OECD Environment Working Papers

ISSN: 
1997-0900 (online)
DOI: 
10.1787/19970900
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This series is designed to make available to a wider readership selected studies on environmental issues prepared for use within the OECD. Authorship is usually collective, but principal authors are named. The papers are generally available only in their original language English or French with a summary in the other if available.
 

Competitiveness Impacts of the German Electricity Tax You or your institution have access to this content

English
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Author(s):
Florens Flues1, Benjamin Johannes Lutz2
Author Affiliations
  • 1: OECD, France

  • 2: Centre for European Economic Research, Germany

12 May 2015
Bibliographic information
No.:
88
Pages:
25
DOI: 
10.1787/5js0752mkzmv-en

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Proposals to increase environmentally related taxes are often challenged on competitiveness grounds. The concern is that value creation in certain sectors might decline domestically if a country introduces environmentally related taxes unilaterally. Furthermore, environmental goals might not be reached if pollution shifts abroad. A competing view argues that properly implemented environmentally related taxes foster innovation, thereby boosting productivity and competitiveness. Empirical research is needed to gain insight into the strength of these various effects. This paper provides evidence on the short-term competitiveness impacts of the German electricity tax introduced unilaterally in 1999. Germany’s manufacturing sector uses significant amounts of electricity, and to counteract potential negative effects on competitiveness, relief was provided: firms using more electricity than specified thresholds benefitted from reduced electricity tax rates. The tax reduction amounted up to EUR 14.6 per megawatt hour, about 80% of the full tax rate. When measured as an effective rate on the carbon content in the average unit of electricity, the electricity tax translates into EUR 44.4 per tonne of carbon dioxide, indicating the magnitude of the tax. The econometric analysis – a regression discontinuity design – shows no robust effects in either direction of the reduced electricity tax rates on firms’ competitiveness. Firms subject to the full tax rates, but otherwise similar to firms facing reduced rates, did not perform worse in terms of turnover, exports, value added, investment and employment. The analysis questions the relevance of the tax reduction for competitiveness reasons and suggests that it could be gradually removed. The energy use threshold, above which a reduced tax rate applies, could be raised over time and competitiveness impacts monitored.
Keywords:
tax expenditure, competitiveness impacts, environmental taxation
JEL Classification:
  • D22: Microeconomics / Production and Organizations / Firm Behavior: Empirical Analysis
  • H21: Public Economics / Taxation, Subsidies, and Revenue / Efficiency ; Optimal Taxation
  • H23: Public Economics / Taxation, Subsidies, and Revenue / Externalities ; Redistributive Effects ; Environmental Taxes and Subsidies
  • Q41: Agricultural and Natural Resource Economics ; Environmental and Ecological Economics / Energy / Demand and Supply ; Prices
  • Q48: Agricultural and Natural Resource Economics ; Environmental and Ecological Economics / Energy / Government Policy
 
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