Environmental Research Digest – December 2012
A recent paper produced by Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy aims to clarify the role carbon-related fiscal measures can play in contributing to fiscal re-balancing in Europe. “Less pain more gain: the potential of carbon pricing to reduce Europe’s fiscal deficits” is a review of current carbon-energy taxes across a sample of nine EU member states.
- Energy and carbon levies raise revenue, while having less of an impact on employment and growth than labour and indirect taxes
- Energy and carbon taxes cause less of a drag on GDP and employment than labour taxes and other indirect taxes, such as VAT
- It outlines how an energy tax package for Spain, including an increase in duties on transport fuels, could raise more than €10bn per year by 2020, while packages for Poland and Hungary could generate respectively €5bn and €1bn every year.
- Moreover, it says tightening the cap within the EU's Emissions Trading System (ETS) to achieve a 30 per cent reduction in the European Union's emissions by 2020, rather than the 20 per cent currently mandated, could generate €30bn per annum for exchequers across the bloc.
- The paper notes energy and carbon taxes "currently play too small a role in the tax portfolio of many European countries" and calls on the EU to increase petrol and diesel tax rates in its ongoing revision of the Energy Tax Directive, due to be finalised next year.
- "Currently, EU countries collect less revenue from diesel than they could, with negative implications for the fiscal balance," the report says. "The solution is to agree a collective increase in diesel tax rates.
- "Rates which have for so long remained differentiated cannot be raised overnight, because the public would not accept it. Yet, a gradual programme of alignment would be worthwhile for all countries and for each individually."
Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy