Greenhouse gas taxation in Estonia: optimal environmental tax reform Silja Lüpsik ESTONIA

Background of the research problem Climate change  global warming Climate change  global warming Based on the “greenhouse effect” Based on the “greenhouse effect” ↑ emission of greenhouse gases (GHG) = CO 2, CH 4, N 2 O, CFC gases ↑ emission of greenhouse gases (GHG) = CO 2, CH 4, N 2 O, CFC gases Question: how to reduce GHG emissions?

Solution(?): International institutions to reduce GHG emissions (Kyoto protocol, EU regulations) International institutions to reduce GHG emissions (Kyoto protocol, EU regulations) Targeted environmental policy in a local (country) level Targeted environmental policy in a local (country) level   Economic instruments: environmental taxes

Present GHG taxation in Estonia GHG emissions are taxed – relatively unique for CO 2 GHG emissions are taxed – relatively unique for CO 2 Tax rate is very low Tax rate is very low (0.48€ / ton of CO 2 compared to 13.3€ CO 2 in Denmark 1996) Emissions are considerably big Emissions are considerably big GHG tax rates are increased 20% every year until GHG tax rates are increased 20% every year until  Need for marginal GHG tax reform

Research objective The goal of the research it to develop an optimal environmental tax reform in Estonia that considers local economic, economic, social, social, rural and rural and environmental aspects. environmental aspects.

Present situation in Estonia  GHG emissions have decreased considerably, but further reductions targeted TARGETS GHG emissions Gg CO2 equivalent

Research model POLICY OF GHG TAXATION INTERNATIONAL INSTITUTIONS OTHER POLICIES (Income tax, social policy etc) INPUT-OUTPUT MODEL HOUSEHOLD PRICES (HOUSEHOLD BUDGET SURVEY) BEHAVIORAL CHANGE (CGE MODEL) ANALYSIS: WELFARE, REGIONAL ASPECTS, SOCIAL EXCLUSION, TRANSACTION COSTS etc OPTIMALITY

Issue - GHG emissions spatially concentrated ~94% of CO 2 emissions

Institutional framework of research problem GHG tax system forms an institution that considers GHG tax system forms an institution that considers international obligations and international obligations and local conditions local conditions GHG tax reform promotes innovation and learning GHG tax reform promotes innovation and learning energy-efficiency measures on the company and household level; energy-efficiency measures on the company and household level; research for alternative energy production etc research for alternative energy production etc

Thank you!