Energy taxes, environment and competitiveness
Should all energy consumers pay equal taxes or are there good reasons to differentiate energy taxes between consumers as in Denmark?
From a European point of view Danish taxes on energy are unique. Private households pay the highest energy taxes in EU, whereas industries pay very low taxes compared to an EU bench-mark. One of the reasons for the Danish tax discrimination between households and industries is that higher priority has been given to the competitiveness of Danish industries in an interna-tional market than to the environment. On that background there is a need for an integrated analysis considering environment, industrial competitiveness as well as government tax revenue. The ambition of this project is to develop such an integrated analysis. The aim of the project is to analyse the effects of energy taxes on the competitiveness of Danish industries facing an international market. First step will be to analyse if welfare in society will increase from the introduction of green taxes. Next step will be to analyse the influence on the competitiveness of Danish industries from introducing green taxes in Denmark solely as compared to a scenario of EU tax harmonisation. Among other things results from the project will show whether production costs of Danish industries are more sensitive to an EU tax harmonisation than production costs of foreign industries
Economic theory about foreign trade and competition as well as empirical studies of relevance are not making evident that industries in general should pay lower environmental taxes than other kind of consumers. Consequently, economic theory cannot justify the present Danish energy tax regime where households are required to pay high energy taxes whereas industries are allowed to pay low energy taxes. On the contrary, it is more likely that reduced industry taxes will result in reduced welfare to society, lower income and lower employment as compared to a scenario of equal energy taxes. Theory can justify, however, a stepwise introduction of green taxes in order to make industries and markets adapt to the new regulatory framework. Moreover, some theoretical contributions argue that under certain circumstances one could point to a need for protecting certain kinds of industries (e.g. industries employing unskilled labour), but an exclusive tax reduction given to all industries is not supported by economic theory. By using the GTAP model we have calculated the welfare effect of levelling Danish energy taxes so households and industries have to pay equal energy taxes. The GTAP model has a good and international reputation for being designed to analyse international trade and competitiveness. We find that levelling the Danish energy taxes will increase welfare in Denmark by 1.3% - equivalent to DKK 8 billion. The Danish energy tax reform, however, will cause an increase in CO_2 emissions in neighbouring countries. The calculation does not consider the influence of the EU market for tradable CO_2 permits introduced as from January 2005
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Participants
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Contact
Nyropsgade 37
DK-1602 København V, Denmark
www.akf.dk
Munksgaard, Jesper (docent), 33110300, jmu@akf.dk
Øvr. Partnere: Ramskov Consult
