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Assessing vulnerability of selected sectors under environmental tax reform: the issue of pricing power

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  • John FitzGerald
  • Mary Keeney
  • Sue Scott

Abstract

Environmental tax reform could bear heavily on manufacturing sectors that are energy intensive and highly traded, in particular if their options for adapting technology are limited. However, to the extent that such sectors can pass on the cost of the environmental taxes through higher prices charged to their customers, they will not suffer a lasting drop in profitability or output. To assess pricing power in key sectors, a model of long-run price setting behaviour is specified and tested. Significant and plausible results emerged from this exercise. Of the six sectors analysed, the Basic metals sector revealed least pricing power and, hence, greatest vulnerability, and the Non-metallic minerals sector revealed most pricing power. The results indicated that the world price, proxied by the US price, was less of a constraint than the EU price, proxied by the German price. Thus, international competitiveness fears are reduced not just where there is good potential for adapting technology but also if application of environmental tax reform is EU-wide.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Environmental Planning and Management.

Volume (Year): 52 (2009)
Issue (Month): 3 ()
Pages: 413-433

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Handle: RePEc:taf:jenpmg:v:52:y:2009:i:3:p:413-433

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Related research

Keywords: price-setting behaviour; competitiveness; carbon tax; market power;

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Cited by:
  1. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's Greenhouse Gas Emissions," Research Series, Economic and Social Research Institute (ESRI), number RS9.
  2. Bergin, Adele & Conefrey, Thomas & FitzGerald, John & Kearney, Ide & Znuderl, Nusa, 2013. "The HERMES-13 macroeconomic model of the Irish economy," Papers WP460, Economic and Social Research Institute (ESRI).
  3. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's GHG Emissions [Instrument choice: the pros and cons of alternative policy instruments]," Papers WP284, Economic and Social Research Institute (ESRI).
  4. FitzGerald, John & Bergin, Adele & Conefrey, Thomas & Diffney, Sean & Duffy, David & Kearney, Ide & Lyons, Sean & Malaguzzi Valeri, Laura & Mayor, Karen & Richard S. J. Tol, 2008. "Medium-Term Review 2008-2015, No. 11," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR11, March.

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