Design, Experiences and Issues
Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor
Theory and Impact
Edited by Larry Kreiser, Soocheol Lee, Kazuhiro Ueta, Janet E. Milne and Hope Ashiabor
Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor
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.
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.
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.
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.
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?