Edited by Larry Kreiser, Ana Yábar Sterling, Pedro Herrera, Janet E. Milne and Hope Ashiabor
Estimates from the International Energy Agency have revealed that greenhouse gas (GHG) emissions in 2010 increased by a record amount to produce the largest carbon output in history of 31.6 Gigatonnes. This reflects the quick recovery of many low- and particularly middle-income economies from the financial crisis – such as those in Europe and Central Asia (ECA), where every country is expected to return positive rates of growth in 20112 – which are responsible for about 75 per cent of this increase.3 If dangerous climate change is to be prevented, then these countries must reduce or, at the very least, stabilise their GHG emissions–indeed, research by McKinsey and Co suggests that to achieve this all regions and all sectors will have to capture close to the full abatement potential available to them (McKinsey & Co., 2009). Against this background, this chapter sets out to analyse the potential role that Economic Instruments (EI) and, especially, Environmental Tax Reform (ETR) can play in reducing GHG emissions in the ECA region.4 In 2005, the OECD identified ‘scope for more ambitious revenue-neutral environmental fiscal reform, including new environment related taxes’ in the region (OECD, 2005a: 65). Bearing in mind also the 2007 Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), which identified market distortions as one of the most important barriers to climate change mitigation, it seems intuitive that ETR, a policy instrument which explicitly sets about inter alia to reduce market distortions, has considerable potential to bring about reductions in GHG emissions. In the light of this, this chapter will set out to examine the potential for ETR to reduce GHG emissions in the ECA region and make some preliminary conclusions and recommendations. The first part of this chapter will analyse examples of EI and ETR in practice in the ECA region.
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