Motivation

Climate change is one of the big challenges humanity is facing. A transition of the global energy system towards sustainability with drastically reduced greenhouse gas (GHG) emissions is required in order to limit climate change. Especially after the adoption of the Kyoto Protocol in 1997, climate change policies were increasingly introduced, with the EU taking a leading role. There is a wide range of climate policy instruments including performance standards, subsidies as well as market-based approaches like energy or emission (carbon) taxes and emissions trading systems. Economic literature generally argues in favour of market-based instruments since they ensure compliance at the least cost to society by offering flexibility in the choice of abatement measures and their timing. Moreover, taxes and auctioned emission permits raise revenues that in turn can be used to subsidise other abatement measures and R&D activities or to mitigate negative distributional effects.

For large emitters in industry and energy generation the EU has established the European Emission Trading System (EU ETS) in 2005 that covers about 45% of total GHG emissions in the EU. Since transaction and monitoring costs would be excessive otherwise, the system is applied to large point emitters only. Other emission sources like transport, households and small businesses are, up to now, subject to national energy/carbon taxation which varies substantially between Member States.

Most countries have been raising energy taxes prior to the introduction of the EU ETS. These energy taxes have, however, been largely introduced to raise revenues rather than to pursue environmental targets like reducing GHG emissions or energy use. Even in cases in which an ecological tax reform has been implemented, i.e. a shift of taxes from labour to environment and resource use, the definition of the level of tax rates has been determined by political feasibility and does not consistently reflect the various energy sources' carbon content or affect all end users in the same way. Thus, in most cases taxation does not correspond to the theoretical concept of optimal (uniform) energy or carbon taxes.

Under the EU Burden Sharing Agreement for the Kyoto Period, for Austria an emission reduction target of 13% compared to the Kyoto base year 1990 was defined. Between 1990 and 2013 emissions in Austria rose by 1%; the largest contributor was the transport sector where emissions have grown by more than 20% since 1990. The introduction of a carbon tax should be considered as an option to curb emissions from the non-EU ETS sectors, and particularly from transport, in Austria.