The effects on competitiveness of coordinated versus unilateral fiscal policies reducing GHG emissions in the EU: an assessment of a 10% reduction by 2010 using the E3ME model

Abstract

International competitiveness effects from coordinated and uncoordinated multilateral policies to reduce CO 2 emissions from 11 member states of the EU by 2010 are compared with those from unilateral policies to achieve a 10% cut in each member state alone. The paper presents the results from four projections using a large-scale, integrated, regionalised E3 model of the EU estimated on time-series, cross-section data 1968–93 with international trade treated as between each member state and a European transport and distribution network. The 10% reduction is achieved by additional excise duties incremented every year 1999 to 2010 according to the carbon contents of fuels with special with special treatment of electricity (taxed on outputs not inputs) with revenues recycled via reductions in employers’ social security contributions. Multilateral coordinated policies require a common tax rate of 156 ecu per tonne carbon (1999 prices), which rises to an average of 165 ecu per tonne with a wide range between regions when policies are uncoordinated. All the tax shift projections show double dividends for emission-reduction and employment-gain for all member states. Unilateral policies do not show much carbon leakage but they show smaller gains for output and employment. Effects for price competitiveness appear to be small and mixed, with serious losses appearing only for the Netherlands and for metals and chemicals, especially for unilateral action.