added value of 10.1% and an increase in the price index of 4.5 pp), among others.
The negative scenario - setting the carbon price at the European equivalent (200 rubles/t of CO2, around $60) - would significantly impact almost all sectors of the economy. At the macroeconomic level, the increase in the index of industrial product prices would be more than 5.7 pp, and GDP would decrease by 5.1%.
Mitigating Shocks
To counteract the negative impact of the carbon tax on the economy, a package of additional measures is proposed. The key measure could be the application of reducing coefficients to the tax rate on CO2 emissions for the most carbon-intensive productions such as cement, glass, ammonia, and nitric acid. To stimulate the implementation of projects in these areas, a tax deduction can be applied, resulting in a reduction in the tax amount by the amount of investments made in projects to reduce greenhouse gas emissions. This can be implemented within the carbon tax itself or through a standard investment tax credit mechanism. However, for practical implementation, it is necessary to specify the list of investment projects that will allow taxpayers to receive this tax benefit.
Furthermore, the development of a full-fledged carbon market in the country requires the creation of additional regulatory and organizational infrastructure. The subsidization of measures to reduce greenhouse gas emissions in Belarus should be closely linked to the priorities of Belarus' low-carbon development policy. The source of investment resources could be the proceeds from the payment of the carbon tax.
Calculations show that with an initial tax rate of 3 rubles/t of CO2, annual carbon tax revenues could reach 135.6 million rubles, or 0.1% of GDP, representing a slight increase in the fiscal burden on enterprises in the real sector of the economy. With a targeted tax rate on CO2 emissions, the total amount of funds accumulated through the carbon taxation mechanism could reach 1.582 billion rubles per year (0.7% of GDP).
Expected Positives
The implementation of a carbon dioxide emission tax at the current (optional) price of greenhouse gas emissions in Russia (35 Belarusian rubles/t of CO2), a key partner of Belarus, allows annual reductions in greenhouse gas emissions by 1%, which, by 2035, corresponds to a cumulative reduction of 8% compared to the 1990 level. Adjusting the carbon pricing mechanism could increase the level of annual energy savings from 1 to 2-3%, positively impacting the competitiveness of enterprises.
Oksana Kuznetsova, Journalist
A carbon tax, suggested by environmental scientists, could be implemented in Belarus' industries at an initial rate of 3 rubles per tonne of CO2, mirroring the prices in Russia's voluntary carbon market. This tax could stimulate the country's transition towards a low-carbon economy and offer a new financing source for environmental projects. The revenue from the carbon tax could potentially reach 0.1% of GDP annually, with the potential to increase to 0.7% with the adoption of a target tax rate of 35 rubles per tonne of CO2.
