The Eighth Annual Global Conference on Environmental Taxation
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Workshop 4: Impacts on competitiveness and industry

Energy - mitigation of competitiveness impacts:
findings and lessons from the COMETR project

Prof. Mikael Skou Andersen, Environmental Research Institute, University of Aarhus, Denmark

The aim of this paper is to provide an overview of the approaches adopted by member states to mitigate potential competitiveness effects from environmental tax reforms, and while comparing differences and similarities, use these insights to provide a more forward oriented discussion of the options for a more level playing field and best practice across the EU as regards mitigation practices concerning competitiveness effects of carbon-energy taxation. While the guidelines for state aid in the environmental sector at the present provides a framework for exemptions and mitigation measures, the aim is to take a broader perspective in view of the findings of the COMETR project. This broader view will also address the interplay with the recently created emissions trading system (ETS) and place mitigation practices in the context of the mixed policy instrument environment of ETR and ETS. As the Commission’s guidelines for state aid for environmental protection will be revised, and the exemptions allowed under the Directive on Energy Taxation also will need renewed approval, the focus on mitigation approaches in the COMETR project appears timely.

The seven member states that have introduced ETR (Sweden, Denmark, Finland, Netherlands, Slovenia, Germany, UK) have implemented quite different mitigation measures for energy-intensive industries comprising measures such as tax caps, tax rate thresholds, revenue peak adjustment (“spitzensteuerausgleich”) and tax rate reductions. The differences in scope are interesting to study and contrast, as they reflect somewhat different t strategies for mitigating competitiveness concerns. In recent years member states have increasingly been constrained by the EU’s regulations on state aid in the environmental sector. Under these regulations the exemptions from environmental taxes are regarded, functionally, as a potential form of state aid and have become subject to a range of restrictions and procedures. Although there are significant differences in member state approaches to ETR and ETR-mitigation, under EU-law a common legal framework has gradually emerged. This legal framework constrains the options of member states when considering mitigation approaches.

We do not here set out on a legal analysis of the state aid rules, as our research interest is rather in the comparative regulatory study of the relative success and failure of approaches adopted in the member states with regard to mitigation.


Climate Policy and Competitiveness:
An Economic Impact Assessment of EU Leadership in Emission Regulation

Victoria Alexeeva-Talebi, Centre for European Economic Research (ZEW), Germany

The European Council has recently claimed to consider ambitious emission reduction targets (15 to 30 percent by 2020 as compared to 1990 levels) to limit global climate change. In the light of the coexistent EU priorities under the Lisbon process, we analyse alternative EU emission control policies against their effects on international competitiveness using a multi-sector, multi-region CGE model framework.
For a given emission reduction target, our simulations show that alternative implementation rules (uniform versus sectorally differentiated carbon taxes) induce ambiguous impacts on competitiveness: For a uniform tax, relatively carbon-intensive EU industries face competitiveness losses, while carbon-extensive sectors improve their ability to compete internationally. Losses and gains are reinforced by the stringency of unilateral emission reduction targets.
Thus, the implementation of an (economically efficient) uniform carbon tax induces structural change which inevitably goes at the expense of carbon-intensive industries. Vice versa, more pronounced tax differentiation in favor of carbon-intensive industries can largely neutralize the negative impacts of emission constraints on their competitiveness, but goes at the expense of overall efficiency. In this case, adjustment costs of emission abatement will to a large extent be borne by energy-extensive sectors in terms of a deteriorated ability to compete. As a middle course, moderate tax differentiation allows to sectorally balance competitiveness effects of emission control policies and at the same time limit overall efficiency losses. Furthermore, our results indicate that the magnitude of sectoral competitiveness effects is sensitive to the selection of competitiveness indicators.


Energy Taxation and Its Impact on Industry

Jarmila Zimmermannova, Ministry of Environment, Czech Republic

The Czech Republic is going to introduce new energy taxation in connection with implementation of directive 2003/96/EC., restructuring the Community framework for the taxation of energy products and electricity and setting the minimal tax rates of excise duties for particular energy products. New energy taxes are going to be imposed on electricity, solid fuels and natural gas for heating purposes, with term of initiation on 1st January 2008.

The paper will discuss impact of new energy taxation on costs of both industry and energy sector of the Czech Republic. The minimal tax rates for electricity, natural gas for heating purposes and solid fuels, imposed by directive 2003/96/ES, will be used.

At first, the question of direct impact will be discussed, it means the impact on prices of electricity, natural gas for heating purposes and solid fuels for companies and changes in environmental-related costs of companies. The electricity will be distinguished to electricity from fossil fuels and electricity from renewable energy sources. The impact on costs of companies will be discussed for 11 basic sectors described in The National Industrial Classification of Economic Activities (CZ-NACE).

In the second step I will create a simple input-output table for industry and energy sector of the Czech Republic. The discussion of cross-sectoral impact of new taxation will also take place here. For purposes of this paper there will be 11 basic sectors of NACE used for creating the symmetric input – output table for the Czech Republic. Input coefficients and matrix of Leontief will serve for creating of simple price model for national economy of the Czech Republic. Than the significant change in energy price of electricity, natural gas for heating purposes and solid fuels will be introduced. The coefficients of added value will change and price indexes for 11 sectors of NACE will change, too. The influence of higher electricity price, higher price of natural gas for heating purposes and higher solid fuels price on cross-sectoral prices in national economy of the CzechRepublic will be described in detail. There will be four different variants of price change and its influence on cross-sectoral prices.

The main goal of this paper is the discussion of new energy taxation in the Czech Republic as a part of decision making process in companies. Is this above mentioned energy taxation good instrument for energy savings and change of energy supply and energy demand of companies of the Czech Republic? The paper will clarify the compatibility of a macro-level technique (I-O analysis) and decision-making at the micro-level.


Environmental Fiscal Reform in Italy:
something in the way…

Claudia Cordiè, Aldo Ravazzi Douvan, Italian Ministry of Environment

After years of shy and limited attempts and results, Italy is apparently finally moving in the way of an Environmental Fiscal Reform.

Italian Financial Law:

1. The new Italian Financial Law contains several environmental provisions including:

  • ecological tax deductions to promote energy efficiency, in particular to improve the energy performance of buildings (e.g. solar systems, fridges, insulation, heating and cooling systems, lighting);
  • incentives to demolish high polluting vehicles and to buy low CO2 emitting vehicles or to use public transportation;
  • a restructuring of  the ownership tax for motor-vehicles based on their polluting/consumption features;
  • incentives (mainly tax reductions) to promote the use of bio-fuels;
  • a tax on mineral water plastic bottles, ear-marked to development cooperation aid;
  • the creation of four Funds to promote sustainable mobility; sustainable development; to implement measures to comply with the Kyoto Protocol; to reduce energy costs for low income households and to implement other social measures (with part of the revenue from the fuel tax).

The main foreseen impacts are the reduction of energy expenditure both at national and households’ level, the decrease of CO2 emissions, the diversification of energy sources, the creation of specialized employment, a promotion of sustainable production and consumption models.

Environmental Accounting Commission:

2. A national Commission for Environmental Accounting and Environmental Report has been set up in January 2007 with the participation of the Ministry of Economic Development, the Ministry of Environment, Land and Sea, of the Treasury Department and the Accounting Department of the Ministry of Economy and Finance, Local Authorities, the National Statistical Agency and NGOs with the target of introducing a system of environmental accounting and report within the State accounting. This target should take into consideration the experiences in the field by other EU Countries and the policies combating climate change including the implementation of the Kyoto Protocol.

Structural Funds:

3. Italian central and regional administrations are preparing the programmes (NSF, NOPs, ROPs, IOPs) for the 2007-13 new cycle of EU Structural Funds. The Lisbon and Gothenburg strategies are the reference framework, from renewable energy to natural heritage are among the programmes priorities and will be implemented through a number of subsidies and incentives.

This paper will try to assess the real environmental effectiveness of the new economic and financial provisions adopted by the Government while taking into account their economical and social impacts and their contribution towards an Environmental Tax Reform.


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