Author: Alberto Majocchi
Date: October 2011

 

There is now a general consensus within the European Union that the problem of global warming should be dealt with by using both the tools of pricing (carbon tax) and quantity (emissions permits) and that the Emissions Trading Scheme should be complemented by a carbon-energy tax. With the carbon-energy tax, a revenue would be obtained that could be used with the goal of obtaining, while keeping taxation unchanged, a double dividend by reducing social security contributions and, hence, labour costs and in this way creating new employment.

Following the approach adopted by the Kyoto Protocol, each country should limit the quantity of emissions produced in its territory, but many States transfer their production abroad and import consumer goods from countries with lower labour costs. As a consequence, if production is targeted without targeting consumption, carbon leakage is encouraged towards countries that have not introduced a carbon price. To not undermine competitiveness and to avoid carbon leakages of energy intensive companies, introducing the tax should be accompanied by a border tax-adjustment, i.e. by a taxation at frontiers amounting to the same as that applied to domestic production, designed in a way as to not contrast with the international trade regulations.

The revenues obtained from reforming the European Directive on energy taxation 2003/96, should flow into the EU budget as part of a renewed structure of own resources, as proposed by the European Parliament and by the Haug-Lamassoure-Verhofstadt Report.


Download Paper