Community Energy Taxation to Limit CO2 and Price Distortions: Spain as a Pilot Study

Within the framework of the European Community's policy response to the risks of global climate change, the Commission is analyzing the options for using a mixed energy and CO2 tax as one policy instrument in a package of measures. The taxes planned to cut CO2 emissions are designed as a production tax on energy products, based on their fuel content or, in the case of a CO2 tax, on the CO2 content. Although the precise tax rate has not yet been confirmed, that of US$10 per barrel seems to be the most probable. Against this background, the aim of the study is to investigate, on the basis of the input–output model, the effects of both a general energy and a CO2 tax on the producer prices of the different economic sectors in Spain as a case-study. Additionally, the paper attempts to shed some light on other related issues, such as the evaluation of the effects of energy and CO2 taxes on domestic goods' competitiveness with respect to other non-Community countries.