Increasing the CO2 tax towards 2030. Impacts on the Norwegian economy and CO2 emissions

In this report we study the effects of the increased CO2 tax under non-ETS (specifically, reaching NOK 2 000 per tonne of CO2 in 2030). We apply the SNOW-NO model (Statistics Norway’s World model – Norway), which is a numerical general equilibrium model where Norway is modelled as a small, open economy, while the rest of the world is reduced to imports and exports.

The model represents the Norwegian economy, with 46 producing sectors and various household and public consumption sectors.

The analysis examines long-run macroeconomic impacts. We assess the macroeconomic impacts relative to a long-run projection where current policies in 2022 are extended to 2030. Our results show that the macroeconomic impact of a NOK 2 000 CO₂ tax on the non ETS sectors in 2030 is modest. However, the CO₂ emissions could be reduced by approximately 9 percent in the non-ETS sectors compared to the reference scenario with the current level of CO₂ tax in 2022. The effect would be smaller if the road transport related sectors are exempted or partly excluded from this increase of the CO₂ tax.

Whether we transfer the extra revenues from the CO₂ tax through lump-sum to the household or through reduced labour income tax rate matters. The latter reflects an efficiency improvement for the economy due to the existing labour income tax.