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  • Series: Critical Issues in Environmental Taxation series x
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Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor

Only through a concerted global effort can we protect our natural resources, save our precious natural environment, and indeed our future. But pressures on natural resources come from many directions such as overuse, mismanagement and contamination. This much-needed book reviews and evaluates the use of market and fiscal instruments in protecting our natural resources, from rural to marine environments. Market instruments that are designed to protect the global atmosphere are evaluated, along with carbon instruments and environmental tax incentives. Meanwhile, consideration is given to shifting the tax burden to achieve environmentally responsible outcomes, balancing sustainable use and natural resource protection, and protecting water resources.
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Edited by Stefan E. Weishaar, Larry Kreiser, Janet E. Milne, Hope Ashiabor and Michael Mehling

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Edited by Stefan E. Weishaar, Larry Kreiser, Janet E. Milne, Hope Ashiabor and Michael Mehling

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Janet E. Milne

While carbon tax measures have not yet met with success at the federal level in the United States, proposals for carbon taxes emerged in a handful of states in 2015 and 2016. The proposals address the shared challenge of climate change, but each has its own unique features and setting. Drawing on proposals in Oregon, Massachusetts, Vermont and Washington as case studies, this chapter explores how state constitutions can affect the design of state-level carbon taxes and their legislative route toward enactment. For example, the Oregon constitution imposes limits on tax rates and use of the revenue when taxing certain fossil fuels. The constitutions in three of the four states require that some types of revenue measures must originate in the legislative House of Representatives, not the Senate, raising the question whether carbon taxes can be designed in a manner that will avoid this procedural constraint. In Washington, the carbon tax proposal came forward as a ballot initiative that went to voters in the general election, following a procedure permitted under the state constitution. These case studies serve as an important reminder of how constitutional provisions that were not created with climate change in mind can influence the design features of subnational carbon taxes and political strategies.

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Claudia Kettner and Daniela Kletzan-Slamanig

In the EU CO2 emissions from industry and energy supply are regulated under the EU Emission Trading Scheme. In contrast, emissions from private households, transport and other small sources are regulated on the Member State level as no comprehensive EU policy strategy is in place for these sectors. Policy instruments specific to the transport sector include fuel taxes, vehicle registration taxes and ownership taxes, which can each contain a specific CO2 component, as well as performance standards and road pricing schemes. This chapter includes an empirical analysis of energy and carbon taxes in the transport sector for the EU Member States focusing on an assessment of fuel tax rates as well as on registration and ownership taxation of passenger cars. It is shown that Member States' tax systems still exhibit pronounced differences with respect to both tax categories. Taxation can make a significant contribution towards achieving emission reductions in the transport sector and should be given more weight by Member States in view of achieving their greenhouse gas reduction targets.

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Maria Alsina-Pujols

Most theoretical models highlight the effectiveness of taxes to mitigate carbon dioxide emissions, yet little empirical evidence exists to support it. This chapter examines the real effects of carbon taxes on emissions and on carbon leakage in the European Union. The goal is to evaluate the implications of existing carbon taxes in order to shed some light on policy design. I exploit the incorporation of unilateral carbon taxes in some Member States and implement a difference-in-difference approach under various specifications, using panel data from 1980 until 2008. Results suggest that there is no compelling evidence of taxes reducing the level or growth of carbon emissions, or that they cause carbon leakage. The sub-optimal design of the policies, which include several exemptions for industrial sectors, may explain the null effects of the tax.

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Lee-Ann Steenkamp

According to the International Energy Agency's World Energy Outlook 2015, South Africa accounted for more than one-third of the total energy-related carbon dioxide (CO2) emissions on the African continent. The same report states that emissions in South Africa are projected to follow a 'peak, plateau and decline' trajectory, largely due to improved energy efficiency and a turn towards renewable energy and nuclear energy. The South African government acknowledges that climate change is a reality and is caused largely by greenhouse gas (GHG) emissions and concentrations in the atmosphere that are anthropogenic. Consequently, towards the end of 2015, the South African National Treasury, after years of public consultation, has proposed a pollution tax, known as the carbon tax. The planned carbon tax is aimed at achieving South Africa's ambitious commitments to reduce GHG emissions by 34 per cent by 2020 and 42 per cent by 2025. It is anticipated that the carbon tax will come into effect in a phased manner, commencing on 1 January 2017 at a marginal rate of R120 per ton of CO2-e. Persons who conduct various activities in the manufacturing, construction, mining and transport sectors will be affected. The carbon tax is intended to serve mainly as an environmental tax that internalises the external damage costs of GHG emissions and contributes to behavioural change. It will likely be implemented with complementary measures, for example a reduction in the electricity levy, as well as other measures to recycle revenue, thereby lessening the impact on businesses. Although this chapter advocates an emphasis on carbon taxation as a key element of any fiscal policy mix to address climate change, there are a number of concerns in respect of the detail of the South African carbon tax provisions that have to be addressed. The main objective of this chapter is to analyse the South African carbon tax proposals. First, the chapter provides a brief background to South Africa's climate change policy. Next, the chapter offers an overview of fiscal incentives aimed at enhancing the uptake of renewable energy in South Africa. Thereafter, the design of the proposed carbon tax is explored, analysing arguments for and against its introduction in South Africa. The chapter concludes with a number of practical considerations.

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Memory Machingambi

Analyses have shown that a carefully designed policy package, with the carbon price at the centre, can reduce emissions at a significantly lower social cost than any single policy. In policy packages with a carbon tax, the major integration concern is ensuring cost efficiency and avoiding policy redundancy. A typical package of climate policies would include carbon pricing to incentivise emission reductions, policies for developing, deploying and reducing the costs of new technologies and policies to address non-price barriers. For South Africa, a pricing instrument in the form of a carbon tax will be combined with a carbon offset scheme which allows companies to cost effectively reduce their tax liability by 5 to 10 per cent of their total emissions. Only activities or sectors outside the tax net, projects implemented in South Africa and not listed on the negative list are permissible as carbon offset projects under the carbon tax scheme. Allowing companies to develop carbon offset projects in activities or sectors not covered by the carbon tax is premised to incentivise mitigation in sectors or activities not covered by the carbon tax. Will the flexibility of allowing carbon offsets to be traded between the project developers and carbon tax paying entities establish a mini emissions trading scheme (ETS)? Is the carbon tax going to act as a maximum cost or minimum price of trade equalising costs across participants hence limiting the overall cost of the policy? This chapter will examine scenarios on how the built-in flexible arrangement or instrument mix of using carbon offsets within the carbon tax will work to enhance emissions mitigation overall in the different activities and sectors. Are there benefits (emissions and costs) to having a combination of the carbon tax and carbon offset flexibility mechanism or not? Could these evolve and influence the instrument choice beyond the first phase of the carbon tax i.e. updating the policy design (policy recalibration) to allow one or both instruments to adapt to the abatement delivered by the other instrument in the package?

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Nicolas Kreibich and Hanna Wang-Helmreich

With the adoption of the Paris Agreement in December 2015, a new framework for international climate policy was created. Article 6 of this global agreement provides the basis for transferring mitigation outcomes across national borders, inter alia, by linking carbon pricing instruments. While linking of Emissions Trading Schemes (ETS) has already been studied to a wide extent, linking carbon taxes to other systems has until now received little attention in the literature. In light of the fact that a growing number of countries are introducing carbon taxes, this can be considered a serious knowledge gap. This chapter aims to fill this void by highlighting the potentials and risks of linking carbon tax systems with other carbon pricing instruments across national borders. The authors show that the linking of carbon tax systems can lead to significant climate integrity risks, potentially resulting in a net increase of greenhouse gas (GHG) emissions. The authors highlight different options as to how these risks can be addressed by making use of the new structure that has been established with the Paris Agreement. They conclude that the potentials and risks of linking carbon taxes with other carbon pricing instruments should be carefully analysed before such a link is established, as environmental integrity risks in particular can be considerably high.

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Martina Zahno and Paula Castro

This chapter aims to provide empirical evidence that fossil fuel subsidies present a considerable barrier to the deployment of renewable energy, even in the presence of policies that also subsidize or otherwise support renewables. The empirical relationship is analysed using the example of electricity, by modelling the determinants of electricity generation from non-hydro renewable energy sources, using a large cross-country dataset covering the time period from 2003 to 2013. As non-hydro renewables participation has been zero in many (low-income) countries until very recently, we estimate two-part models. This involves panel binary regressions in the first part to model the probability that a positive amount of electricity from renewables is produced. In the second part, we apply linear panel models to estimate the expected share of renewables, given that it is positive. We found that the likelihood that a country produces any electricity from renewables at all is positively related to the existence of policies that support renewables deployment, but does not seem to be related to fossil fuel subsidies. In cases where countries already produce grid-based electricity from renewable sources, we find significant evidence between-country effects for fossil fuel subsidies and financial support policies. Hence there are indications that the contribution of non-conventional renewables to electricity generation is negatively related to higher than average per capita levels of fossil fuel subsidies but despite this, financial support policies do make a positive difference in cross-country comparisons of renewable electricity shares.