Abstract:
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CO2 emissions induced by human activities are the major cause of climate change;
hence, strong environmental policy that limits the growing dependence on fossil fuel is
indispensable. Tradable permits and environmental taxes are the usual tools used in CO2
reduction strategies. Such economic tools provide incentives to polluting industries to
reduce their emissions through market signals. The aim of this work is to investigate the
direct and indirect effects of an environmental tax on Spanish products and services. We
apply an environmentally extended input-output (EIO) model to identify CO2 emission
intensities of products and services and, accordingly, we estimate the tax proportional to
these intensities. The short-term price effects are analyzed using an input-output price
model. The effect of tax introduction on consumption prices and its influence on
consumers’ welfare are determined. We also quantify the environmental impacts of such
taxation in terms of the reduction in CO2 emissions. The results, based on the Spanish
economy for the year 2007, show that sectors with relatively poor environmental profile
are subjected to high environmental tax rates. And consequently, applying a CO2 tax on
these sectors, increases production prices and induces a slight increase in consumer
price index and a decrease in private welfare. The revenue from the tax could be used to
counter balance the negative effects on social welfare and also to stimulate the increase
of renewable energy shares in the most impacting sectors. Finally, our analysis
highlights that the environmental and economic goals cannot be met at the same time
with the environmental taxation and this shows the necessity of finding other
(complementary or alternative) measures to ensure both the economic and ecological
efficiencies.
Keywords: CO2 emissions; environmental tax; input-output model, effects of
environmental taxation. |