A CGE Analysis of the MacroeconomicEffects of Carbon Dioxide Emission ReductionontheAlgerian Economy

This study analyzes the macroeconomic effects of limiting carbon emissions using computable general equilibrium (CGE) model in the Algerian economy. Doing so, we developed an environmental computable general equilibrium model and investigate carbon tax policy responses in the economy applying exogenously different degrees of carbon tax into the model. Three simulations were carried out using anAlgerian Social Accounting Matrix. A static environmental computable general equilibrium (CGE) model of the Algerian economy is constructed for this study . The model consists of tenindustries, one representative household, three factor production, and rest of the world. The CGE technique is an approach that models the complex interdependent relationships among decentralized actors or agents in an economy by considering the actual outcome to represent a ‘general equilibrium’. Briefly, the technique expresses that the ‘equilibrium’ of an economy is reached when expenditures by consumers exactly exhaust their disposable income, the aggregate value of exports exactly equals import demand, and the cost of pollution is just equal at the marginal social value of damage that it causes. The carbon tax policy illustrates that a 1.52% reduction of carbon emission reduces the nominal GDP by 1.26% and exports by 3.04%; a 2.67% reduction of carbon emission reduces the nominal GDP by 1.92% and exports by 4.86%and a 3.72% reduction of carbon emission reduces the nominal GDP by 3.79% and exports by 6.90%. Imposition of successively higher carbon tax results in increased government revenue from baseline by 23.68%, 50.18% and 76.38% respectively. However, fixed capital investment increased in scenario 1a (1st) by 0.23% but decreased in scenarios 1b (2nd) and 1c (3rd) by 0.35% and 2.03% respectively from the baseline. According to our findings policy-makes should consider initial (1st) carbon tax policy. This policy results in achieving reasonably good environmental impacts without losing the investment, fixed capital investment, investment share of nominal GDP and government revenue.