The effect of special provisions in the framework of energy taxes on the environmental effectivess - The case of Germany

Many countries nowadays apply energy taxation to give an incentive to reduce energy use and energy-related emissions. Most of them, however, grant special provisions to energy-intensive production in order to meet concerns about negative economic effects and to mitigate carbon leakage. In Germany’s “ecological tax reform” special provisions were introduced in the form of reduced tax rates and tax rebates in 1999. In 2003, the tax law was revised in order to increase the incentive for energy and emission reduction for companies that profit from those tax privileges. This paper analyses the effect of those changes on energy use and CO2 emissions. It argues that the increase of the marginal tax in combination with a “ceiling” of the tax burden has an ambiguous effects on total emissions. A CGE analysis is undertaken with the recursive-dynamic model of Germany, LEAN, in order to quantify the effects.