Xaquin Garcia-Muros (BC3) CECILIA2050 Workshop Bilbao, 23rd October 2015. "EU CLIMATE POLICIES TOWARDS A LOW-CARBON ECONOMY"

1. Distributional implications of
carbon and environmental
taxation: a case study for Spain
Xaquín García-Muros

2. Global Climate
Change (GCC)
Local Air Pollution
(LAP)
Two significant, interrelated environmental problems:

3. “LAP control combined with GCC policy creates an extra early-kick-
off for the transition towards climate friendly energy supply”
Bollen et al., 2009, page 179

4. Who pay mitigation policies?
Most studies find regressivity in GCC
related taxes, but this conclusion cannot be
taken as a rule because it depends on the
case study.
GCC tax
LAP Tax

5. Here, we conduct a distributional
analysis of an LAP tax (based on the
internalization of the external costs of
several pollutants) and compare it in
a compressive way with a GCC tax
(tax on CO2)
The distributional implications of a revenue-
neutral tax reform are also explored.

6. Environmental
taxes allocated to
producers
∆ Consumer
prices
Income
impacts of
households
INPUT-OUTPUT
MODEL
DEMAND MODEL
(AIDS)
Methodology

7. Scenarios Description Tax Equivalent
GCC tax Tax on CO2 emissions levied on
producers.
€25/t CO2
LAP Tax Tax on NH3, NOX, SO2, NMVOC,
and PM10 emissions levied on
producers.
We use the external
cost of CASES project
but only internalize
47.2% of external
costs
Revenue-Recycling Reduction in social security
contributions paid by employers
7.5% reduction in SS
contributions
Scenarios

8. 0.00 2.50 5.00 7.50 10.00
Electricity, water and gas production
Food Sector
Energy sector
Industries
Mining and quarrying
Sanitary and vetinary activities; social services
Real estate activities and entrepreneurial services
Education
Financial intermediation
Homes that employ domestic staff
top5Bottom5
GCC tax LAP tax
Change (%) in production prices. Top and
bottom sectors

9. 0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1 2 3 4 5 6 7 8 9 10
LAP tax GCC tax
Cost impacts change (EV, %) by
expenditure deciles

10. The importance of consumption pattern
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10
Other services
Restaurants and hotels
Education
Leisure and culture
Communication
Transport
Health
Home furnishing and home maintenance
House
Clothing and footwear
Alcoholic beverages, tobacco and narcotic
Food

11. Second exercise:
Revenue recycling

12. -1.5 0.0 1.5 3.0 4.5 6.0 7.5 9.0
Electricity, water and gas production
Food Sector
Energy sector
Industries
Mining and quarrying
Sanitary and vetinary activities; social services
Real estate activities and entrepreneurial services
Education
Financial intermediation
Homes that employ domestic staff
top5Bottom5
GCC tax LAP tax
The impact of revenue recycling on
price change

13. 0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
1 2 3 4 5 6 7 8 9 10
LAP tax GCC tax
Cost impacts after recycling per expenditure
group

14. Conclusion
•LAP taxes are more regressive than GCC taxes. LAP is more linked to
goods that are consumed by low incomes groups than GCC taxes, where
its potential regressive effect is compensated by the higher consumption
of transport and energy of the higher income groups.
•The result does not improve with the revenue-recycling effect because,
again, the beneficiaries of this policy are labour-intensive and non-
polluting goods that are consumed proportionally more by high income
groups.
•Although these results are of course an empirical matter, they can be
extrapolated to countries with similar production and consumption
profiles.

15. •Although it was thought that LAP taxes might be easier to implement
because their effects (mainly on health) are felt more immediately by
citizens and by low-income households than those of GCC taxes, this may
not be the case if the distributional issue is factored into the policy
maker’s equation
•If it is wished to correct the distributional effect of this type of tax reform
the standard approach, i.e. reducing taxes on labor, may not improve the
distributional effect. However given that the overall regressivity of these
taxes is low, various specific combinations of policies could be design to
compensate the households or groups that are most affected.
Policy implications:

16. Thanks For Your
Attention!!