Ex Post Evaluations of CO2 - Based Taxes: A Survey

TitleEx Post Evaluations of CO2 - Based Taxes: A Survey
Publication TypeTyndall Working Paper
SeriesTyndall Centre Working Papers
Tyndall Consortium Institution


Secondary TitleTyndall Centre Working Paper 52
AuthorsAgnolucci, P.
Year of Publication2004

Since 1991 eight countries (Denmark, Finland, Germany, Italy the Netherlands, Norway, Sweden, and the United Kingdom) have introduced CO2-based taxes, which are defined as charges, the rate of which depends mainly, but not only, on the CO2 content of fossil fuels, and which are introduced with the explicit intention of abating CO2 emissions. This paper surveys studies quantifying the effects of the CO2-based taxes which have been introduced, concentrating on the methodological approach used and assessing them against four criteria: environmental effect and effectiveness (where the latter assesses the effect against the objectives of the tax or against other instruments), economic efficiency, stability and quantity of revenues, and distributional effects (in respect of both households and industrial sectors). These criteria are not straightforward to interpret and the paper discusses their meaning, and the approaches that have been used to obtain quantitative indicators for them, in some detail. >For those CO2-based taxes that have been evaluated (those of all the above countries except Italy and Germany), their nature and mode of implementation is described, revealing that they bear little relation to textbook examples of optimal environmental taxes, and differ substantially from each other, having been designed to take account of local conditions. Two main types of evaluation methodologies have been employed, modelling and surveys of firms. The differences between the taxes, their complexity, and the facts that they are often introduced as parts of policy packages or changed over time, makes individual ex post evaluation of them very difficult, and comparative evaluation across countries more difficult still. However, some conclusions can be drawn. >The first conclusion is that the studies have shown that CO2-based taxes, either on their own or as part of a wider package, do reduce emissions, as theoretically predicted. However, where the tax is part of a package of measures, the individual contribution of the component parts of the package is very uncertain. In particular, the contribution of negotiated agreements and, especially, subsidies, has been called into question. >Secondly, the CO2-based taxes themselves seem to have been cost-efficient, in terms of the cost of collecting them, but because the packages have involved widely varying marginal costs being imposed on different polluters (due to agreements and subsidies), it is unlikely that they have been cost-effective (in the sense of attaining their environmental benefit at least possible cost). >On the stability of revenues, while it is clear that in no country have the taxes resulted in a precipitate decline in the use of carbon-based energy, and the revenues seem to have been broadly maintained, there is very little work that allows more detailed conclusions to be drawn. On distribution, fears about competitiveness have resulted, in most countries, in the industrial sector, and especially energy-intensive industries within it, being taxed less heavily than households. An exception is the UK's climate change levy, from which households are exempt. Opinions about the burden imposed by the taxes vary very much, not surprisingly, according to the interests of those expressing them.

wp52.pdf577.14 KB