&RPSHWLWLYHQHVV (IIHFWV RI (QYLURQPHQWDO 7D[ 5HIRUPV Publishable Final Report to the European Commission, DG Research and DG Taxation and Customs Union (Summary report) NERI, University of Aarhus (Denmark) Cambridge Econometrics (UK) ESRI (Ireland) IEEP, Univ. of Economics (Czech Republic) PSI (UK) WIIW (Austria) 2007 (& 6L[WK )UDPHZRUN 3URJUDPPH IRU 5HVHDUFK $FWLYLW\ $UHD 6FLHQWLILF 6XSSRUW WR 3ROLFLHV &RQWUDFWÃQRÃSCS8-CT-2004-501993 ,QVWUXPHQW Specific Targeted Research or Innovation Project 7KHPDWLFÃ3ULRULW\Ã8 - Underpinning European integration, sustainable development, competitiveness and trade policies (including improved means to assess economic development and cohesion) 3HULRGÃFRYHUHGÃEntire project durationÃ(month 1 – 30)Ã 'DWHÃRIÃSUHSDUDWLRQÃ31 August 2007 6WDUWÃGDWHÃRIÃSURMHFWÃ1 December 2004 'XUDWLRQ 2.5 years 3URMHFWÃFRRUGLQDWRU Professor Mikael Skou Andersen 3URMHFWÃFRRUGLQDWRUÃ RUJDQLVDWLRQ National Environmental Research Institute, University of Aarhus (NERI), Grenåvej 14, DK-8410 Rønde )URQWÃSDJHÃSKRWR Offshore windmills (DK), Samsø Energy Academy. 5HYLVLRQÃ1.0 3URMHFW &RQVRUWLXP &RQWUDFWRUV &RQWDFW SHUVRQ 1(5, 8QLYHUVLW\ RI $DUKXV 0LNDHO 6NRX $QGHUVHQ 32 %R[ PVD#GPXGN '/ 5RVNLOGH '(10$5/ &DPEULGJH (FRQRPHWULFV 6XGKLU -XQDQNDU &RYHQW *DUGHQ 6XGKLU-XQDQNDU#FDPHFRQFRP &DPEULGJH &% +6 8/ (FRQRPLF DQG 6RFLDO 5HVHDUFK ,QVWLWXWH 6XH 6FRWW :KLWDNHU 6TXDUH VXHVFRWW#HVULLH 6LU -RKQ 5RJHUVRQ V 4XD\ 'XEOLQ ,5(/$1' ,QVWLWXWH IRU (FRQRPLFV DQG -LULQD -LONRYD (QYLURQPHQWDO 3ROLF\ LHHS#LHHSF] 8QLYHUVLW\ RI (FRQRPLFV LQ 3UDJXH : &KXUFKLOOD 3UDKD ± äLåNRY &=(&+ 5(38%/,& 3ROLF\ 6WXGLHV ,QVWLWXWH 5RJHU 6DOPRQV +DQVRQ 6WUHHW /RQGRQ :: 83 8/ 9LHQQD ,QVWLWXWH IRU ,QWHUQDWLRQDO (GZDUG &KULVWLH (FRQRPLF 6WXGLHV FKULVWLH#ZLLZDFDW 2SSRO]HUJDVVH $ 9LHQQD $8675,$ 7$%/(2)&217(176 WP1: Environmental tax reforms in Europe ................................................... 6 E\0LNDHO6NRX$QGHUVHQ1(5, WP2: The market: structure and sector vulnerability .................................. 16 E\-RKQ)LW]*HUDOGDQG6XH6FRWW(65, WP3: An assessment of the impacts of ETR on the competitiveness of selected industrial sectors ................................................................................ 24 E\5RJHU6DOPRQVDQG3DXO(NLQV36, WP4: The effects of ETR on competitiveness: modelling with E3ME ....... 36 E\3DXO(NLQV36, WP5: Carbon Leakage....................................................................................... 48 E\6WHIDQ6SHFN1(5, WP6: Stabilisation, mitigation and compensation........................................ 58 E\0LNDHO6NRX$QGHUVHQ1(5, Annex: Summaries of industry sector case studies ...................................... 70 3 'DWDVKHHW Title: Competitiveness Effects of Environmental Tax Reforms (COMETR) Subtitle: Publishable Final Report to the European Commission, DG Research and DG TAXUD (Sum- mary Report) Authors: Mikael Skou Andersen1, Terry Barker2, Edward Christie6, Paul Ekins5, John Fitz Gerald3, Jirina Jilkova4, Sudhir Junankar2, Michael Landesmann6, Hector Pollitt2, Roger Salmons5, Sue Scott3 and Stefan Speck1 (eds.). Departments: 1)Department of Policy Analysis, National Environmental Research Institute, University of Aar- hus (Denmark). 2)Cambridge Econometrics (United Kingdom). 3)Economic and Social Research Institute (Ireland), 4)Institute for Economic and Environmental Policy, University of Economics Prague (Czech Re- public), 5)Policy Studies Institute (United Kingdom) 6)Vienna Institute for International Economic Studies (Austria). Publisher: National Environmental Research Institute University of Aarhus - Denmark URL: http://www.neri.dk Year of publication: December 2007 Editing completed: November 2007 Referees: Work package deliverables have been reviewed by members of the project consortium. Financial support: European Commission, Sixth Framework Programme for Research, Activity Area “Scientific Support to Policies”, Contract no. SCS8-CT-2004-501993. Please cite as: Andersen, M.S., Barker, T., Christie, E., Ekins, P., Gerald, J.F., Jilkova, J., Junankar, S., Lan- desmann, M., Pollitt, H., Salmons, R., Scott, S. and Speck, S. (eds.), 2007: Competitiveness Ef- fects of Environmental Tax Reforms (COMETR). Publishable Final Report to the European Commission, DG Research and DG TAXUD (Summary Report). National Environmental Re- search Institute, University of Aarhus. 111 pp. - http://www.dmu.dk/Pub/COMETR_Summary_Report.pdf Reproduction permitted provided the source is explicitly acknowledged Abstract: COMETR provides an ex-post assessment of experiences and competitiveness impacts of us- ing carbon-energy taxes as an instrument of an Environmental Tax Reform (ETR), which shifts the tax burden and helps reduce the carbon emissions that cause global warming. COMETR: reviews the experience in ETR in seven EU Member States (Denmark, Germany, Netherlands, Finland, Slovenia, Sweden and UK); analyses world market conditions for a set of energy- intensive sectors, as a framework for considering competitiveness effects; analyses the effects of ETR on sector-specific energy usage and carbon emissions in Member States with carbon- energy taxes introduced on industry; presents a macroeconomic analysis of the competitive- ness effects of ETR for individual Member States as well as for the EU as a whole; provides ex- post figures for environmental decoupling and assesses carbon leakage; reviews mitigation and compensation mechanisms for energy-intensive industries. Keywords: Competitiveness; tax; CO2; socio-economic; macro-economic; energy-intensive; trade; Porter hypothesis; environmental tax reform; double dividend; energy taxation; climate Layout: Ann-Katrine Holme Christoffersen Number of pages: 111 Internet version: The report is available in electronic format (pdf) at NERI's website http://www.dmu.dk/Pub/ COMETR_Summary_Report.pdf 4 &20(75 2YHUYLHZ RI GHOLYHUDEOHV The final report contains the following deliverables from the COMETR project – it is these deliverables which are summarised in the present publishable final report (summary report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even EU member states have implemented tax reforms which to some extent shift the tax burden from taxation of labour to taxation of carbon-energy. The member states and the initial year of the tax reform1 are as follows: 1. Sweden (1990) 2. Denmark (1993) 3. Netherlands (1996) 4. Finland (1997) 5. Slovenia (1997) 6. Germany (1999) 7. UK (2001) The reforms include tax shifts toward energy and transport taxes, as well as in some cases a restructuring of energy taxes to reflect better their carbon emissions. While the scale of the tax shifts differs between member states, altogether these tax reforms are assessed to have shifted tax revenues for more than 25 billion euros annually in Europe. It is mainly labour which has experienced the lighter tax burden. While the resulting reductions in carbon emissions are documented in several studies (Clinch et. al., 2006, Speck et. al., 2006; Enevoldsen et. al., 2007), concerns remain as to whether the broader effects for economic growth, competitiveness and employment are also beneficial. The COMETR project has addressed this difficult and sensitive issue by means of a range of methods and research techniques. COMETR has taken its point of departure in official definitions of competitiveness as established by the EU and OECD.2 The aim of the COMETR project has been to provide an evaluation from an ex-post perspective on the impacts of ETR on competitiveness, in particular that of energy-intensive industries. The underlying philosophy of environmental tax reform was expressed by former Commission President Jacques Delors in the famous White Paper on Growth, Competitiveness and Employment (Commission, 1993), which recommended taxing ‘bads’ rather than ‘goods’ (labour) in order to achieve a double dividend. While the 1 According to Slovenia’s report to UNFCC its carbon-energy