Impacts of energy taxation in the enlarged European Union, evaluation with GEM-E3 Europe

The objective of this study is twofold: first analyze how the implementation of the EU minimum energy tax policy in the new Member States will affect the enlarged EU and secondly analyze how the energy taxation policy can contribute to the climate policy in the enlarged EU. The main elements of the new EU energy tax policy is an upward revision of the existing minimum tax rates on mineral oils and an inclusion of the energy products such as coal, natural gas and electricity in the tax base. Associated with assumptions regarding climate policy, different directions for the energy taxation policy are explored going from an increase of the minimum energy tax to the possibility of exempting the energy intensive sectors of the entire energy tax or of a CO2 component when a climate policy is implemented. The analysis in this study is done with the GEM-E3 general equilibrium model extended towards the new Member States. The GEM-E3 model is an appropriate tool to evaluate such policies which have potentially an impact on the economy, the energy system and the environment of each member state and on the interactions between them. As GEM-E3 is a macro-sectoral general equilibrium model, it allows assessing the impact of an energy taxation reform in terms of economic indicators, such as GDP, employment and the balance of trade1 and their sectoral implications, and in terms of environmental indicators, as CO2, SO2, NOx, VOC and PM emissions. Having a specific model for each of the EU countries (Luxembourg, Cyprus and Malta excluded) permits giving an indication on the distributive consequences between countries of energy taxation policy changes. More precisely, the evaluated scenarios cover the following domain: 1) implementation of the EU energy tax directive (2003/96/EC) in the new Member States 2) implementation of more climate friendly energy tax rates by increasing the 'minimum' energy tax rates EU wide to the equivalent of 10Euro per ton CO2. 3) exemption from the energy taxation, either totally or partly, the sector