The price of transition: An analysis of the economic implications of carbon taxing

Abstract

In the summer of 2018, the House of Representatives of the Netherlands supported the legislative proposal for a Climate Act. The Climate Act stipulates that in 2050, greenhouse gas emissions must have been reduced by 95% relative to their 1990 level. To achieve this objective, the government is aiming to reduce emissions by 49% in 2030. This requires ambitious climate policies, which also include the option of introducing a direct tax on carbon emissions. An efficient way of reducing harmful emissions is to assign a price to the external effects of emissions. Data evidences that compared with other countries, Dutch enterprises emit large quantities of greenhouse gases and are paying relatively little for these emissions. The most straightforward approach would be to introduce a European carbon tax, after the example of the European Emissions Trading System (ETS). The option of introducing a national policy, with the Netherlands leading the field in terms of imposing a direct carbon tax on corporations, requires more insight into its impact on production costs, international price competitiveness and sales. This study addresses this, distinguishing between the various industry sectors within the Dutch economy.