The contribution of energy taxes to climate change policy in the EU

Abstract

Energy taxes are one of the main market-based tools directed to mitigate climate change in the European Union (EU). Therefore, the aim of this article is to analyse whether energy taxes really contribute to the reduction of greenhouse gas (GHG) emissions and successful implementation of climate change policy. Thus, applying the Granger causality test on time series and using panel data analysis, the direct and indirect (via the reduction of fossil energy consumption and energy intensity as well as the increase of the share of renewable energy consumption) impact of energy taxes on GHG emissions in EU countries was analysed in the present study. The results showed that energy taxes did not Granger cause fossil energy consumption, energy intensity, renewable energy consumption, and GHG emissions in almost all EU countries. Referring to panel data analysis, the results showed that energy taxes did not directly and indirectly influence GHG emissions. These findings reveal that the demand of fossil energy in EU is inelastic and energy tax policy in the EU is ineffective. Thus, tax policy should be reformed and matched with emission trading system seeking climate change mitigation.