''Greening the tax system'' and energy II: economic effects of raising the rate and enlarging the base of the Regulating Energy Tax

This energy tax has been introduced in 1996 and has been raised in subsequent years to encourage energy efficiency improvement and the production of renewable energy. Since the introduction and the raising of this energy tax is coupled with a reduction of the tax tariffs on labour and capital, the tax base has shifted towards environment polluting factors. This process is called "greening the tax system".

Five variants for raising the energy tax are analysed. In two of these variants the existing tariffs are raised by maintaining the existing exemption for energy use above a certain level. In the other two variants this level is raised, meaning that a larger part of the total energy use is taxed. In addition to these four variants, CPB has formulated a variant in which no energy use at all is exempt from taxation.

In the long run uniform marginal tariffs for all energy users is the most efficient variant. Firms and households will then reduce emissions where the marginal reduction costs are lowest.

In the medium run the environmental and macroeconomic effects are almost the same in all variants. Raising the energy tax will result in a reduction of the emissions of CO2 in 2020 by 2,5 - 8,5 Mton. The range is so wide because great uncertainties surround the growth of the costs of and the non-financial bottle-necks potentially hindering the production of renewable energy. The macroeconomic costs of all variants in 2020 will be less then 0,1% GDP. The differences in environmental and macro-economic effects in the medium run are too small and the uncertainties about these effects are too large to rank the variants according their cost effectiveness.

This publication is in Dutch.