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Content archived on 2024-04-16

Impacts of energy tax on the european economies.

Objective

The goal of the research is to present some simulations of the possible macro-sectoral effects of an EC-wide energy tax of 10$ per barrel of oil over the period 1993-2005. Two alternative redistribution schemes ensure that the tax is budget neutral countrywise.

Among the measures envisaged to limit the CO2 emissions, an energy tax is the most often quoted. The goal of the research is to present some simulations of the macrosectoral effects of an EC-wide energy tax of 10$ per barrel, held constant in real terms, over the periode 1993-2005. The simulations are made for Germany, France, Italy, United Kingdom, Belgium, the Netherlands, Luxembourg, Ireland and Portugal. A Hermes national model is used for each of the countries. In addition, three linkage models are used, corresponding to the three manufacturing sectors Hermes distinguishes: consumption, intermediate and equipment good. The tax is budget neutral: to that effect, two scenarios are envisaged, with respectively a reduction in income tax and in employer's social security contributions. Two features of this study are particularly interesting. Firstly, the fact that it uses disaggregated models plus linkage models means that structural impacts can be monitored. Secondly, it treats energy in a fairly detailed anner.

In the income Tax Scenario, the first-round effects are positive for consumption, while both aggregate investment and the trade balance depress demand. At the sectoral level, a ranking (in terms of the effect on output) emerges, starting with the energy sector, which suffers the most, and ending with the services sector, which actually records an increase in output. In the Social Security Scenario, the results are better (in terms of effects on the GDP) than those obtained for the previous case. For both scenarios, results by country and given and discussed.

In addition, variants are presented. In the first variant, an energy tax is assumed to be levied by the other OECD countries as well. A noteworth result of the first variant is tha GDP losses can be reduced by about a fourth or a third in the case of an OECD-wide coordination. In subsequent variants, unilateralism is explored; the tax is introduced in one single country in turn. Somewhat paradoxically, the result do not significantly differ from those obtained with a simultaneous tax in the four countries.

An important conclusion of this study is that the tax would not suffice to stabilize emissions at the desired level.

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Coordinator

Universiteit van Amsterdam
EU contribution
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Address
11,Roetersstraat
1018 WB Amsterdam
Netherlands

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