What are the alternatives to carbon taxes

CO2-Tax

Lexicon> Letter C> CO2-Tax

Definition: a tax on CO2-Emissions as an instrument for climate protection

Alternative terms: carbon tax, climate tax

More general term: CO2-Pricing

English: CO2 tax

Categories: Energy Policy, Basic Concepts

Author: Dr. Rüdiger Paschotta

How to quote; suggest additional literature

Original creation: 07/18/2019; last change: 03/15/2020

URL: https://www.energie-lexikon.info/co2_steuer.html

What is a CO2-Tax?

A CO2-Tax is a tax that is used to reduce emissions of CO2 and possibly also other gases that are harmful to the climate. The primary goal is that such emissions are reduced. So it is primarily an instrument for climate protection - although other ecological side effects are also possible, in particular a reduction in air pollutants, the emissions of which are often combined with those of CO2 respectively.

The term CO2- Steering tax can be considered to be roughly equivalent to a CO2-Tax to be considered. In both cases it is primarily a question of increasing the cost of emissions by the state (i.e. a market-based steering effect), and the use of the income can be shaped according to political preferences.

Basic idea

The problem can no longer reasonably be denied; the urgent need for a solution is obvious!

The starting point for all considerations about a CO2-Tax is the now widespread insight that enormous climate dangers threaten the world if the global emissions of climate-damaging gases into the earth's atmosphere are not reduced very soon. The first effects of significant global warming can already be clearly felt in many countries around the world; On the basis of the scientific knowledge gathered over decades, however, it is to be expected that these effects will increase considerably in the next few decades, even in the best case of a fairly successful climate protection. In the event of a failure of climate protection, catastrophic effects that are not precisely manageable in advance are to be expected, which would also massively threaten the prosperity achieved in a large number of countries.

Higher prices for climate-damaging goods reduce their demand and thus the climate impact.

Since various other measures have so far only had very limited effects, more effective instruments for climate protection are increasingly being sought. It is particularly noticeable that, from an economic point of view, a lot of environmental pollution is caused because the external costs incurred (i.e. economic disadvantages) are not taken into account in the prices of goods and services; it creates a Market failure. A central basic idea is that the demand for products that are more expensive to provide (e.g. through a CO2Tax), generally more or less decreases. A measure of the strength of this effect, i. H. the effect of price signals on demand is, in economics, the Price elasticity. This depends strongly on the particular circumstances, and average values ​​have been determined for certain goods and groups of consumers.

Well there are basically two different types of instruments one CO2-Pricing for creating suitable market incentives:

  • One variant is the introduction of a comprehensive CO2-Tax, the subject of this article.
  • Alternatively, an emissions trading system can be operated that limits the total amount of climate-damaging emissions and indirectly (but not necessarily less strongly) increases the prices of climate-damaging goods.

What both approaches have in common is the basic idea of ​​reducing emissions through CO2-Pricing. What is different, however, is the way in which corresponding price increases are introduced. See the section “Comparison of CO2-Tax and Emissions Trading ”in the article about the CO2-Pricing.

Of course there are also other approaches that either don't work at all through prices or in a completely different way. For example, the state can promote research and development for renewable energies in the hope that this will make them more cost-effective and consequently increasingly replace fossil fuels. Other approaches include a ban on certain energy sources or certain types of use as well as the enactment of regulations for more energy-efficient technologies, for example with minimum standards for thermal insulation and the energy efficiency of heating systems within the framework of building legislation. However, since there is an enormous number of ways of use, all of which cannot possibly be regulated by the state in such a way, comprehensive climate protection is hardly possible with such instruments alone.

It's not just about steering effect, but also about the economic efficiency of climate protection!

When using the CO2-Pricing is not just about the steering effect itself (i.e. the desired reduction in climate-damaging emissions), but also about ensuring that this is implemented in the most economically efficient way possible in order to minimize negative economic side effects or on the basis of the existing economic potential to achieve the maximum climate protection effect. In the case of instruments that do not operate via prices, there is always the risk of inefficiency because emission reductions are implemented in a relatively expensive way. This risk is usually at least much lower with pricing models; one thus achieves minimal CO2-Avoidance costs. The basic idea here is that, in their own interest, economic actors will prefer those measures that are the most cost-effective - without the state having to know in advance which these will be. So it's about a market economy approach.

Some examples of possible effects of the new price signals:

  • The exit from coal would be accelerated, especially because many coal-fired power plants would no longer be competitive on the electricity market.
  • In Germany in particular, heat pump heating systems are increasingly being used instead of oil and gas heating systems, because the electrical energy required for electric heat pumps is relatively much cheaper.
  • When making purchasing decisions for cars, for example, more attention will be paid to fuel consumption.
  • The production of various goods will increase with a sharper decrease in CO2-Emissions occur even without consumers requesting them. Investments for improved energy efficiency tend to be profitable, which can even strengthen the economy. There are also increased incentives to innovate, for example for the development of energy-saving manufacturing technologies.
  • Similarly, investments in the energetic refurbishment of buildings will be increased, even without additional state funding instruments.
  • At the same time, sufficiency is strengthened, especially among the lower-income sections of the population. For example, long-distance travel is being pushed back, possibly with positive effects for domestic tourism.

Many of the effects will be particularly pronounced if the tax rate is foreseeable to rise significantly.

You lie down with a CO2-The tax does not, for example, stick to certain technologies, but leaves it to the actors in the markets how exactly the goals can best be achievedtechnology-neutral approach). As a result, new options, for example due to unexpected advances in the technological area, can be used immediately without lengthy government adjustments.

Even if emissions reductions are achieved through sufficiency, CO has an effect2-Pricing in a meaningful way; It is up to consumers whether they prefer to forego one long-haul trip each year, for example, or severely limit the use of the car throughout the year. Individuals can also avoid emissions reductions entirely by simply paying the tax without changing their behavior; the more people go this route, the higher the tax has to be in the end in order to achieve the necessary climate effect.

However, it should not be overlooked that, for example, emission limit values ​​can be more efficient in individual cases, for example because the assessment basis for pricing is difficult to determine and certain types of emissions are best minimized as far as technically possible from the outset. For example, energetic building regulations are by no means unnecessary, as the consumers, due to a lack of information, the CO2-The effects of detailed technical decisions could not be correctly assessed or at least this would be far too time-consuming.

Possible forms of a CO2-Tax

While the basic concept of a CO2-Tax is easy to understand, several non-trivial circumstances must be carefully considered for a meaningful practical implementation. An overview of this is given below.

Tax base

A broad tax base - with only minimal exceptions - is crucial for the functioning of an emissions tax.

The basic advantages of a CO2Taxes can only be achieved if they are levied as comprehensively as possible on everything that relates to CO2Emissions leads. Otherwise situations arise in which certain actually more efficient CO2- Reduction methods are not used due to a lack of price signals (i.e. financial incentives), so that the average CO2- Avoidance costs increase. It would therefore not make sense to focus solely on power plants or air traffic, for example; rather, the lion's share of climate-relevant emissions should be recorded evenly. The creation of many exceptions, for reasons of competition, for example, could undermine the basic principle of the emissions tax.

A CO2-Tax can in principle directly according to measured CO2Emissions are collected from power plants, for example. A certain tax rate (in euros per emitted tonne of CO2) applied. This form of taxation is easy to implement, especially for large issuers.

At which stage of production should the tax act?

However, this approach is not practicable in all situations - for example in private transport or in retail. Here it is usually much more appropriate to tax the carbon content of, for example, gasoline or heating oil where these goods are placed on the market - not only where the actual emissions will later occur (e.g. at the exhaust pipe or on the chimney of the Heating system). That is why there is also the concept of Carbon tax: It doesn't matter what chemical form the carbon is in at the point where the tax is applied. It should simply be decided on the basis of practical aspects (effort involved in collecting data, minimizing the possibility of fraud, etc.) at which stage of production it makes sense to tax. In many cases it should be optimal to start with the extraction of the raw materials, if this is done domestically, and otherwise with the import (taking into account the upstream chain, see below).

CO2-Equivalents enable the balanced taxation of other climate-damaging substances.

It makes sense to generalize the system in such a way that other gases that are harmful to the climate such as e. B. Methane can be included. The tax rates can be applied to the CO2- Orientate equivalents. However, it is often difficult to record such emissions. For example, the strength of the methane slip from biogas plants and gas engines is often hardly known; in such cases, emission limit values ​​and the like are likely to offer more sensible approaches.

If, for example, liquefied natural gas obtained through fracking were taxed taking the upstream chain into account, the results would be absurd!

Ideally, for the CO2-Tax not only takes into account the emissions generated by the consumer, but also those in the upstream chain, i. H. in the extraction and provision of z. B. of energy sources. Otherwise, the important aspect would not be taken into account, for example, that the production and transport of natural gas release certain amounts of the particularly climate-damaging methane, which, depending on the source, can massively worsen the carbon footprint of natural gas. Another example is emissions from transport. While such emissions are still somewhat limited in the case of oil tankers and oil or gas pipelines, they can be quite significant, for example, in the case of liquefied natural gas transported by ship - especially because of the energy required for liquefaction before the ships are filled. Specifically, it would be z. B. obviously nonsensical, in Europe with fracking obtained natural gas, which is sold as liquefied natural gas in Europe, without taking these circumstances into account, only to be taxed according to the emissions during consumption. This would namely favor the use of such liquefied natural gas in terms of tax compared to heating oil, although the resulting climate impact is in reality much higher.

Incidentally, the inclusion of negative emissions is also conceivable, i.e. H. of carbon sinks. For example, negative taxes (i.e. state subsidies) could be set up for those who operate stable reforestation projects over the long term. After all, these would have a beneficial climate effect similar to that of reducing emissions.

Relationship to existing taxes

Have we not already had a tax on climate-damaging energy sources?

In Germany, for example, energy sources are still without CO2-Tax with various energy taxes, which have a certain steering effect in terms of climate protection. However, these taxes are not really based on CO2-Emissions and therefore sometimes give wrong incentives. For example, the profitability of heat pump heating systems in Germany is burdened much more heavily by relatively high taxes and other charges on electrical energy than, for example, the operation of gas heating systems, because natural gas is taxed relatively low. As a result, only a small proportion of the buildings are heated with electric heat pumps; would also make economic sense, it is often not possible because of the lack of business incentives.

The simplest approach would be to put all energy taxes through a uniform CO2-Tax to replace. However, it would be possible in individual cases to retain existing taxes, possibly with reduced tax rates, if other relevant aspects - such as other negative side effects of energy generation or consumption (e.g. air pollutants) - were not sufficiently taken into account. The problem that price signals are very ineffective in individual sectors could also be addressed. For example, an additional tax on kerosene for private jets could remain if there is a social consensus that the super-rich should at least be asked to pay more if they refuse to accept the need for climate protection.

It should also be noted that various goods are also subject to taxes other than energy. A resulting implicit CO2-Tax also has a steering effect, but is usually not oriented in a fair way to the harmfulness of the relevant goods to the climate. The move towards an explicit unified CO2-Tax therefore leads to more balance.

Determination of the tax rate; Reduction path

Since many CO2Mitigation measures cannot be implemented immediately, because more or less extensive adjustments have to be made, it is essential to have a realistic one Reduction path define. This should be such that the goal of climate protection is achieved in the most efficient way possible, i. H. with the smallest possible economic side effects. In this sense, a relatively low CO2-The tax rate will apply, which will then gradually rise - ideally, predictably over the years. On the other hand, the aim should be to start the reduction as soon as possible, otherwise valuable time is lost and future reductions will have to be even faster, more massive and therefore more expensive. Unfortunately, a lot of time has already been wasted in most countries around the world, with the result that the faster implementation that is now required will be correspondingly more expensive.

Shouldn't the tax rate simply reflect the social cost of emissions?

In principle, the tax rate can also be set quite differently, namely based on the social costs of CO2Emissions. According to a simple economic model, it is precisely the emission reductions that make economic sense, the costs of which are lower than the benefits of avoiding damage. However, this approach suffers from the fact that, on the one hand, the expected social costs are very difficult to estimate and, on the other hand, it is much easier for the actors to adapt to gradually increasing rates than if a stricter, longer-term tax rate were set right from the start.

Emission budgets show more clearly how much climate protection is necessary than emission ceilings for certain years.

The quantitative necessity of climate protection can best be explained with a global CO2-Budget should be recorded, as suggested, for example, by the German Advisory Council on Environmental Issues [1]. According to the IPCC Special Report 1.5 of 2018, a global total budget of approx. 800 Gt (gigatons) of CO would be required to achieve the 1.75 degree target of Paris 2015 (“well below 2 degrees”)2, calculated from the beginning of 2018, some of which has already been issued. Converted to the German share of the world population (approx. 1.1%), this would correspond to a budget of around 8.8 Gt for Germany since the beginning of 2018, if one does not take into account that Germany's previous contribution was well above the global average. For the more ambitious (and safer) 1.5 degree target, the remaining budget would be considerably lower.

With a given emissions budget, it does not matter how precisely the reduction path is designed or adhered to. If you find out after a few years that the CO2-The tax rate was not high enough, it can be increased more than planned in order to still adhere to the long-term emissions budget. In any case, at least an effective CO2-Neutrality can be achieved by around the middle of the 21st century - the earlier, the later serious climate protection is started - in order to keep the expected climate damage under control.

Use of the income

In principle you can have a CO2- Use tax like any other to finance the state budget. However, depending on the government's assessment, the income can also be used differently - some examples:

  • In order not to increase the state quota as a whole, other taxes or duties can be reduced accordingly. In this context, particular attention should be paid to taxes on work in order to promote the level of employment (keyword ecological tax reform). So far, the actually absurd situation has existed that work is taxed relatively heavily, although employment is politically and socially desirable, while kerosene for commercial flights, for example, remains untaxed in order to promote particularly climate-damaging air traffic.
  • More revenue could also be used for additional expenses, for example to reduce the vulnerability of the country and the economy to climate change.
  • Alternatively, the tax revenue can be partially or fully reimbursed to the population - for example with a capita premium through the health insurance companies (with particularly little administrative effort, as is the case in Switzerland). A full reimbursement in this way would counter the political opposition to the CO2- Probably the most effective way to deal with taxes.

Distribution effects

Fundamental distributive effects of such a tax are fundamentally unavoidable, but can be designed very differently depending on the political goals.

First of all, households with low incomes are seen in absolute terms by a CO2-Tax tends to hit less, but more than wealthier households relative to income. In this respect, a CO2-Tax alone is regressive and therefore rather not social.

A socially responsible CO2-Tax is easily possible; the design of distributional effects is solely a political question.

For example, the reimbursement with the above-mentioned per capita premium would mean that wealthier households would receive less reimbursement than they pay through the tax because of their significantly higher average energy consumption, while poorer households would be better off overall due to the reimbursement. A CO2-Tax can therefore easily be designed in a socially acceptable manner if this is politically desired.

Problem cases may remain - for example, when poorer employees are forced to commute because they cannot find a closer job or affordable apartment closer to their work place. However, such problems should hardly reduce the feasibility of a CO2-Consider tax in principle.

While the matter can remain more or less cost-neutral for the economy as a whole, actors with above-average energy consumption are additionally burdened, while others are better off overall. International distribution effects are also to be expected. While competitive disadvantages of their own industry z. If, for example, border tax adjustments (see below) are more or less avoidable, there is a reduced outflow of funds through the import of raw materials, which is of course positive from a national point of view.

In the end, the decisive factor for prosperity is whether or not climate protection is successful!

Of course, it must always be taken into account that the most important economic effects also depend on the success of climate protection. Various distribution effects are marginal in importance compared to the question of whether a catastrophic development of the global climate can be avoided.

Avoidance of competitive disadvantages

If you move with a CO2-Don't just tax the emissions abroad?

A national (or e.g. limited to Europe) CO2-Tax can (just like an emissions trading system) result in unfair competitive disadvantages for domestic industry, namely if foreign producers with little or no CO2- Tax rates can work. This problem can be solved with a Border adjustment solve that can work with a system of import taxes. This concept is discussed in the article on CO2-Pricing explained.

CO2-Taxes in other countries

A growing minority of countries already have some type of CO2-Tax is introduced or is currently in the process of being introduced. The highest tax rate of 120 € / t CO2 (As of 2019) currently applies in Sweden, where the CO2-Tax has existed since 1991.

A development is conceivable, according to which most EU countries will have a CO within the next few years2- Introduce tax at a similar level. However, a strengthening of the European emissions trading system (including expansion to other consumption sectors) could make this unnecessary.

Comparison of CO2-Tax and emissions trading

The article about CO2- Pricing contains a section in which the instrument CO2-Tax and emissions trading are comprehensively compared with one another.

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See also: carbon dioxide, climate hazards, climate protection, energy policy, emissions trading, CO2-Avoidance costs, CO2-Pricing
as well as other articles in the categories of energy policy, basic concepts