• View

  • Download

Embed Size (px)


University of Ljubljana

Faculty of Economics


Student: Renata Dombrovski

Supervisor: Joe Damijan, PhD, Full Professor

Ljubljana, September, 2011


DISSERTATION TOPIC: Efficient energy tax policies for promoting emergent



The pressure on global energy resources is high. Therefore, the current climate policy should

adopt the best measures that will limit harmful emissions, such as energy taxes, and other

policies where the direct aim is to promote renewable energy. Using time-series data from EU

countries for the period of 1990 to 2010 an extensive empirical cross-country analysis will be

conducted in order to propose the most efficient energy tax system. It is expected to find that

energy taxes in combination with tax incentives best promote implementation of solar

technologies. The purpose of this research is to empirically examine the effectiveness of

different tax instruments on implementation of solar energy technologies in EU countries.

The research focuses on the causal relationship between various energy taxes/supports,

investment costs and future savings in country / firm per year. This econometric study

explores the efficiency of all energy taxes and fiscal supports, such as lower tax rates, tax

relieves and exemptions for solar technology investments, applied within EU. Most countries

share the greenhouse gasses (GHG) emissions reduction goals. Although, their choice of tax

policies varies, depending mainly on the national priorities. Different fiscal instruments have

been used to promote clean energy. That includes difficulty in providing a renewable energy

EU policy framework, but helps in informing countries fiscal policy makers about the

efficiency of particular energy tax or incentive. Literature review gives a detailed overview of

existing empirical studies that examined the efficiency of a certain fiscal policy for promoting

emerging technologies in different countries. However, empirical model that comprises the

most efficient fiscal solutions for promoting solar technologies has not yet been proposed. A

probabilistic model will be developed in order to evaluate the solar energy implementation on

macro and micro level in EU, under energy taxes and different support mechanisms such as:

tax credits, tax incentives, governmental grants, feed in tariffs, renewable energy certificates,

carbon credits and emission trading schemes. The majority of data will be collected from

relevant statistical data sources: EEA, EUROSTAT, IMF, IBFD, OECD, the World Bank

and from official statistical databases of EU countries. Eurostat has developed a coherent

system of energy statistics. Annual data collection covers the EU-27 Member States and the

candidate countries of Croatia and Turkey. Time-series are available from 1990. The causal

relationship between energy tax/support, investment costs and future energy and money

savings in EU countries per year will be examined using time series data. Based on results of

empirical study new energy efficient tax model will be proposed. Appropriate energy tax

measures will enable countries to implement solar technologies and also to reduce greenhouse

gases emissions. Consequently, this will contribute to the policy-making process by helping

governments to implement optimal energy policies for promoting renewable technologies and

to reach their emissions target goals. The doctoral thesis will contain three interrelated

publishable papers. The main goal of first paper is to propose a new empirical model of


optimal tax policies for promoting renewable technologies on macro and micro level. Second

paper will empirically test proposed model on macro level and third paper will empirically

analyse the efficiency of energy taxes on micro level, based on time series data set from EU


KEYWORDS: greenhouse gasses emissions, energy taxes, solar technologies, economic



Q1: Why is of great importance that countries implement emerging solar technologies?

Q2: What is the impact of energy taxes / fiscal supports on promotion of solar technologies?

Q3: How different energy taxes and supports affect costs, energy savings and greenhouse

gasses emissions due to implementation of these technologies in the short and in the long run?

Q4: How efficient are various energy tax policies? What are the most efficient tax systems

and support policies that can be used to stimulate the application of solar technologies?

Q5: What is the role of the international cooperation on innovative solar technologies in

development of clean industries?


An increasing importance has been given to energy clean sector. According to European

Environment Agency, energy accounts for 80% of all greenhouse gas (GHG) emission in the

EU. The present system of energy policies within the EU is not sustainable. Strand (2007)

emphasizes that a major issue in the current climate policy debate is to establish the balance

between policies that would limit the emission of greenhouse gases. Such policies are carbon

taxes or cap-and-trade schemes, and measures where the direct aim is to promote renewable

alternatives to GHG emissions-generating energies. It is very important that countries develop

and implement new environmentally friendly technologies and use cleaner energy by reducing

greenhouse gases emissions (Gerlagh, 2008, Zhai et. al., 2008, Peretto, 2009, Nixon et. al.,

2010). Environmentally friendly technologies implementation has been examined for years,

but new approaches towards its positive economic impacts are continuously researched.

One of the first serious scientific studies (Carson, 1962) pointed to dangerous environmental

problems, but it did not consider in-depth connection between economic growth and the

environment. Further analyses of environment, economic growth and development

(Bartelmus, 1994) represent significant scientific confirmation that the current system of

development is not sustainable. Goodstein (2010) examines options for sustainable

development of clean technologies in poor countries and the role of the government in

controlling greenhouse gases emissions. There is an extensive literature in the fields of


ecology, environmental protection, sustainable development, management (Stiglitz, 2000,

Muller, 2004, Bhringer et al., 2009, Jackson, 2010, Golusin et al., 2011), while studies that

can establish scientific based interaction between ecology, management and economy are

very rare. rnjar and rnjar (2009) successfully cope with that challenge and conclude that

ecological management must create cost-effective systems. Researchers are constantly trying

to find the optimal measures for creation of such systems. Dotson (2009) emphasizes the

importance of familiarizing the citizens with impacts of emerging energy sector on the

quality of their lives. Successful innovations have a certain goal - by influencing both the

economy and the society, they build social prosperity.

Main steps toward climate change fight are: The Vienna Convention for the Protection of the

Ozone Layer from 1985 (UNEP, 1985), The United Nations Framework Convention on

Climate Change, 1992 (UNFCCC, 1992), which recognized among other important issues

that all countries and especially developing countries need to achieve sustainable social and

economic development, changing their orientation towards application of new technologies

which will achieve greater energy efficiency for controlling GHG emissions. The next

important step is The Montreal Protocol on Substances That Deplete the Ozone Layer from

1987 (UNEP, 1987). Few years later, by signing The Kyoto Protocol (UNFCCC, 1997) -

adopted in 1997 and entered into force in 2005 - the contracting countries agreed to reduce

their collective greenhouse gas emissions by at least 5% from the 1990 level in the

commitment period from 2008 to 2012. The Kyoto Protocol introduced three market-based

mechanisms - Emissions Trading, The Clean Development Mechanism (CDM) and Joint

Implementation (JI) in order to help countries to meet their targets by reducing GHG

emissions in a cost-effective way. The 2007 United Nations Climate Change Conference held

in Bali (UNFCCC, 2007), The United Nations Climate Change Conference from 2009 held in

Copenhagen, Denmark (UNFCCC, 2009) and The United Nations Climate Change

Conference which took place in Cancun, Mexico, in 2010 (UNFCCC, 2009) delivered

important decisions toward cleaner environment future. All these conferences significantly

contribute to climate change fight, but countries still need to find the optimal financial and

taxation mechanisms for sustainable development of clean technologies and accompanying

industries. In March 2011 the European Commission (EC) adopted "A Roadmap for Moving

to a Competitive Low Carbon Economy in 2050" with the goa