Initial incidence of carbon taxes and environmental liability: A vehicle ownership approach. ESRI Research Bulletin 202013 June 2020.

Reaños, Miguel Tovar (2020) Initial incidence of carbon taxes and environmental liability: A vehicle ownership approach. ESRI Research Bulletin 202013 June 2020. UNSPECIFIED.

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Abstract

Decarbonizing the transport sector is key to reducing the general level of CO2 emissions. At a European level, emissions from this sector accounted for 29% of total CO2 emissions in 2012. In Ireland, transportation accounted for 40% of total CO2 emissions in 2018. Increasing carbon taxes has emerged as a key policy instrument to reduce emissions in this sector. Existing literature shows that carbon taxes on road transport fuels can encourage drivers to take fewer car trips and encourage them to buy more efficient vehicles. However, most of the existing literature finds that low income households are disproportionately affected by carbon taxation. Commonly used metrics for tax burden omit the fact that households’ incomes measured at one point in time may not reflect their average lifetime income. Taking this into account can reduce the tax burden. In addition, it is argued that current carbon taxes do not charge drivers according to their level of attributed pollution. At present, carbon taxes do not account for all the externalities (e.g. local pollution, congestion, accidents, etc.) caused by vehicle use. This paper considers the tax burden across household types, incorporating a measure of lifetime income, and also investigates the level at which carbon taxes should be set to reflect environmental damage.

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