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Taxing Pollution Instead of Employment: Greenhouse Gas Abatement through Fiscal Policy in the UK

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  • Terry Barker

Abstract

Fiscal changes designed to achieve the two objectives of reductions in greenhouse gas emissions and increases in employment are explored using a large-scale energy-environment-economy model of the UK, the Cambridge Multisectoral Dynamic Model (MDM). Two options are considered in detail: the road fuel duty escalator, introduced in the March 1993 Budget, and the CEC's proposed carbon/energy tax; revenues for each tax are recycled via reductions in employers' NIC calculated to keep the ratio of the PSBR to GDP at base scenario rates. The changes are introduced in 1996 and standardised so that each reduces CO 2 emissions by some 21 mtC by 2005. The escalator is shown to raise far more revenue per mtC reduced and so NIC charges can be reduced much more than under the carbon/energy tax option. A detailed analysis is made of the effects on industrial costs of the carbon/energy tax option; the effects on competitiveness, measured as the effects on the balance of payments under a fixed exchange rate regime, are found to be negligible, even with a unilateral tax. Both options appear to provide substantial environmental net benefits as well as economic gains. However, each option has its strengths and weaknesses and a combination may allow the UK to reach the Toronto target of a 20% cut in CO 2 emissions below 1988 levels by 2005.

Suggested Citation

  • Terry Barker, 1995. "Taxing Pollution Instead of Employment: Greenhouse Gas Abatement through Fiscal Policy in the UK," Energy & Environment, , vol. 6(1), pages 1-29, February.
    • Handle: RePEc:sae:engenv:v:6:y:1995:i:1:p:1-29
    DOI: 10.1177/0958305X9500600101
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    References listed on IDEAS

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    1. Terry Barker & Nick Johnstone, 1993. "Equity and Efficiencyin Policies to Reduce Carbon Emissions in The Domestic Sector," Energy & Environment, , vol. 4(4), pages 335-361, December.
    2. Barker, Terry & Baylis, Susan & Madsen, Peter, 1993. "A UK carbon/energy tax : The macroeconomics effects," Energy Policy, Elsevier, vol. 21(3), pages 296-308, March.
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    1. Zhang, ZhongXiang & Baranzini, Andrea, 2004. "What do we know about carbon taxes? An inquiry into their impacts on competitiveness and distribution of income," Energy Policy, Elsevier, vol. 32(4), pages 507-518, March.
    2. Laroui, Fouad & van Leeuwen, Marko J., 1996. "Fiscal policy and greenhouse gases: the case of the Netherlands," Ecological Economics, Elsevier, vol. 18(3), pages 231-241, September.
    3. Baranzini, Andrea & Goldemberg, Jose & Speck, Stefan, 2000. "A future for carbon taxes," Ecological Economics, Elsevier, vol. 32(3), pages 395-412, March.
    4. Street, Penny & Miles, Ian, 1996. "Transition to alternative energy supply technologies : The case of windpower," Energy Policy, Elsevier, vol. 24(5), pages 413-425, May.
    5. Jean-Charles Hourcade & Khalil Helioui & Laurent Gilotte, 1997. "De quelques paradoxes autour de la fixation d'une taxe internationale sur le carbone," Revue Économique, Programme National Persée, vol. 48(6), pages 1509-1528.
    6. D. McEvoy & D.C. Gibbs & J.W.S. Longhurst, 2000. "The employment implications of a low-carbon economy," Sustainable Development, John Wiley & Sons, Ltd., vol. 8(1), pages 27-38.
    7. Paul Ekins & Stefan Speck, 1999. "Competitiveness and Exemptions From Environmental Taxes in Europe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 13(4), pages 369-396, June.
    8. Chen, Yang & Cheng, Liang & Lee, Chien-Chiang, 2022. "How does the use of industrial robots affect the ecological footprint? International evidence," Ecological Economics, Elsevier, vol. 198(C).

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