Energy Tax Policy Research Articles

Green Fiscal and Tax Policies in China: An Environmental Dynamic Stochastic General Equilibrium Approach

Implementing green fiscal and tax policies for reducing emissions and pollution without negatively impacting economic growth remains a challenge. We aimed to determine whether environmental protection and economic growth can both be attained under a green fiscal and tax policy. Specifically, we created a dynamic stochastic general equilibrium (DSGE) model to explore the environmental, economic, and welfare impacts of green fiscal and tax policies. Additionally, a welfare analysis based on an environmental DSGE (E-DSGE) model was performed. We found that (1) raising the environmental or energy tax rate was beneficial for reducing emissions and environmental pollution. However, this approach inhibited economic growth, an outcome not conducive to improving welfare. (2) Increasing the subsidy rate for emission reduction not only incentivized businesses to reduce emissions but also improved economic growth and welfare. (3) The emission reduction mechanisms of environmental tax policies, energy tax policies, and subsidy policies are different. Among them, the environmental tax policy and the energy tax policy both reduce pollution by forcing businesses to increase their emission reduction efforts, but the former is a tax on pollution emissions, while the latter is a tax on energy consumption. However, emission reduction subsidy policies incentivize companies to increase their emission reduction efforts and reduce pollution emissions by alleviating their financial burden. (4) Increasing government spending on environmental remediation could promote economic growth. However, considering that this does not motivate companies to reduce emissions, increasing their share will lead to a reduction in emission reduction subsidies, ultimately negatively impacting social welfare. (5) An environmental tax would cause greater losses in welfare than an energy tax. These findings will enable policymakers to optimize expenditures and tax systems.

Quantifying digital economy and green initiatives for carbon neutrality targets: a Kilian bias-adjusted bootstrap model evaluation of China economy.

Digitalization has emerged as a new hope for low-carbon sustainable economic growth after its successful trial during the COVID-19 measures. Therefore, both developed and developing economies focus on digitalization to cope with carbon neutrality targets. Thus, this study attempted to generate a meaningful relationship between the digital economy and green energy, innovation, and environmental tax policy to capture the role of factors in acquiring carbon neutrality. For the abovementioned objectives, modern econometric methods, such as the Kilian bias-adjusted bootstrap, were adopted to evaluate the Chinese dataset between 1990 and 2021. The results indicate that the study factors play a significant role in acquiring carbon neutrality in the long-term Chinese economy. Furthermore, quantile autoregressive distributed lag model (QARDL) indicates that all the factors influence carbon neutrality in various quantiles. Consequently, the digital economy, green energy and innovation, and environmental taxes significantly assist in attaining carbon neutrality in the long term, and the ecological Kuznets curve prevails in the economy. Therefore, radical and wide-ranging policy implications are required in many areas including environmental restrictions, digital economy promotion, green and sustainable technologies, and clean energy sources.

Renewables, taxes and competitive markets: the role of energy policies on the EU’s sustainable energy consumption

AbstractIn recent years, the European Union has made sustainable consumption and production a political priority, to address economic and social development within the capacity of the ecosystem. To this end, it has put in place several actions related to resource efficiency, energy taxation and the promotion of renewable energies. This has been positive in terms of production, but less progress has been achieved in consumption. Greater understanding of the factors that influence sustainable energy consumption is particularly important. This paper investigates the effects of energy demand policies (energy taxes) and energy supply policies (renewable energies development, competitive energy markets and eco-innovation) on sustainable energy consumption in the EU-28 from 2008 to 2019. This research employs a panel data model to investigate the study’s hypotheses. Our results show that energy tax policies and clean energy have reduced energy intensity. However, electricity prices have been the greatest determinant in reducing total energy consumption. In light of its findings, this paper makes recommendations for several crucial measures for sustainable energy consumption to policymakers. Graphical abstract

Water–energy nexus: The coupling effects of water and energy policy applied in China based on a computable general equilibrium model

China has implemented a number of national and regional water and energy policies to achieve its goals of carbon emissions (CE) reduction, energy saving, and water conservation. Given its high energy and water resources interdependence, a framework is needed that can provide both a unified and systematic assessment of these. This study investigates the effects of coupling China's energy tax and water fee policies using a recursive dynamic computable general equilibrium model. Several possible scenarios are simulated. The simulation results show that the water fee promotes water conservation, but its effect is limited at China's current water fee level. The energy tax is shown to be more effective in improving water-saving efficiency. Under the maximum energy tax scenario (EH), total energy and industrial water demand fall by 10.45% and 3.82%, respectively, compared with 0.59% and 0.72%, respectively, under the maximum water fee scenario (W8). Furthermore, the energy tax is more conducive to China's energy conservation and CE reduction (CER) targets than the water fee, but raising both energy taxes and water fees can have a significant impact on energy conservation and CER. In the scenario going from a low energy tax (EL) to a high-energy tax (EH), the reduction in primary energy production increases from 8.36% to 19.16%, while CE also drop significantly, going from 5.59% to 16.71%; however, In the scenario going from the low water fee (W2) to the high-water fee (W8), the reduction in primary energy production only changes from 0.24% to 0.43%, and CO2 reduction from 0.35% to 0.61%. Meanwhile, the mixed water-energy scenario shows a spill over effect, with the CE and energy savings management goals requiring less GDP loss than water or energy policies implemented in isolation. Ultimately, the results show that even when combined, relying solely on existing water and energy tax policies will be insufficient to meet China's water-saving targets without other environmental policies. The key to overcoming energy and water constraints is to increase water and energy efficiency year after year. This will enable China to achieve its CER target and the 14th Five-Year Plan water savings target. Thus, the synergistic effect of water conservation and energy saving can be realised simultaneously when the CER and energy consumption structure improve, which is crucial for developing an effective environmental policy strategy.

A research on the policies to realise carbon intensity targets in China

In the context of carbon peaking and neutrality, it would be interesting to study the policy conditions for achieving carbon targets. From a technical perspective, this study constructed a theoretical model of the relationship between energy tax policy, R&D subsidy policy, and energy intensity within the framework of biassed technical change. Subsequently, through the logical relationship between energy and carbon intensities, three combination policy schemes for achieving the carbon intensity target were obtained. The findings are as follows: First, a higher rate of energy tax and R&D subsidy is destined to lead to a lower energy intensity, and energy tax policy can better boost energy intensity than R&D subsidy policy. Second, in terms of pulling the carbon intensity, the effect of the energy tax policy is better than that of the R&D subsidy policy, but in terms of its impact on the future policy effect, the R&D subsidy policy is better than the energy tax policy. Third, China should adopt a combination of policies to reduce carbon intensity, with a certain increase in the energy tax policy and a certain increase in the R&D subsidy rate policy.

Does climate change concern alter individual tax preferences? Evidence from an Italian survey

PurposeThis paper analyzes the role that the climate change concern (CCCi) has on the willingness to accept an environmental tax. The author aims to grasp how individual general tax preferences can differ with respect to the specific (environmental) tax. He focuses attention to the Italian case since it has been argued that the potential acceptability of a carbon tax in Italy is relatively high, and this topic has been scarcely explored so far among Italian citizens (Rotaris and Danielis, 2019).Design/methodology/approachThe author conducted an online survey among 514 Italian economics students.FindingsThe CCCi positively influences the environmental tax morale (ETMi). The general tax morale (TMi) positively affects the specific (environmental) TMi. The CCCi alters individual tax preferences. The author evidenced that also subjects with low TMi turned out to be willing to pay an environmental tax if aware of the environmental issues.Research limitations/implicationsAlthough the author used a common methodology in this strand of research, he is aware that in an online survey individuals can be influenced by the self-reporting and hypothetical choice bias (see Swamy et al., 2001), that in turn can characterize their reported preferences. Moreover, even if economics university students are commonly used as a subject pool in experimental economics settings, and although several studies showed that the behavioral responses of students are largely the same as those of nonstudents in identical experiments (for a discussion see Alm, 2012; Choo et al., 2016), there is awareness that in this case, they are not taxpayers yet (Barabas and Jerit, 2010).Practical implicationsThe author’s results remark the importance of increasing climate change awareness among people to let them be more willing to pay the environmental tax, for instance through investments in sensibilization campaigns on the importance of energy source usage and climate-related topic. Then, an increase in the general TMi leads to an increase in the specific (environmental) TMi. The author’s evidence showed that people with high tax morale logically recognize the positive impact of paying an environmental tax when the CCCi increases, since the more the theme becomes important, the larger the willingness to pay the specific tax. For this reason, policymakers should carry on campaigns to increase the general level of TMi to increase the overall tax compliance level and the relative tax revenues, following the guidelines given by the Organisation for Economic Co-operation and Development (2019) to support taxpayer education programs, such as including TMi research and analysis into education programs, improving the ease of paying taxes or strengthening revenue–expenditure links to build the social contract.Social implicationsIt should be paramount to increase awareness about environmental topics among people in general and among those who are relatively tax immoral. The author’s results remark on the importance of targeting energy and environmental tax policies to groups rather than to individuals. According to this evidence, we support the use of nonmonetary tools to nudge people in the environmental transition by changing their behavior in energy use, for instance through the taxation on fuel and other nonrenewable energy resources.Originality/valueIt is the first empirical study that analyzes the impact of CCCi on the environmental TMi in Italy, in particular controlling for the role of the general willingness to pay taxes (TMi). To obtain individual attitudes toward tax payment, most of the empirical studies in behavioral economics employ international surveys. For studies across citizens living in European countries, the European Social Survey (ESS) and European Values Study (EVS) represent the most used ones (see, for instance, Martinez-Vazquez and Torgler (2009) in Spain; Torgler and Werner (2005) in Germany; Nemore and Morone (2019) in Italy). However, these surveys do not allow to study the relationship between the environmental and general TMi across the same subject pool. In fact, despite the ESS (2016) provides individual responses about the willingness to pay an environmental tax, it does not provide information about the general individual attitude toward tax payment (this information is contained only in the ESS wave of 2004, hence referring to a different subject pool). On the contrary, each wave of the EVS (i.e. 2008, 2017) provides information about the general individual attitude toward tax payment, but this survey does not provide a question regarding the willingness to pay an environmental tax. Therefore, to obtain information about the willingness to pay both general and environmental taxes, across the same subject pool, it is needed to carry out a survey.

Evaluation of research and development subsidies and fossil energy tax for sustainable development using computable general equilibrium model

AbstractPolicy‐making in improving the quality of the environment and social welfare and increasing the rate of economic growth to achieve sustainable development has been considered by policymakers in recent years. Punitive policies such as taxes on fossil energy consumption and incentive policies such as subsidies for investment in research and development are among the policies used to achieve sustainable development goals. In this study, using a computable general equilibrium model, two scenarios of subsidy to investment in research and development and subsidy with the taxation of fossil fuels, to double the ratio of investment in research and development GDP have been considered. First, the subsidy rate required to invest in research and development to achieve this goal is determined, and then, the economic, welfare, and environmental effects of the policies implemented are examined. This study shows that in the first scenario, the subsidy rate required to invest in research and development to achieve this goal is 10.74% and in the second scenario is 10.21%. Meanwhile, the required tax rate in the second scenario is estimated at 2.5% of fossil energy consumption. The results show that both the fossil energy tax policy and the research and development subsidy policy are able to reduce energy consumption, air pollution, and social welfare. The reduction in welfare in both scenarios is regardless of the social benefits of reducing greenhouse gas emissions.

The GATT-Legality of Border Adjustments for Carbon Taxes and the Cost of Emissions Permits: A Riddle, Wrapped in a Mystery, Inside an Enigma

Much of this analysis was initially presented at a conference on “U.S. Energy Tax Policy” sponsored by the American Tax Policy Institute held in Washington, D.C., Oct. 15-16, 2009.“Russia . . . is a riddle, wrapped in a mystery, inside an enigma.” – Winston Churchill“The application of BTAs to energy taxes under the GATT/WTO rules is clouded with uncertainty.” – OECDWith the notable exception of the United States (and, until recently, Australia), developed nations and many nations in transition from socialism made commitments under the Kyoto Protocol to reduce emissions of CO2, the most important greenhouse gas thought to be responsible for global warming. By comparison, the Protocol excused developing countries from the need to cap emissions. Both countries making commitments to reduce emissions and those that have not made commitments, but are considering doing so, are concerned that policies adopted to meet targets for emissions reductions will place their carbon-intensive industries at a competitive disadvantage relative to those in countries not making commitments and induce carbon leakage to those nations which they see as “free riders” in the global effort to reduce greenhouse gas emissions. On the other hand, developing countries resist carbon pricing, both because they do not want to hamper economic development and because they believe that primary responsibility for reducing emissions should lie with the developed countries that emitted virtually all the greenhouse gases now in the environment.2 Moreover, the statement in the 1992 Rio Declaration on Environment and Development that “States have common but differentiated responsibilities” underlies the UN Framework Convention on Climate Change (UNFCCC) and thus the Kyoto Protocol.

Distributional welfare and emission effects of energy tax policies in Brazil

Brazilian energy-related GHG emissions have increased sharply in recent decades due to energy tax policies and weather changes. To understand the distributional effects and calculate the cost-effectiveness of these energy tax policies, we assess short-term GHG emissions and welfare impacts of poor and rich households in Brazil. To do this, we calculate the carbon footprint of 128 household products and estimate price and expenditure elasticities using a censored demand system with price corrections and instrumental variables. We analyze the effect of de facto tax and subsidy rates and other environmentally friendly tax policies on end consumer prices. Our findings suggest that taxes on gasoline/diesel pump prices are progressive and have a negative impact on total household energy emissions due to substitution effects. Despite being regressive, changes in electricity and gas/charcoal pricing have considerable effects on household emissions due to the characteristics of the electricity supply in Brazil. More environmentally friendly policies that subsidize ethanol are cost-effective, but have small effects on household emissions.

The Contribution of Energy Taxes to Climate Change Policy in the European Union (EU)

Energy taxes are one of the main market-based tools directed toward mitigating climate change in the European Union (EU). Therefore, the aim of this article was to analyze whether energy taxes really contribute to the reduction of greenhouse gas (GHG) emissions and the successful implementation of climate change policy. Applying the Granger causality test on time series and using panel data analysis, the direct and indirect (via the reduction of fossil energy consumption (FEC) and energy intensity (EI), as well as the increase of renewable energy consumption (REN)) impacts of energy taxes on GHG emissions in EU countries were analyzed in the present study. The results showed that energy taxes did not Granger-cause fossil energy consumption, energy intensity, renewable energy consumption, and GHG emissions in almost all EU countries. Regarding the panel data analysis, the results showed that energy taxes did not, directly and indirectly, influence GHG emissions. Therefore, this paper shows that generally, energy tax policy in EU countries is ineffective. Thus, tax policy should be reformed and matched with an emissions trading system in seeking climate change mitigation.

Environmental policy in the presence of an informal sector

We demonstrate how the presence of an informal sector can sharply lower the cost of environmental and energy tax policy through two mechanisms. First, energy taxes indirectly tax the informal sector because even informal firms must buy formal sector sources of energy such as electricity. Second, a revenue-neutral shift in the tax base toward energy can decrease the tax burden on goods which are substituted for by the informal sector. These mechanisms can lead to welfare-enhancing substitution from informal labor into the formal sector. We consider the magnitude of these effects in a stylized model of the U.S. tax system. Even though the U.S. informal sector is relatively small, we find that distortionary costs of energy taxes are reduced by more than half. In developing countries, where the informal sector is typically much larger, the effect we identify here become even more relevant: we find negative gross costs in many cases. Finally, we address two potentially important countervailing effects: the use of informal fuels in developing countries and the potential for informal production to substitute for energy-intensive goods. We show how these different types of informality compete, and find that welfare enhancing effects typically dominate.

Assessing ICT global emissions footprint: Trends to 2040 & recommendations

Abstract In light of the concerted efforts to reduce global greenhouse gas emissions (GHGE) per the so-called Paris Agreement, the Information and Communication Industry (ICT) has received little attention as a significant contributor to GHGE and if anything is often highly praised for enabling efficiencies that help reduce other industry sectors footprint. In this paper, we aim at assessing the global carbon footprint of the overall ICT industry, including the contribution from the main consumer devices, the data centers and communication networks, and compare it with the to the total worldwide GHGE. We conduct a detailed and rigorous analysis of the ICT global carbon footprint, including both the production and the operational energy of ICT devices, as well as the operational energy for the supporting ICT infrastructure. We then compare this contribution to the global 2016-level GHGE. We have found that, if unchecked, ICT GHGE relative contribution could grow from roughly 1–1.6% in 2007 to exceed 14% of the 2016-level worldwide GHGE by 2040, accounting for more than half of the current relative contribution of the whole transportation sector. Our study also highlights the contribution of smart phones and shows that by 2020, the footprint of smart phones alone would surpass the individual contribution of desktops, laptops and displays. Finally, we offer some actionable recommendations on how to mitigate and curb the ICT explosive GHGE footprint, through a combination of renewable energy use, tax policies, managerial actions and alternative business models.

Research on the Economic Impact of New Energy Fiscal and Tax Policies Based on CGE Model -- A Case from Inner Mongolia

The development of new energy is not only an objective need for sustainable development of mankind, but also an important breakthrough for the world to foster new economic growth points. The focus of this article is on what kind of fiscal and tax policies the government implements can better guide the development of new energy and have a more favorable impact on the economy. This paper, taking wind power and solar photovoltaic power industries in the Inner Mongolia as an example, using the dynamic 3ED-CGE model, explored the economic impacts of different financial subsidies and preferential tax policies on new energy enterprises. And then this paper provided suggestions for the formulation of fiscal and tax policies. The study founded that compared with the fixed subsidy mechanism financial subsidies by the fall-off mechanism could be better to promote the growth of GDP, residents' welfare and employment. If the government didn't subsidize the new energy electric power's sales price to network after 2020, it would not have a negative impact. The 15% income tax rate was more effective in promoting the development of economic than 25%. 8.5% and 6% value-added tax rate exerted similar effects on the economy, but 6% value-added tax rate had a significant promotion on optimized adjustment the consumption structure of fossil energy and electric energy.

Asymmetry in transport fuel demand: Evidence from household level data

Models for gasoline demand for transportation activities generally assume that demand is perfectly reversible with respect to gasoline price (and income). The small literature which relaxes the reversibility assumption in gasoline demand argues technological fixation leads to this asymmetry and utilizes aggregate time-series model to find evidence in favour of asymmetry. In this research it is suggested that there could also be behavioural factors behind this asymmetric response, possibly due to the loss aversion nature of human beings as described in the prospect theory. For the first time, household level data was used to understand asymmetry in gasoline demand in response to changes in gasoline price and income. There was statistical evidence that gasoline price and income both can induce asymmetric changes in gasoline demand among households. Specifically, elasticity with respect to rising prices and falling income is larger than the elasticity with respect to falling prices and rising income respectively, which is consistent with loss aversion in gasoline purchase behaviour. There was also some evidence of heterogeneity in the asymmetric responses between urban and rural households. The results have implications for transport-related energy tax policies or subsidies, while the method can be applied directly for non-energy goods as well.

Incorporating energy rebound effect in technological advancement and green building construction: A case study of China

Abstracts Energy conservation and emission reduction issues in the construction phase of buildings are increasingly important to meet the challenges of sustainable building. Technological advancement is considered as one of the essential driving forces for green and sustainable construction. But, it is not as effective as expected because the anticipated energy conservation from efficiency improvement would be partially or even totally offset if energy rebound effect exists. This paper fills the research gap by quantitatively investigating the impacts of technological advancement on energy consumption in China’s building construction industry by incorporating direct rebound effect. First, technological advancement rate in terms of energy efficiency is measured by constructing an energy-environmental non-radial directional distance function (ENNDF), which provides a strong support for the Porter hypothesis. Second, by incorporating asymmetric energy price decomposition into a framework of translog cost function, it is estimated that 21.8% energy savings from energy efficiency improvement in China’s construction industry are offset due to rebound effect. Based on the measured results of technological advancement rate and rebound effect, further counterfactual analyses find that technological advancement contributes 27.11 million tons of standard coal equivalent (Mtce) of energy conservation for the construction industry over the period 2003–2012, and 7.57 Mtce of energy would have been saved in the sector if there were no rebound effect. Empirical findings in this paper reveal that technological innovation as well as energy pricing reforms, tax policies and other environmental regulations should be further implemented to achieve effective energy conservation for green building construction.

Carbon and energy taxation for CO2 mitigation: a CGE model of the Malaysia

Malaysia has made a pledge to reduce voluntarily her carbon dioxide-equivalent (CO2-e) gas emission’s intensity of gross domestic product by up to 40 % based on 2005 levels by 2020. The country is considering implementing economic instruments, among others, to assist the achievement of emission reduction targets while contributing towards the nation’s energy security and sustainable development goals. This paper develops a computable general equilibrium model with explicit energy-emission linkages to appraise the economy-wide and welfare impacts of carbon and energy tax policies to reduce CO2 emissions in Malaysia. Results indicate that the negative macroeconomic impacts of carbon and energy taxes are small relative to the quantum of emission reduction. A Hicksian welfare criterion is utilized to determine the impact of revenue natural shifts in carbon and energy taxes. Revenue neutrality assumptions show that carbon taxation is the best choice when it can provide a double dividend if the generated revenue is used for the purpose of consumption subsidy on household purchases. The notion of the double dividend is confirmed when the change in the consumption structure will result in a welfare improvement, while CO2 emission is decreased effectively. The study also found that carbon tax policy results in greater emission reductions relative to energy taxes, while the use of renewable energy will increase more substantially.

The impacts of climate change policies on the transportation sector

This study examines the impact of carbon tax and its alternative, energy tax, on both the Malaysian economy and the transport sector, using a CGE (Computable General Equilibrium) framework. In order to achieve government revenue neutrality, two schemes for revenue recycling, namely lump-sum transfer and labour tax recycling, are employed. The simulation's results show that the carbon tax policy is more effective than the energy tax policy in reducing carbon emissions; because it is less expensive. The negative impact of the carbon tax, on real GDP (Gross Domestic Product) and investment, is less than the energy tax in both recycling schemes. Through lump-sum transfer, both taxes lead to an increase in the consumption and welfare of households, because the tax interaction effect is less than the tax recycling effect; however, through labour tax recycling, they decrease the consumption and welfare of all household groups. These tax policies are not beneficial for the transportation sector, because they lead to decreases in domestic output, domestic demand, exports and imports of all transport sectors. The climate change policies would lead to mitigation of rebound effect in whole of the economy and the transport sector.

Safeguard Mechanism Research for Effective Implementation of Energy Tax Policy Reform

Energy tax policy has an irreplaceable role in promoting conventional energy conservation, sustainable use and promotion of new energy sources. But China's current energy taxes still has many problems and needs an energy tax reforms. The effective implementation of the energy tax policy reform must have relevant supporting mechanisms to ensure implementation of the policy. Thus we need analyze the behavioral characteristics and trade-offs involved in policy-related aspects to achieve the establishment of appropriate safeguards.

On the green and innovative side of trade competitiveness? The impact of environmental policies and innovation on EU exports

This paper aims at exploring how the export competitiveness of the European Union has been affected by environmental regulation and innovation. Starting from the Porter idea that environmental policies may foster international competitiveness by inducing technological innovation. We test both the strong and narrowly strong versions of the Porter hypothesis, in order to understand if such a virtuous cycle is confined into the environmental goods sector (respecting the narrow criterion) or it spreads out through the whole economic system. For this purpose we adopt a theoretically based gravity model applied to the export dynamics of five aggregated manufacturing sectors classified by their technological or environmental content. When testing the strong version, the overall effect of environmental policies does not seem to be harmful for export competitiveness of the manufacturing sector, whereas specific energy tax policies and innovation efforts positively influence export flows dynamics, revealing a Porter-like mechanism. When testing the narrowly strong version, environmental policies, but more incisively environmental innovation efforts, foster green exports. These results show that public policies and private innovation patterns both trigger higher efficiency in the production process through various complementarity mechanisms, thus turning the perception of environmental protection actions as a production cost into a net benefit.

Fuel tax incidence and supply conditions

The incidence of taxes on consumers and producers plays a central role in evaluating energy tax policy, yet the literature testing the main predictions of the tax incidence model is sparse. In this paper, we examine the pass-through rate of state gasoline and diesel taxes to retail prices, and importantly we estimate the dependence of pass-through on factors constraining the gasoline and diesel supply chains. We consider several factors that alter the elasticity of supply, including within state heterogeneity in gasoline content requirements, refinery capacity utilization, inventory constraints, and variation in the demand for untaxed uses of diesel. In general, we find that in periods of time when the supply chain is constrained, and the constraint is plausibly unrelated to shifts in demand, the pass-through rate of fuel taxes declines. We describe several potential implications for tax policy, including tax breaks during peak driving season and during times of supply disruptions such as after major hurricanes.