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Fuel Exemptions, Revenue Recycling, Equity and Efficiency: Evaluating Post-Kyoto Policies for Switzerland

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  • Jan Imhof

Abstract

The Swiss CO2 law runs out in 2012, together with the first commitment period of the Kyoto Protocol. Currently, the Swiss parliament is deciding on the successor of the law that aims to achieve a 20% reduction of CO2 emissions below 1990 levels by 2020. As a means to achieve this ambitious target, the current tax on stationary fuels at 36 CHF/t CO2 will be maintained, while transportation fuels will still be exempted from the carbon tax. Currently, the tax revenues are fully redistributed as a per-capita lump-sum payment via mandatory health insurance and to the employers proportional to their wage payments. This recycling scheme is likely to be prolonged. However, in the presence of the actual debate on the revision of the CO2 law, this paper reexamines the exemption of transportation fuels and the revenue recycling scheme under two points of view. First, I examine the effects on cost-effectiveness and second, I study their impact on equity. Using a static computable general equilibrium model of the Swiss economy incorporating 14 household groups, I find that tax exemptions increase the economy-wide costs of a carbon tax, yet fail to ease the effect on over-proportionally affected households. However, adjusting CO2 tax rates to correct for pre-existing fuel taxes that do not internalize any external effects may decrease the economy-wide cost of a green tax reform. On the other hand the choice of the recycling scheme has less of an effect on efficiency, but its impact on the distributional outcome of the tax reform has to be considered. Choosing an optimal, economy-wide tax will decrease overall costs considerably, while a lump-sum per-capita rebate will result in a progressive tax package at reasonable costs.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 148 (2012)
Issue (Month): II (June)
Pages: 197-227

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Handle: RePEc:ses:arsjes:2012-ii-5

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Related research

Keywords: Carbon Tax; Computable General Equilibrium; Double Dividend; Tax Exemptions; Climate Cent; Distributional Consequences;

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References

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  1. Wier, Mette & Birr-Pedersen, Katja & Jacobsen, Henrik Klinge & Klok, Jacob, 2005. "Are CO2 taxes regressive? Evidence from the Danish experience," Ecological Economics, Elsevier, vol. 52(2), pages 239-251, January.
  2. Jan van Heerden & Reyer Gerlagh & James Blignaut & Mark Horridge & Sebastiaan Hess & Ramos Mabugu & Margaret Mabugu, 2006. "Searching for Triple Dividends in South Africa: Fighting CO2 Pollution and Poverty while Promoting Growth," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 113-142.
  3. Bohringer, Christoph & Rutherford, Thomas F., 1997. "Carbon Taxes with Exemptions in an Open Economy: A General Equilibrium Analysis of the German Tax Initiative," Journal of Environmental Economics and Management, Elsevier, vol. 32(2), pages 189-203, February.
  4. Corbett Grainger & Charles Kolstad, 2010. "Who Pays a Price on Carbon?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 46(3), pages 359-376, July.
  5. Jan Imhof, 2011. "Subsidies, Standards and Energy Efficiency," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  6. Wiepke Wissema & Rob Dellink, 2010. "AGE assessment of interactions between climate change policy instruments and pre-existing taxes: the case of Ireland," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 10(1/2), pages 46-62.
  7. Erwin L. Corong, 2008. "Tariff Reduction, Carbon Emissions and Poverty: An Economy-Wide Assessment for the Philippines," EEPSEA Research Report rr2008012, Economy and Environment Program for Southeast Asia (EEPSEA), revised Jan 2008.
  8. Arief Anshory Yusuf & Budy P. Resosudarmo, 2007. "On the Distributional Effect of Carbon Tax in Developing Countries: The Case of Indonesia," Working Papers in Economics and Development Studies (WoPEDS) 200705, Department of Economics, Padjadjaran University, revised Aug 2007.
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Cited by:
  1. Bartocci, Anna & Pisani, Massimiliano, 2013. "“Green” fuel tax on private transportation services and subsidies to electric energy. A model-based assessment for the main European countries," Energy Economics, Elsevier, vol. 40(S1), pages S32-S57.

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