Taxation of multiple greenhouse gases and the effects on income distribution: A case study of the Netherlands

Current economic instruments aimed at climate change mitigation focus on CO₂ emissions only, but the Kyoto Protocol refers to other greenhouse gases (GHG) as well as CO₂. These are CH₄, N₂O, HFCs, PFCs and SF₆. Taxation of multiple greenhouse gases improves the cost-effectiveness of climate change mitigation. It is not yet clear, however, what the effect is of multigas taxation on the distribution of the tax burden across income groups. This paper examines and compares distributional effects of a CO₂ tax and a comprehensive tax that covers all six GHG of the Kyoto Protocol. The study concentrates on the Netherlands in the year 2000. We established tax rates on the basis of marginal abatement cost curves and the Dutch policy target. The distributional effects have been determined by means of environmentally extended input−output analysis and data on consumer expenditures. Our results show that taxation of multiple GHG improves not only the cost-effectiveness of climate change mitigation, but also distributes the tax burden more equally across income groups as compared to a CO₂ tax. These findings are relevant for the debate on the role of non-CO₂ GHG in climate change mitigation.