Greenhouse gas taxation in Estonia: optimal environmental tax reform

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

2. Background of the research problem • Climate change  global warming • Based on the “greenhouse effect” • ↑ emission of greenhouse gases (GHG) = CO2, CH4, N2O, CFC gases Question: how to reduce GHG emissions?

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

4. Present GHG taxation in Estonia • GHG emissions are taxed – relatively unique for CO2 • Tax rate is very low (0.48€ / ton of CO2 compared to 13.3€ CO2 in Denmark 1996) • Emissions are considerably big • GHG tax rates are increased 20% every year until 2005.  Need for marginal GHG tax reform

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

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

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

8. Issue - GHG emissions spatially concentrated ~94% of CO2 emissions

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

10. Thank you!