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FP6

COMETR — Result In Brief

Project ID: 501993
Funded under: FP6-POLICIES
Country: Denmark

Friendly competition

Seven EU Member States have implemented environmental tax reforms (ETR) that essentially shift a part of the tax burden from labour to industrial carbon energy-related taxes. An EU-funded study evaluated what this means for competitiveness and economic growth.
Friendly competition
ETR includes taxes on energy and transport as well as those reflecting carbon emissions. While the reduction in carbon emissions has been documented in several studies, broader effects on economic growth, competitiveness and employment have not been well addressed.

The ‘Competiveness effects of environmental tax reforms’ (Cometr) project studied the impacts of ETR on competitiveness, focusing on energy-intensive industries. The study differs from others in that, rather than setting expectations, the researchers used actual (ex post) experiences, related to carbon energy taxation in particular.

The investigators analysed world market conditions as a framework for assessing vulnerability and considering competitiveness effects. They employed conventional bottom-up modelling to examine short-term impacts of ETR on sector-specific energy usage and carbon emissions in the seven EU Member States that have already implemented ETR. This was complemented by dynamic modelling of short- and long-term green tax effects on competitiveness for individual states and the EU as a whole using the E3ME model of Cambridge Economics, which captures inter-industry and other indirect effects. Finally, they reviewed mitigation experiences to provide policy input for more efficient mitigation.

In summary, the Cometr project filled a gap in our understanding of the effects of environmental taxes on competitiveness and economic growth based on evaluation of real experiences of energy-intensive industries in seven countries that already implement ETR as well as modelling to extend results to other EU members and the EU as a whole. The results should enhance our ability to develop policies that are friendly toward the environment without being hostile to industries and impeding economic growth.

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