Policy Note 48: Analysis of CO2 taxes in an international comparison

Two days ago, the Austrian federal government announced the implementation of an eco-social tax reform with a concrete mix of measures. The aim is to tax CO2 emissions more heavily in order to meet international obligations to reduce greenhouse gas emissions. From an economic perspective, emissions trading and taxes are efficient instruments for achieving this goal at the lowest possible cost. Emissions trading is generally preferable, as it can guarantee the achievement of a reduction target. With a tax, ongoing adjustments to the level are necessary in order to achieve this. In contrast, the costs of pricing are potentially easier to calculate with a tax if the adjustments are made gradually. Nevertheless, depending on their design, these two instruments can also have a considerable impact on an economy if emissions have to be reduced significantly. Regulatory measures or requirements may take insufficient account of the different abatement costs and therefore lead to unnecessarily high costs. There may also be uncertainties regarding the achievement of climate targets.

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In order to expand the scope for action, a border adjustment system would be a supplement to CO2 pricing. Exports would be relieved of the CO2 price and imports would be burdened with a CO2 price. The larger the economic area that introduces such a border adjustment system, the greater the pressure on third countries to also produce less CO2-intensively.
This policy note provides an overview of the measures taken by European countries and compares how CO2 emissions can be taxed without jeopardizing growth programmes.