Effectiveness of environmental taxes and environmental stringent policies on CO2 emissions: the European experience

Yemane Wolde-Rufael () and Eyob Mulat-weldemeskel ()
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Eyob Mulat-weldemeskel: London Metropolitan University

Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, 2023, vol. 25, issue 6, No 17, 5239 pages

Abstract: Abstract The aim of this paper is to investigate the effectiveness of environmental taxes and environmental stringent policies in reducing CO2 emissions in a panel of 20 European countries for the period 1995–2012. As mounting global environmental and climate challenges are becoming great cause for concern, environmental stringency policies and environmental taxes are becoming the cornerstones for a sustainable environment. Applying panel cointegration tests, we found a negative and a statistically significant relationship between environment taxes (disaggregated into total, energy and transport taxes) and CO2 emissions on the one hand and also a negative and a statistically significant relationship between environmental policy stringent and CO2 emissions on the other. The robustness of the evidence is also supported by a quantile regression model. The higher the environmental stringency policy, the lower the CO2 emission. Similarly, the higher the revenue from total environmental tax, energy and transport tax, the higher the reductions in CO2 emissions. Both these two policy instruments were effective in reducing CO2 emissions. The positive impact of environmental tax on improving environmental quality should encourage policy makers to increase environmental tax as the current level of environmental tax is believed to be low relative to levels required to achieve climate change objectives and is also low relative to the social cost of carbon and relative to the prices of taxed fuels.

Keywords: Cointegration; CO2 emissions; Environmental policy stringency; Environmental taxes; Fossil energy; Renewable energy (search for similar items in EconPapers)
JEL-codes: H23 Q2 Q3 Q4 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10668-022-02262-1

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