A CARBON TAX TO REDUCE CO2 EMISSIONS IN EUROPE

This paper examines the effects of introducing a tax on carbon dioxide emissions produced by combustion processes in OECD-European countries. A sectoral model of energy consumption is constructed to examine energy-saving and inter-fuel substitution effects induced by the introduction of various carbon taxes. The simulation period is 1989-94. Our results provide a mild support to the environmental role of a carbon tax. Energy-saving or inter-fuel substitution processes, that result from the introduction of environmental taxation, stabilize emissions at the 1988 level only in the electricity generation sector, and only if high tax rates are assumed ($100/ton.C). By contrast, total emissions (all sectors and all fuels) keep growing, and the implementation of a tax of $100/ton.C can only reduce the emission growth rate. These results would recommend the introduction of several coordinated environmental instruments. The last part of the paper compares results concerning OECD-Europe with those obtained when examining a single country (Italy). The comparison does not seem to be in favour of a uniform carbon tax; it rather indicates that environmental policy should be designed taking into account the specific economic situation and technological choices of each single country. Country-specific coordinated environmental policies are to be recommended, where international coordination ought to concern environmental targets rather than instruments.