Sustainability-oriented EU Taxes:
A European Carbon Tax
Arguments for Carbon Taxation
Direct Carbon Taxes in Europe
Arguments for an EU Carbon Tax
Tax Design Issues
Potential Revenues from an EU Carbon Tax
Competition Aspects
Distributional Impact on Household and Member State
Level
• Conclusion
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The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Arguments for Carbon Taxation
• Externalities and social costs of carbon
• Pearce (1991) ‘double dividend’
• Low carbon economy (EU Energy Roadmap)
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Direct Carbon Taxes in Europe
Country
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Tax rate per tonne CO2 in €
603)
introduced in
Finland
30 –
Sweden
1181)
1991
Denmark
231)
1992
Slovenia
17.28
1997
Ireland
20
2010
France
22
2014
Portugal
5
2015
Poland
0.1
1991
Estonia
2
2002
Latvia
3.5
2008
Switzerland
77
2008
Norway
3,2 – 62,72)
1991
Iceland
7.5
2010
1) Lower tax rate for industry. – 2) Depending on fossil fuel type and usage. – 3) Propellants – other fuels.
1990
Arguments for an EU Carbon Tax
• Externalities and suboptimal national tax rate
• Avoiding tax base erosion on the national level
• Competitiveness aspects and ‘carbon leakage‘
• EU-ETS and current problems
• High revenue potential in the short term
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Tax Design Issues 1
• Emissions 2013 EU-28
-GHG emissions total: 4610a million tonnes (mt) of
CO2 equivalents
-CO2 emissions fuel combustion: 3340b mt of CO2
• CO2 emissions coal: 1128b mt of CO2
• CO2 emissions oil: 1291b mt of CO2
• CO2 emissions natural gas: 868b mt of CO2
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
a. http://ec.europa.eu/eurostat/statistics-explained/index.php/Greenhouse_gas_emissions_by_industries_and_households; includes CO2, N2O, CH4; excludes: flourinated gases
b. International Energy Agency (2015) : CO2 Emissions from Fuel Combustion
Tax Design Issues 2
• Production Based Approach
Up stream introduction on primary fuel products
• Tax Base
Carbon content of fossil fuels
• Tax Rate
Pigou (1920): tax rate should equal the social marginal damages from
an additional unit of emission
Worldbank (2015): 99% of taxed emissions are priced < US$30/tCO2
Van den Bergh and Botzen (2014): 232 SSC estimates; median US$24, average US$41,
95th percentile of US$146 per tonne of CO2
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Potential Tax Revenues from an
EU Carbon Tax
Notes
Kratena and
Sommer (2014)
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
DYNK – Model
Year
Country
Tax rate per
tonne CO2 in €
Potential
tax
revenues in
€
2016
EU 27
25
77 billion
EC High level group
Calculation only includes
sectors not covered by EUETS
2020
EU 27
10
28 billion
Own calculation
Based on primary fuels
without behavioral response
2013
EU 28
25
82 billion
......
......
......
30
98 billion
......
......
......
35
115 billion
Competition Aspects
• National, sectoral and firm level competitiveness
• Porter Hypothesis (Porter 1991, Porter and van der
Linde 1995)
• Carbon leakage
- Border carbon adjustment, Output-based
rebates, Country cooperation
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Distributional Impact on Household
and Member State Level
• Regressive effects of environmental taxation
• Household level
-Heating, electricity or transportation
-Revenue recycling: social security contribution, lump-sum transfers
• Member State level
Next phase of FairTax project
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439
Conclusion
EU carbon tax presents itself as sustainabilityoriented canditate for EU tax:
• Environmental sustainability (reducing emissions)
• Economic efficiency (revenue recycling, innovation)
• Social inclusion (tax design and recycling
mechanism)
The Fair Tax project is
funded by the European
Union’s Horizon 2020
research and innovation
programme 2014-2018,
grant agreement No
FairTax 649439