This working paper brings together three analyses that were carried out by the Federal Planning Bureau at the request of the Secretary of State for Energy and Sustainable Development and the Minister for Consumer Affairs, Public Health and the Environment. It looks at the harmonisation (increase) in energy levies up to the average level in our neighbouring countries and the introduction of a co2 levy. In the case of the co2 levy we analyse both the situation whereby all energy products are taxed and the case where the levy is only applicable to road transport. All policy variants are intended to reduce co2 emissions in Belgium within the context of the Kyoto Protocol. The analyses presented in this working paper were finalized in September 2001.
It should be pointed out that there are differences between the scenarios in terms of the scope of the levies (the estimated revenue yield). The results of the variants - in both economic and environmental terms - cannot, therefore, be simply compared with each other. What is more, the use or non-use of the tax revenue (e.g. to reduce social security contributions or finance further investment) is very important in determining their impact on economic activity.
Most of the simulations cover the period from 2002 to 2012. In each case their impact is discussed on the macro-economy, sectors, public finances, energy consumption and co2 emissions. The exercises have been built using the macro-sectoral model hermes (April 2001 version), on the basis of a base simulation corresponding to the medium-term forecast for 2001-2006 issued in April 2001, extended to cover the period from 2007 to 2012. The characteristics of the base simulation are described in Chapter III.
Chapter IV analyses the effects of higher energy levies. The first variant concerns the alignment of taxation of energy products with the average levels calculated for Belgium's three neighbouring countries (France, Germany and the Netherlands). The study takes as its reference point the taxation rates that were in force in 1999. It is clear that the various taxes on energy (excise duty, other specific taxes and vat) have evolved since that date. In this context, taking into account the changes which have taken place since then could alter the results, without, however, calling the conclusions into question. In this variant the tax revenue remains in the treasury and the government does not finance any new initiatives. In a second variant the tax revenue is all used to reduce social security contributions. The share of the tax that is paid by households is then offset by a reduction in employees’ social security contributions. The share that is paid by companies is returned to them via a reduction in employers’ contributions.
Chapter V considers the impact of a tax on co2 emissions on the Belgian economy. Two different levels of co2 tax are simulated. The first level of tax is eur 11.5 per tonne of co2 (at 1990 prices). This corresponds to the tax put forward in the Proposed National Climate Plan. The second level is eur 26.2 per tonne of co2 (at 1990 prices). This level corresponds to an equilibrium price for emissions rights as calculated in a European study which assumes that the eu will achieve the Kyoto target through trading in emissions rights between eu countries without further international trading in emissions rights. For both levels of co2 levy two simulations are carried out, namely with and without redistribution of the co2 tax revenue by the government. As in Chapter IV, the redistribution takes place in the form of a reduction in social security contributions.
Chapter VI sets out the effects of introducing a co2 tax on the road transport sector. This tax would amount to the equivalent of eur 20.33 per tonne of co2 for a whole year, which comes down to increasing the tax on liquid fuels by eur 0.07 per litre (tax increase excluding vat). The scenario which is analysed anticipates redistributing all the revenue from the new tax. This redistribution could take place by two methods. In the first variant, the additional revenue would be used to reduce employer's and employee's social security contributions. In the second variant a proportion of the additional revenue (40%) would be injected directly back into the transport sector, via investment in public transport.
Additional data in relation to the results of the simulations can be found in Chapters VII to IX.