Work Package 5: Discussion and Policy Recommendations


Based on the preceding work packages, policy recommendations at EU level and for Austria were developed. At EU level the focus was put on suggestions for the introduction of a European carbon tax or the development of a general legal framework that will facilitate the introduction or advancement of CO2 taxes at Member State level. For Austria concrete options for implementing a carbon tax were developed focussing on revenue recycling in order to mitigate negative effects on income distribution and competitiveness.

Policy Recommendations at EU level

Building upon the appraisal of implementation issues and barriers for carbon taxation in WP3, policy recommendations at EU level were discussed. It was elaborated if and how a European carbon tax could be achieved. Alternatively, suggestions for the development of a general legal framework that facilitates the introduction or advancement of CO2 taxes at Member State level were developed. This includes the identification and legal assessment of specific carbon taxes that enjoy broad Member State support and may therefore be more likely to succeed at EU level.

Policy Recommendations for Austria

Given the tax scenarios and related model results, recommendations on how a carbon tax in Austria could be implemented were developed. Special attention was given to distributional issues, i.e. methods to minimise regressive impacts of the carbon tax as well as to design options that support the shift from fossil fuels to employment as input factors. The policy recommendations were discussed at a workshop with relevant stakeholder groups (e.g. chamber of commerce, chamber of labour, ministries, NGOs) ensuring the usability of the project results in policy making.

Results and Conclusions

The project analysed the issue of energy and carbon taxation from different points of view, including theoretical (economic and legal) literature, empirical evidence for the EU (quantitative and qualitative) as well as model simulations for a range of taxation scenarios for Austria.

The comparison of theoretical recommendations and actual implementations of energy and carbon taxes reveals various divergences, which exist due to conflicting political objectives (environmental protection, income distribution, competitiveness) and resulting compromises in order to gain acceptance for fiscal measures or environmental tax reforms. It also has to be noted that energy taxes were initially introduced in order to raise revenues. Environmental concerns were included much later on, with a shift to climate change mitigation in the 1990s. Recently, CO2 emissions are increasingly taken into account in vehicle taxation (registration and ownership taxes). The assessment of energy and vehicle taxation in the EU Member States reveals a broad range of tax rates and a variety of preferential tax treatments. This also translates into different shares of energy tax revenues in total tax revenues.

On EU level, minimum energy tax rates have been defined in Directive 2003/96/EC but attempts to adapt these tax rates to reflect the climate policy ambitions of the EU have failed due to the unanimity requirement in taxation issues. Thus, the EU regulation falls short of being adequate for reaching the long-term emission reduction objectives. Given the requirement of unanimity voting and the existence of diverging national interests of Member States any agreement regarding an introduction of EU-wide carbon taxes seems out of reach. Currently, the EU carries out an evaluation and fitness check of the Energy Tax Directive. It is, however, unclear whether the results of this check will lead to another initiative to adapt minimum energy tax rates to reflect the climate policy ambitions of the EU or how successful such an initiative could be. Support for more environmental taxation may also come from an unexpected direction: the Brexit. Britainís exit leaves a considerable budget gap at Union level. New income bases need to be identified. The Commissioner for the EU Budget recently proposed the introduction of a plastic tax and a change of the EU ETS. The High Level Group on Own Resources also recommended in its final report environmental taxes (including a CO2 tax) as viable options for generating EU own resources.

Against this background, action to limit greenhouse gas emissions on national level is required, particularly in the sectors not covered by the EU ETS. Fiscal measures such as energy and carbon taxation can contribute towards achieving climate policy targets by pricing the externality.

This is supported by the CATs model simulations for the range of scenarios analysed for Austria. The results for a revenue-neutral introduction of carbon taxes generally show a significant effect on emissions, especially in the transport and service sector. In all scenarios including the scenario with a floor price for ETS sectors macroeconomic impacts, in contrast, are moderate. It has to be noted, however, that the recycling of additional tax revenues is a key aspect in order to mitigate negative impacts on GDP, income distribution (regressivity) and competitiveness.

The need for structural changes in the Austrian tax system has been repeatedly emphasised by international organisations (e.g. OECD, 2013; EC, 2015). The introduction of a CO2 tax would permit a shift of the tax burden from e.g. labour to environmental externalities. In addition to reducing greenhouse gas emissions this could also entail positive GDP and employment effects (double dividend). Furthermore, an ambitious climate policy triggers research and innovation and facilitates the structural changes required to achieve a deep decarbonisation.

Evidence from other EU Member States that have introduced comprehensive environmental tax reforms including carbon taxes shows that one prerequisite for the implementation is a broad societal and political consensus and the integration of long-term climate policy objectives in all areas of policy making.

Last update: 28 February 2018