Ort, DatumAutor

Economic and Environmental Effects of the EU Directive on

Energy Tax Harmonization

Katja Schumacher

Presented at:International Energy Workshop

Paris22-24 June 2004

AuthorsGerman Institut for Economic Research, Berlin

• Jochen Diekmann

• Michael Kohlhaas

• Dieter Schumacher

• Katja Schumacher

Institute for Applied Ecology, Berlin• Martin Cames

Goal and Scope of Paper

– Analyze the effects of the EU Directive on Energy Tax Harmonization

• on energy consumption and emissions • on economic growth and sectoral development• on international trade

– Focus on new EU Member Countries

– Use CGE model: GTAP-E

Background

– EU Directive on Energy Tax Harmonization • passed in October 2003 and entered into force in January 2004

– Directive aims at• reducing distortions between Member States and

between energy products• increasing the incentive to reduce energy consumption

and carbon dioxide emissions• establishing coherence of energy, transport and

environmental policies in Europe

– Directive covers EU15 Member Countries plus 10 Accession Countries

History of EU Energy Taxation

– 1992 Directive for the taxation of mineral oils:• Harmonization of the structure and the rates of excise duties Many exemptions and special provisions

– 1995 Political blockade of a proposal for CO2/energy taxation

Several countries felt at comparative disadvantage

– 1997 Proposal by EU Commission for a taxation framework of energy products and electricity

Provides base for the finally adopted, but much less stringent Directive of October 2004

EU Directive on Energy Tax Harmonization

– sets minimum tax rates for energy products– widens the scope of energy products covered to

mineral oils, coal, natural gas, electricity– includes general and country specific transitional

exemptions and reduced minimum rates

Comparison of minimum and actual taxation (EU-15)

 Minimum taxation

Energy Carriersin euro per ...

1997 Proposal

Directive 2004/10 AT BE DK FI FR DE GR IE IT LU NL PT ES SE UK

Unleaded Petrol 1000 l 500 359 414 507 548 559 581 624 296 401 542 372 628 470 396 504 729Diesel (Transp.) 1000 l 393 302/330 290 304 370 304 383 440 245 304 403 253 344 269 294 341 729LFO 1000 l 39 21 76 13 279 68 49 61 166 47 403 5 198 33 85 279 50Heavy fuel oil 1000 kg 34 15 36 6 52 57 19 18 19 14 31 6 32 27 14 .. 44Nat. Gas GJ gcv 0.7 0,3 a) 1.0 0.3 7.2 0.5 0 1.0 0 0 4.3 0 2.5 0 0 4.5 0Coal, coke GJ gcv 0.7 0,3 a) 0 0 7.3 2.1 0 0 0 0 0 0 0.6 0 0 10 0Electricity MWh 3 1 b) 20 1.4 89 7.0 7.3 17.9 0 0 40 2.4 45 0 5.1 22 0

a) 0,15 euro for business use; b) 0,5 euro for business use; all taxes without sulphur tax and VAT; .. - data not availableWhite fields indicate that actual taxes are less than minimum taxes.Sources: IEA 2003, BMU Umwelt 2003, EC 2003

Actual taxation in member states (2002)

Comparison of minimum and actual taxation (EU-accession countries)

 

Energy Carriersin euro per ...

1997 Proposal

Directive 2004/10 CZ HU PL SI

Unleaded Petrol 1000 l 500 359 351 409 381 276Diesel (Transp.) 1000 l 393 302/330 264 336 255 276LFO 1000 l 39 21 0 0 42 0Heavy fuel oil 1000 kg 34 15 0 0 0 0Nat. Gas GJ gcv 0.7 0,3 a) 0 0 0 0Coal, coke GJ gcv 0.7 0,3 a) 0 0 0 0Electricity MWh 3 1 b) 0 0 0 0.3a) 0,15 euro for business use; b) 0,5 euro for business use; all taxes without sulphur tax and VAT; .. - data not availableWhite fields indicate that actual taxes are less than minimum taxes.Sources: IEA 2003, BMU Umwelt 2003, EC 2003

Minimum taxationActual taxation in member

states (2002)

Minimum and actual taxes on gas oil

0

100

200

300

400

500

600

700

800

UK DE IT FR DK NL SE FI IE ES BE AT PT LU GR SI HU PL SK MT CZ LT EE LV CY

Eu

ro p

er

10

00

l l

EU15

EU+10

proposal 1997

min 2010

min 2004

min 1993

Data: EU, BMU Data for 2002, Germany 2003

Modeling Framework and Data

– CGE model: GTAP-E (Burniaux, Truong 2002)• static version

• nested CES production functions

• perfect competition, constant returns to scale

• Armington assumption

• ‚regional household‘

– GTAP 5.4 data set (incl. CEE countries) • aggregation: 12 regions, 13 sectors

GTAP-E Production and Capital-Energy Composite Structure

Output

Value-added-Energy(Including energy

inputs)

All other inputs(Excluding energy inputs butincluding energy feedstock)

NaturalResource Land Labor

Capital-EnergyComposite

Capital Energy Composite

Non-Electric Electric

Coal Non-coal

Gas...

Oil...

Petroleumproducts

=0

VAE

KE

ENER=1.0

NELY=0.5

NCOL=1.0

Regional aggregation

1 FRA France2 DEU Germany3 GBR Great Britain4 ITA Italy5 CZE Czech Republic6 HUN Hungary7 POL Poland8 XAC rest of Eastern European accession countries9 EUS group of southern European Union countries (ESP, POR, GRC)10 XEU rest of old EU member states (EU15 - 4)11 XOECD rest of OECD countries12 ROW rest of the world

Regions

Sectoral aggregation

1 AGR agriculture, forestry, fishing, food, beverages, tobacco2 COL coal 3 OIL crude oil4 GAS natural gas, gas manufacture, distribution5 p_c petroleum products, coal products6 ely electricity7 TCL textiles, clothing, etc. (labor intensive, non energy intens. manuf.)8 M_E machinery and equipment (capital intensive, non energy intens. manuf.)9 MIN non metallic minerals and products (energy intensive manufacturing)10 MET primary metals and metal products (energy intensive manufacturing)11 OEIM other energy intensive manufacturing (pulp and paper products, water)12 T_T trade and transport services13 SER other services

Sectors

Policy Scenarios

– Minimum Tax Harmonization (MTH): Member States fulfill minimum tax as set by Directive, but will not reduce existing taxes

– Full Tax Harmonization (FTH): As MTH, but Member States with higher tax rates lower their taxes to the minimum level

– Min. Tax Harmonization 1997 levels (MTH97): As MTH, but Member States fulfill minimum taxation according to the Commission’s tax proposal in 1997

Price changes (%) - Scenario FTH

-20

-15

-10

-5

0

5

10

15

20

25

30

35

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Coal

Industry

Households

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Gas

-30

-25

-20

-15

-10

-5

0

5

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Electricity

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Petroleum Products

Price changes (%) - Scenario FTH97

 

-10

0

10

20

30

40

50

60

70

80

FRA

GE

R UK

ITA

CZE

HU

N

PO

L

XA

C

EU

S

XE

U

Coal

Industry

Households

-40

-30

-20

-10

0

10

20

30

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Gas

Industry

Households

-25

-20

-15

-10

-5

0

5

10

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Electricity

Industry

Households

-30

-20

-10

0

10

20

30

40

FR

A

GE

R

UK

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

Petroleum products

Results

1. Effects on Energy Demand and CO2 Emissions

2. Macroeconomic Effects

3. International Trade Effects

Change of total demand of energy goods – MTH scenario

-6

-5

-4

-3

-2

-1

0

1[%]

FR

A

DE

U

GB

R

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

XO

EC

D

RO

W

col

oil

gas

p_c

ely

EU-15:– Small changes in demand

(<1%) except for gas demand in FRA, GBR and EUS due to an increase in gas taxes

Accession countries:- Effects are most pronounced

for p_c and gas - Increase in electricity demand

due to higher tax rates on fossil fuels than on electricity (subst. effect)

Change of total demand of energy goods – FTH scenario

-10

-5

0

5

10

15

20

25

30

35

[%]

FR

A

DE

U

GB

R

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

XO

EC

D

RO

W

col

oil

gas

p_c

ely

EU-15:– Four largest countries lower tax

rates– High increase in energy demand– Only minor effects in Southern

Europe

Accession countries:- Effects similar to MTH scenario- Higher increase in demand for

p_c due to higher world market prices

Change of total demand of energy goods – MTH97 scenario

-14

-12

-10

-8

-6

-4

-2

0

2[%]

FR

A

DE

U

GB

R

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

XO

EC

D

RO

W

col

oil

gas

p_c

ely

– All member states increase energy taxes– Changes in energy demand would be more balanced between

EU-15 and accession countries

Change of CO2 emissions by region (%)

-15

-10

-5

0

5

10

15

20

[%]

FR

A

DE

U

GB

R

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

XO

EC

D

RO

W

FTH

MTH

MTH97

Macroeconomic Effects: Real GDP

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0,8

1,0[%]

FR

A

DE

U

GB

R

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

XO

EC

D

RO

W

Change of real GDP

FTH

MTH

MTH97

MTH/MTH97:– Positive effects are very small– GDP-decrease for accession

countries

FTH:- GDP-increase between 0.5-1%

for countries with tax reduction- GDP-decrease for countries with

tax increases is higher than in MTH-scenario

Macroeconomic Effects: Terms of Trade

• Almost no changes in MTH

• Strong influence of world energy prices

• FTH: Deterioration of terms of trade for all countries, except for UK which is an oil exporter and ROW which includes oil-exporting countries

-0,4

-0,3

-0,2

-0,1

0,0

0,1

0,2

0,3

[%]

FR

A

DE

U

GB

R

ITA

CZ

E

HU

N

PO

L

XA

C

EU

S

XE

U

XO

EC

D

RO

W

Change of Terms of Trade

FTH

MTH

MTH97

Revealed Comparative Advantage – MTH/MTH97 scenario

• In Accession Countries:– Manufacturing: Shifts from energy-intensive to non energy-

intensive sectors due to lower imports – Transportation: Deterioration – Service: Improvement

• Opposite effects in EU-15:– Improvements in energy-intensive sectors– Deterioration in non energy-intensive sectors

• Non-EU countries:– Shift from energy industry to manufacturing industries

Revealed Comparative Advantage – FTH scenario

• Results from MTH/MTH97 scenarios are more pronounced

• EU-15: Improvement in labor-intensive non energy intensive sector (TCL)

• Non-EU countries: Shift from manufacturing industries to energy industry

Summary and Conclusions

Partial Harmonization

• MTH reduces energy demand and CO2 emissions slightly

• MTH implies GDP losses for new Member Countries, positive effects for old Member Countries

• MTH97 same as MTH but larger effects

Stricter tax rates (as in MTH97) needed in order to meet EU‘s energy efficiency and environmental goal

Negligible or positive economic effects for old EU members, negative effects for new Member States (but possible welfare gains from EU membership)

Summary and Conclusions (2)

Full Harmonization

• leads to increasing energy demand and CO2 emissions if no tax differentials were implemented

• old Member Countries increase their GDP at the expense of new member countries

Higher minimum tax rates needed if full harmonization is to pursue double objective of reducing distortions and reducing energy use and related emissions