Greenhouse gas taxation in Estonia: optimal environmental tax reform Silja Lüpsik ESTONIA 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? Solution(?): International institutions to reduce GHG emissions (Kyoto protocol, EU regulations) Targeted environmental policy in a local (country) level Economic instruments: environmental taxes 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 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. Present situation in Estonia 35000 30000 25000 20000 15000 10000 5000 0 Base year (1990/1995) 1999 2005* 2010* TARGETS GHG emissions Gg CO2 equivalent 1200 1000 800 600 400 200 0 CO2 Methane N2O emissions have decreased considerably, but further reductions targeted GHG Research model POLICY OF GHG TAXATION INPUT-OUTPUT MODEL BEHAVIORAL CHANGE (CGE MODEL) INTERNATIONAL INSTITUTIONS OTHER POLICIES (Income tax, social policy etc) HOUSEHOLD PRICES (HOUSEHOLD BUDGET SURVEY) OPTIMALITY ANALYSIS: WELFARE, REGIONAL ASPECTS, SOCIAL EXCLUSION, TRANSACTION COSTS etc Issue - GHG emissions spatially concentrated ~94% of CO2 emissions 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 Thank you!