A tax on carbon dioxide and other pollutants has a double effect: it can reduce emissions and equalise social inequalities, according to a study by Oldenburg economics expert Christoph Böhringer.
In discussions about the CO2 tax, the accusation is repeatedly heard that a flat-rate levy on greenhouse gas emissions is socially unjust - as it would disproportionately burden poorer households. However, low-income households in some European countries could actually benefit financially from a carbon tax - if the revenue is redistributed equally to all households. This is shown by a new study led by Oldenburg economist Prof Dr Christoph Böhringer, which has just been published in the journal Economics of Energy & Environmental Policy.
Together with colleagues from the Basque Centre for Climate Change in Leioa (Spain) and the Massachusetts Institute of Technology in Boston (USA), Böhringer investigated the economic and environmental impact a green tax reform would have in Spain. The proposed tax was 40 euros per tonne of CO2 in all sectors not covered by EU emissions trading. In addition, there was a tax increase on fossil fuels to bring the Spanish tax in line with the EU-wide average of 1.5 per cent of gross domestic product. Taxes were also levied on air pollutants such as nitrogen oxides and sulphur dioxide. The additional tax revenue was redistributed directly to all households with an equal lump sum payment.
Double dividend
The result: "These measures lead to a significant reduction in emissions without placing an excessive economic burden on individual population groups," reports Böhringer. According to the study, carbon dioxide emissions will fall by ten per cent, nitrogen oxide emissions could be reduced by 13 per cent and sulphur dioxide emissions by 20 per cent. The researchers expect revenues of 7.3 billion euros, which would correspond to a repayment of 400 euros per household. For the lower half of incomes, the repayments are likely to offset the tax: The households with the lowest incomes will therefore receive a net grant of 203 euros, while the richest households will pay a net 599 euros per year.
The environmental tax therefore promises a double dividend: Environmental pollution would be reduced, as would the tax burden for low-income earners. The researchers expect that a similar tax model would also work in other countries.