The Green Market Transition
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The Green Market Transition

Carbon Taxes, Energy Subsidies and Smart Instrument Mixes

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

The Paris Agreement’s key objective is the strengthening of the global response to climate change by transitioning the world to an increasingly green economy. In this book, environmental tax and climate law experts examine carbon taxes energy subsidies, and support schemes for carbon and energy policies. Chapters reflect on the underlying policy dynamics and the constraints of various fiscal measures, and consider the harmonisation of smart instrument mixes.
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Chapter 3: The effect of carbon taxes on emissions and carbon leakage: evidence from the European Union

Maria Alsina-Pujols

Abstract

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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