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METRES Report Summary

Project ID: 654189
Funded under: H2020-EU.1.3.2.

Periodic Reporting for period 1 - METRES (Modelling Environmental Tax Reform in Spain)

Reporting period: 2016-07-01 to 2017-12-31

Summary of the context and overall objectives of the project

An Environmental Tax Reform (ETR) is the switch of the national tax system from “classical economic taxes”, such as those on labour (personal income tax and social contributions), capital and consumption (VAT and indirect taxes) to taxes on environmental pressures and natural resources use, without necessarily affecting the overall revenues from taxation. This would provide better signals to economic agents leading to a better functioning of markets and therefore increasing welfare. The METRES (Modelling Environmental Tax Reform in Spain) project aims to evaluate the double dividend hypothesis for environmental taxation in Spain. This hypothesis claims that is possible to benefit the environment and at the same time the economy by transitioning towards an ETR. To do this, the researcher is developing a set of energy-environment-economic dynamic models. The overall objective of the project is to test the double dividend hypothesis for different forms of environmental taxation in Spain, and, more generally, provide proposals to reduce environmental problems with the use of economic instruments. The project started in July 2016, and it consists in an outgoing phase of 1.5 years in Harvard University (USA), working with Prof. Jorgenson and Dr. Mun Ho at the Department of Economics, and a return phase in ENT Environment and Management (Spain), working with Dr. Ignasi Puig.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

During the first part of the project of 1.5 years at Harvard University, the researcher has conducted different tasks, first a deep analysis of the literature on the effects of environmental taxation using different forms of CGE modelling methods. As a result of this review he obtained a detailed report of the state-of-the-art in the field and some potential research gaps he tries to fill during the overall period of the Marie Curie Fellowship and beyond. The result of this review ended up with a 40-pages progress report and a research article titled: “Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review” that has been already published in the Journal of Policy Modeling in open access.

A second line of work consisted in looking for the data to develop and feed the models and the development of a highly detailed Social Accounting Matrix (SAM) for Spain using some of this data. The SAM is an essential part of the energy-environment-economy dynamic model developed next.

A third line of work consisted in developing a set of models to provide different possibilities of analysis: Static models, dynamic models, for industry tax and subsidies analysis, for externality taxation analysis, only for CO2, for a set of 31 emission pollutants, etc. This period ended with another progress report and an article called “Carbon Taxes and the Double Dividend Hypothesis in a Dynamic CGE Framework”, that is currently under review in a top academic Journal.

Finally, another line of work consisted in developing different scenarios in order to test them in the models and analyse the results obtained. This period ended with a third progress report and an article called “Environmental Fiscal Reform and the Double Dividend: Evidence from a Dynamic General Equilibrium Model”, that has been accepted in Sustainability Journal.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

Several innovations have been conducted during the period, like an innovative Social Accounting Matrix (SAM), with a high detail level. It has 101 industries and 101 commodities, with specific detail on electricity generation technologies (12 industries) and waste treatment technologies (19 industries). It also has a lot of detail regarding the description of the tax system, not usual in SAMs: taxes on capital, labor, and dividends; property taxes; value-added tax (VAT) on products; special taxes on alcohol, tobacco, hydrocarbons, electricity, and retail hydrocarbons; sales tax; other taxes on production; social security contributions; and imports taxes, or tariffs. Most of the other innovations come from the development of physical links based on LCA/environmental extended Input-output modelling methods, and the introduction of 31 different pollutant emissions. Many other small innovations were introduced during the modelling phase. The work carried out contributes towards the European policy objectives and strategies, particularly in those related to environment and climate change. One of the aims of the work is to assess the use of economic instruments to tackle climate change and improving other environmental parameters. European Union legislation has established more than 130 separate environmental targets and objectives to be met between 2010 and 2050. Some of them are addressed by the project.

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