The establishment of an ASEAN Economic Community in 2015 has been on the agenda for quite some time. One issue that recently emerged is the climate change issue in which each member of ASEAN needs to respond. The main goal of this study is to analyze the benefits and losses of cooperation among ASEAN members in mitigating their carbon dioxide (CO2) emission, particularly by implementing a uniform carbon tax across ASEAN.
To achieve this goal, this study develops a multi-country computable general equilibrium (CGE) for ASEAN, known as the Inter-Regional System of Analysis for ASEAN (IRSA-ASEAN) model. An ASEAN Social Accounting Matrix (ASEAN-SAM) consisting of Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam is constructed as the main database for this CGE.
This study finds that the implementation of a carbon tax scenario is an effective means of reducing carbon emissions in the region. However, this environmental gain could come at a cost in terms of gross domestic product (GDP) contraction and reduction in social welfare, i.e. income. Nevertheless, Indonesia and Vietnam can still gain from the implementation of a carbon tax depending on how revenues generated from the carbon tax are redistributed.