| In this paper, we will estimate the effect of raising carbon prices on the abatement of greenhouse gas emissions and investigate the range of optimal carbon prices. Specifically, the study uses gasoline taxes as proxy for carbon pricing and hypothesizes that the increase in gasoline taxes will reduce carbon dioxide emissions. A single country with a heavy gasoline tax will abate carbon dioxide emissions more effectively and at faster rate than a single country with a low gasoline tax. The data collection on carbon dioxide emissions in road transportation and gasoline taxes of OECD countries are sourced from IEA, and the data covers the years 1978 to 2009. The statistical methods employed include the least square estimates and vector autoregressive model. The researcher analyzes the social costs of carbon based on the recent research to suggest the range of optimal carbon pricing in our empirical findings. Although the optimal carbon pricing remains unsettled, we demonstrate that raising carbon prices will abate GHGs emissions. We also demonstrate that sharply raising carbon prices will reduce GHGs emissions more effectively and at a faster rate. |
