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Assessing Vulnerability of Selected Sectors Under Environmental Tax Reform: The Issue of Pricing Power


  • John FitzGerald

    (Economic and Social Research Institute (ESRI))

  • Susan Scott

    (Economic and Social Research Institute (ESRI))

  • Mary Keeney

    (Economic and Social Research Institute (ESRI))


This paper investigates pricing power, an important criterion for identifying sectors that would be vulnerable under environmental tax reform. Environmental tax reform, defined here as introduction of carbon taxes alongside reductions in labour taxes, could bear heavily on sectors that are energy intensive and highly traded, in particular if their options for adapting technology are limited. However, a sector with pricing power has less to fear as, rather than having to conform to the world price, it can set its price to accommodate a tax mark-up. To assess pricing power, a model of long-run price setting is specified and tested. Significant and plausible results emerged from this exercise, indicating that pricing power as a major aspect of a sector's relative vulnerability can be assessed. Of the six sectors analysed, the Basic metals sector had least pricing power and the Non-metallic minerals sector had most. As proxies for the world price, the German price tended to matter more than the US price. Thus, 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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  • John FitzGerald & Susan Scott & Mary Keeney, 2007. "Assessing Vulnerability of Selected Sectors Under Environmental Tax Reform: The Issue of Pricing Power," Papers WP222, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp222

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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's Greenhouse Gas Emissions," Research Series, Economic and Social Research Institute (ESRI), number RS9.
    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. Venmans, Frank, 2012. "A literature-based multi-criteria evaluation of the EU ETS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5493-5510.
    5. Kaltenegger, Oliver & Löschel, Andreas & Baikowski, Martin & Lingens, Jörg, 2017. "Energy costs in Germany and Europe: An assessment based on a (total real unit) energy cost accounting framework," Energy Policy, Elsevier, vol. 104(C), pages 419-430.
    6. Ercolano, Salvatore & Gaeta, Giuseppe Lucio & Romano, Oriana, 2014. "Environmental tax reform and individual preferences: An empirical analysis on European micro data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 51(C), pages 1-11.
    7. 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).
    8. Frank Venmans, 2015. "Capital market response to emission allowance prices: a multivariate GARCH approach," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(4), pages 577-620, October.

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    price-setting behaviour; competitiveness; environmental tax reform;

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