Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom

Energy and Environmental Taxation: Theory and Practice within the EU

Environmental tax reforms have a history of almost two decades and were viewed as a way to the better world the “double-dividend” theory predicted. Much “political capital” has been invested in policies leading to environmental tax reforms on European and national levels from 1992 (the year of the first EU-wide energy and carbon tax proposal) till today. In this report, the authors compare shares of environmental taxes on GDP and overall tax revenues in the EU from 1995 till 2010 to identify the real impact of such efforts.

Contrary to rhetoric, they find that environmental taxes importance in fact declined in the last decade in most European countries with very few exceptions (notably Denmark). There are several reasons for such a surprising development. Among these, rising energy prices (due to other regulatory policies) and introduction of new environmental and economic policies such as tradable permits schemes or feed-in-tariff schemes for promotion of renewable energy sources are the most important.

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