Austria’s Path to a Climate-Friendly Society and Economy—Contributions of an Environmental Tax Reform

Abstract

In the present study, we explore an environmental tax reform for Austria as an instrument to achieve the main objectives of the current Austrian Climate and Energy Strategy #mission2030. Our concept aims at a dual objective of reducing CO2-eq emissions, while simultaneously further triggering innovation processes of the Austrian industry, resulting in a transfer of benefits to society. The focused measures at the national level to achieve climate protection comprise an increase of the mineral oil tax and the introduction of CO2-eq taxation for non-EU-ETS sectors. These taxes create revenues which are recycled through 1) reductions of non-wage labor costs for companies, 2) compensation transfers for private households of low- and middle-income groups, 3) investment in research and innovation for industry and 4) investments in key technologies to advance #mission2030, such as alternative propulsion systems (electric, H2), and the use of biomethane for space heating and thermal renovation. Results of simulations for the period 2020 to 2025 via a macro-sectoral model display the potential for multiple dividends if the revenues are reused this way. Furthermore, besides offering significant reductions of CO2e emissions, the proposed reform triggers positive impacts on GDP, employment, and private consumption, thereby ensuring social compatibility.