Work Package 1: Theoretical Background
Work Package 1 builds the theoretical framework for the CATs project and consists of three tasks:
- A survey of the economic literature on energy and emission taxes will be carried out.
- The legal aspects of carbon taxation will be elaborated.
- A set of criteria for the assessment of carbon taxes in EU Member States in Work Package 2 will be developed.
While the main focus of the CATs project lies on consumption-based carbon taxes, non-recurrent taxes (e.g. vehicle registration taxes) and recurrent taxes on capital stocks (e.g. engine-related insurance taxes) will also be discussed.
Carbon Taxes in Economic Literature
In this task, desk research will be carried out, reviewing the theoretical economic literature on energy and emission taxes. This review will focus on theoretical recommendations regarding the optimal design of carbon taxes, their performance relative to other instruments (in particular emission trading systems) and potential interaction effects. The general effects of carbon taxes on economic growth, employment, distribution and innovation will be discussed.
Legal Perspective on Carbon Taxes
A survey of the legal literature will be carried out in this task to distinguish between the various legal definitions and concepts of environmental taxes, fees, charges and levies. In a second step it will be analysed how these legal concepts relate to economic theory. For example, carbon measures based on the value of social costs to be internalised come close to Pigou's concept of a tax and would also be qualified under law as a tax, while a measure setting prices so as to achieve environmental standards would stand in the Baumol-Oates tradition and would be closer to the legal concept of a fee. Such a typology enables us to identify the determinants of the various carbon taxes.
Development of Criteria for the Systematic Assessment of Carbon Taxes in the EU
In the third task of WP1, the criteria for the systematic assessment of carbon taxes will be identified. The list of criteria will be developed based on the work in the preceding tasks as well as a survey of the relevant literature and will i.a. include
- the ultimate purpose of the policy instrument (i.e. whether its main objective is the generation of tax revenues or the reduction of GHG emissions);
- the coverage of the tax (i.e. for which energy sources and sectors it applies), the respective tax rates and exemptions;
- the use of tax revenues; and
- the environmental effectiveness of the tax, indicated by the development of CO2 emissions after the introduction of the tax.