|Description:||A tax on carbon leads to higher prices for carbon intensive fuels (such as fossil fuels), making low-carbon alternatives more attractive.|
|Is implemented in:||Energy conversion, Energy demand, Climate policy|
Associated policy response component
Effects of this policy intervention on components
Component: Energy conversion
Effect : A carbon tax will induce a transition from carbon intensive fuel to carbon low fuels. Since hydrogen and electricity are well suited for carrying carbon low energy, the production of hydrogen and electricity could increase.
Component: Energy demand
Effect : The higher fossil fuel prices result in a shift towards less carbon-intensive energy carriers and (assuming a higher overall energy price) more energy efficiency. There can also be changes in end-use technologies ( e.g. electric cars in the transport sector, blast furnaces with CCS to produce iron and steel).
Component: Energy supply
Effect : The energy supply will change from the use of carbon intensive energy carriers to the use of low/zero carbon energy carriers.
Component: Climate policy
Effect : In the climate policy component, the carbon tax leads to emission reductions via Marginal Abatement Cost (MAC) curves derived from the TIMER model.