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Reforming the EU Energy Tax Directive: Assessing the Options

Author

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  • Ian Parry
  • Herman R. J. Vollebergh

Abstract

The efficiency case for raising fuel tax minima under the EU Energy Tax Directive (ETD) appears nuanced. Some fuels may be undertaxed (e.g., road diesel, natural gas), while others may be adequately taxed already (e.g., gasoline). Reform proposals would increase some minima, including for road diesel and natural gas, while leaving that for gasoline unchanged. This is a step in the right direction, though the climate, fiscal, health, and net economic benefits are limited. There are potentially much larger gains from extending tax minima to fuels (especially coal) covered by the EU Emissions Trading System (if the cap is tightened). Two-speed systems (with lower minima for low-income countries) may improve political acceptability, while sacrificing little in terms of climate benefits. Under higher, but still plausible, environmental damage assumptions than used here, there is a case for reviving ETD reform, whatever its exact structure.

Suggested Citation

  • Ian Parry & Herman R. J. Vollebergh, 2016. "Reforming the EU Energy Tax Directive: Assessing the Options," CESifo Working Paper Series 5749, CESifo.
    • Handle: RePEc:ces:ceswps:_5749
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp5749.pdf
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    References listed on IDEAS

    as
    1. Michiel Evers & Ruud A. de Mooij & Herman R.J. Vollebergh, 2004. "Tax Competition under Minimum Rates: The Case of European Diesel Excises," Tinbergen Institute Discussion Papers 04-062/3, Tinbergen Institute.
    2. Brink, Corjan & Vollebergh, Herman R.J. & van der Werf, Edwin, 2016. "Carbon pricing in the EU: Evaluation of different EU ETS reform options," Energy Policy, Elsevier, vol. 97(C), pages 603-617.
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    More about this item

    Keywords

    energy tax directive; climate; tax floor; efficiency;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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