09 Jun 2006

The Political Economy of Environmental Taxation in European Countries

Christian Egenhofer / Jorge Núñez Ferrer / Noriko Fujiwara

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Since the Kyoto Protocol entered into force in February 2005, many Parties to the Protocol have shifted their domestic policies into high gear to achieve the quantitative reductions in greenhouse gas emissions undertaken for the period from 2008 to 2012. While the basic design of environmental taxation in European countries has received widespread attention, its actual performance has not been systematically assessed. This report aims at examining, against pre-determined criteria (e.g. impact on costs and prices, competition and trade, environmental impacts and recycling mechanisms), how effectively environmental taxation systems are functioning. Most importantly, the report analyses the political dynamics behind these systems and how they have changed the ‘optimal’ tax design into a ‘politically feasible’ tax design.