Capros P., P. Georgakopoulos et al. (1996) "Coordinated versus uncoordinated European carbon tax solutions analysed with GEM-E3 linking the EU-12 countries", in S. Proost (editor) "Economic Aspects of Environmental Policy", Kluwer Academic Publishers
Prepared by: Capros P., P. Georgakopoulos, S. Zografakis, D. Van Regemorter and S. Proost
Policy analysis for CO2 emission reduction has accumulated a rich background, world-wide. Although controversial, the analysis concluded on the advantage of using market-oriented policy instruments, especially taxation. However, it demonstrated also the adverse implications for economic growth, employment and competitiveness. The European Union considers carbon taxes as an important instrument to achieve its objective of stabilising CO2 emissions. Since the May 1992 initial proposal to use a 10 $/bbl carbon-energy tax, the different member states have never reached the necessary unanimity to introduce this tax. In December 1994, a new proposal (Com (92) 226 final) has been advanced that allows the different member states to install unilaterally or jointly an energy carbon tax. What is common for all the member states is a set of guidelines for use and target values if they decide to use an energy-carbon tax. The hope is to achieve a harmonised carbon tax in the medium term. In the new proposal there are two other important changes: the tax is no longer made conditional on the efforts of the rest of the OECD and each country can take special provisions for its energy intensive industry. It can grant them partial exemptions and the governments are encouraged to use the revenues of the tax for reductions of social charges weighing down the labour market as recommended in the Commission's White paper on Growth, Competitiveness and Employment.
The aim of the paper is to examine the economic and welfare effects of the two energy-carbon tax proposals. The 1992 proposal will be called a coordinated tax, the 1994 proposal will be called an uncoordinated energy-carbon tax. In both scenarios the tax revenues will be recycled through the reduction of the social security contributions paid by employers, with a view to reducing unemployment and thereby obtaining a "double dividend" in both the economic and the environmental welfare.
For more information you can download the following related file(s):
