Design, implementation and evaluation of a regional carbon tax scheme in an emerging economy

Thesis Abstract

The study addresses the pressing challenge of aligning regional environmental policy with economic development in an emerging economy by assessing the design, implementation, and evaluation of a regional carbon tax scheme. The problem centers on insufficient empirical guidance for tailoring carbon pricing to heterogeneous regional contexts, ensuring governance feasibility, and balancing emissions reductions with economic growth. The aim is to design a regionally differentiated carbon tax, implement a pilot within selected sectors, and evaluate its environmental effectiveness, economic impact, and institutional feasibility. Specific objectives include (i) identifying design parameters that maximize emissions reductions while minimizing adverse macroeconomic effects; (ii) developing a regional carbon tax model that integrates sectoral emission intensities, energy mix, and border adjustments; (iii) implementing the pilot program in three benchmark municipalities with diverse industrial profiles; (iv) evaluating environmental outcomes using emission reductions and marginal abatement cost curves; (v) assessing economic and distributional impacts on firms and households; (vi) examining institutional capacity, stakeholder acceptance, and governance mechanisms; and (vii) deriving policy recommendations for scaling up the scheme regionally. Methodologically, the research adopts a mixed-methods design anchored in the principal-agent and political economy theories, with elements of the theory of environmental taxation and the behavioral economics of compliance. The population comprises firms in manufacturing, energy, and transport sectors within the three pilot municipalities, complemented by regional authorities and civil society actors. A stratified random sample of 240 firms (80 per municipality) constitutes the quantitative component, while 40 key informants (policy makers, regulators, industry leaders, and NGO representatives) provide qualitative insights. Data collection instruments include structured firm surveys capturing energy use, production data, and abatement expenditure; administrative records on tax payments, exemptions, and revenue recycling; semi-structured interview guides for stakeholders; and a document review protocol for regulatory texts and regional strategic plans. Instrument validity and reliability are ensured through pilot testing, Cronbach’s alpha checks for survey scales (target >0.70), and triangulation across data sources. The analysis employs a multi-step approach descriptive statistics to profile the sample, regression analysis to estimate the impact of the tax on emissions intensity and output, difference-in-differences to identify causal effects between pilot and control regions, and a computable general equilibrium (CGE) model to simulate economy-wide effects and revenue recycling scenarios. The environmental performance is evaluated using absolute emissions, intensity metrics (emissions per unit of value added), and marginal abatement cost (MAC) curves derived from firm-level abatement data. The economic dimension examines firm-level profitability, employment, energy expenditures, and consumer prices, with ANOVA and post-hoc tests to explore heterogeneity across sectors. The qualitative component uses thematic analysis to interpret stakeholder perceptions, governance challenges, and legitimacy concerns, supported by NVivo coding and cross-case synthesis. Expected findings anticipate substantial variation in effectiveness across sectors, with energy-intensive industries achieving greater emissions reductions but facing higher compliance costs. The model is expected to indicate optimal tax rates primarily driven by abatement costs and energy transitions, while revenue recycling strategies (lump-sum rebates versus targeted subsidies) will differentially mitigate distributional impacts. The study also expects to reveal governance prerequisites for successful implementation, including robust monitoring, transparent revenue use, and credible enforcement, as well as stakeholder acceptance moderating policy effectiveness. The study contributes to knowledge by integrating design, implementation, and evaluation in a single regional carbon tax framework for an emerging economy, bridging the gap between theoretical taxation models and empirical regional governance realities. It offers a transferable methodological blueprint combining regression analytics, DIF, CGE modeling, and thematic policy analysis to inform scalable carbon pricing in similarly situated economies. Policy implications include guidelines for tax rate setting, coverage criteria, exemptions, revenue recycling, and institutional arrangements to ensure environmental integrity alongside macroeconomic stability. The main conclusion is that a regionally tailored carbon tax, when paired with transparent revenue recycling and strong governance, can achieve meaningful emissions reductions without compromising growth, provided design parameters align with sectoral characteristics and institutional capacity. Recommendations emphasize phased implementation, stakeholder engagement, capacity building for regional authorities, and continuous monitoring to adapt the scheme over time.