Herman R.J. Vollebergh

Tax Competition under Minimum Rates: The Case of European Diesel Excises

This paper estimates Nash-type fiscal reaction functions for European governments competing for revenue from diesel excises. It appears that European governments strategically set their excise levels by responding to their neighbors’ tax rates. This provides evidence for the presence of tax competition in diesel excises. In fact, a 10% higher rate in neighboring countries (in terms of the user price) induces a country to raise its own rate by between 2 and 3%. This impact is robust for alternative specifications. By imposing restrictions on excise levels, EU harmonization of excises in 1987 and the introduction of a minimum in 1992 exerted a positive impact on the excise level in a number of EU countries. It has not, however, significantly reduced the intensity of tax competition. Indeed, strategic tax responses have not significantly been reduced by these harmonization policies. We also find that high-tax countries appear to compete more aggressively tha! n low-tax countries in the sense that they feature larger strategic tax responses. There is no significant difference between large and small countries.

Environmental Kuznets Curves for CO2: Heterogeneity versus Homogeneity

We explore the emissions income relationship for CO2 in OECD countries using various modelling strategies.Even for this relatively homogeneous sample, we find that the inverted-U-shaped curve is quite sensitive to the degree of heterogeneity included in the panel estimations.This finding is robust, not only across different model specifications but also across estimation techniques, including the more flexible non-parametric approach.Differences in restrictions applied in panel estimations are therefore responsible for the widely divergent findings for an inverted-U shape for CO2.Our findings suggest that allowing for enough heterogeneity is essential to prevent spurious correlation from reduced-form panel estimations.Moreover, this inverted U for CO2 is likely to exist for many, but not for all, countries.

Differential Impact of Environmental Policy Instruments on Technological Change: A Review of the Empirical Literature

This survey reviews the empirical literature on the impact of environmental policy instruments on the rate and direction of technological change. The survey is explicitly focused on the empirical identification of the hypothesis to expect a stronger impact from market-based incentives than from non-market alternatives. The general picture emerging from the recent literature is that there is a clear impact of environmental policy on invention, innovation and diffusion of technologies. Although studies on a differential impact are still very scarce, the available evidence suggests that innovators look carefully for rent opportunities, which in turn depend on the specific incentives signalled by the type of (environmental) policy.

Economic Growth and Valuation of the Environment

The debate on the valuation of nature and the environment, sustainable national income and economic growth is one of prime importance in environmental economics. Economic Growth and Valuation of the Environment deals with the fundamental approaches to calculating sustainable national income and their implications for the valuation of the environment.

The Role of Standards in Eco-Innovation: Lessons for Policymakers

This article aims to help policymakers identify how standards can contribute to the effective and cost-efficient development and deployment of eco-innovations (innovations that reduce environmental impacts). To this end, we argue that the general perception among environmental economists that standards are a very simple form of command and control regulation is too limited. Environmental policy standards often allow for flexibility. Moreover, other types of standards are often relevant for induced innovation and diffusion. Our broad perspective enables us to identify some interesting and important economic aspects of standards, such as their contribution to the diffusion of technologies with network externalities and the extent to which they are substitutes or complements to (other) environmental policy instruments. Finally, we discuss conditions for the successful use of standards by governments to stimulate eco-innovation. (JEL: Q38, Q55, Q58)

Adaptive policy mechanisms for transboundary air pollution regulation: Reasons and recommendations

In the context of transboundary air pollution policy the broad ambition is to achieve reductions in the level of environmental and societal damage associated with certain pollutant concentrations and exposure rates in a cost effective manner. Policy formulation and legislative frameworks in this field, such as the current National Emissions Ceiling Directive in the European Union, are challenged by the degree of scientific complexity involved, the dispersed sources of emissions, and the inherent uncertainties associated with long range forecasting under these conditions. This paper identifies the reasons why varied forms of adaptive policy mechanisms (also termed flexibilities) are necessary and valuable in this arena, presents the critical considerations for their design and operation, reviews a selection of the more prominent options currently considered in the associated transboundary research community, and concludes with recommendations for the next set of transboundary air pollution policy frameworks.

Identifying Reduced-Form Relations with Panel Data

The literature that tests for U-shaped relationships using panel data, such as those between pollution and income or inequality and growth, reports widely divergent (parametric and non-parametric) empirical findings. We explain why lack of identification lies at the root of these differences. To deal with this lack of identification, we propose an identification strategy that explicitly distinguishes between what can be identified on the basis of the data and what is a consequence of subjective choices due to a lack of identification. We apply our methodology to the pollution-income relationship of both CO2- and SO2-emissions. Interestingly, our approach yields estimates of both income (scale) and time (composition and/or technology) effects for these reduced-form relationships that are insensitive to the required subjective choices and consistent with theoretical predictions.

Lessons from 15 Years of Experience with the Dutch Tax Allowance for Energy Investments for Firms

Since 1997 the Netherlands has a tax allowance scheme introduced to promote investments in energy saving technologies and sustainable energy production. This Energy Investment Tax Allowance (EIA in Dutch) reduces up-front investment costs for firms investing in the newest energy saving and sustainable energy technologies. The basic design of the EIA has remained the same over the past 15 years. Firms investing in technologies listed in the annually updated ‘Energy List’ may deduct some of the investment costs from their taxable profits. The EIA may also reduce search costs by investors to find particular technologies because of the Energy List which is used to consider eligibility for the subsidy. This Energy List contains generic technologies that meet a certain energy-saving standard or a selection of novel, but proven, technologies with a higher energy-saving potential than conventional technologies. Over the past 15 years, the use of the EIA has been affected by a number of changes, mainly due to exogenous factors, such as interactions with other policy instruments, rising oil and gas prices, and the economic crisis since 2007. Despite this turbulence and changes in government focus, the EIA is still part of the Dutch energy policy mix. Our evaluation of the EIA contains four lessons. First, the use of tax revenues to subsidise investment in energy-efficient technologies and renewable energy is not very different from using on-budget subsidies if budgetary rules require sufficient accountability of such tax expenditures. At the beginning of the scheme, a lack of accountability of tax expenditures contributed to budgetary turbulence. A number of budget overruns in later periods were not related to budget accountability issues, but to changes outside the EIA. Second, incentive compatibility problems of the EIA are of concern but seem to be manageable. The main weakness of the tax allowance is the difficulty to prevent free-riders from receiving subsidies, even though subsidy effectiveness has improved considerably over the years. Third, the use of a dynamic technology list makes the regulation flexible, allowing policy to refocus and apply tighter standards if necessary. The list also reduces the information asymmetry between supply and demand of new technologies and helps suppliers of energy-saving or sustainable energy technologies to overcome the well-known ‘valley of death’. Finally, the design of a subsidy scheme should pay sufficient attention to the likely interaction with other policy instruments, in particular other subsidy schemes aimed at complementary objectives. The turbulence with the EIA over the 2001–2007 period was mainly caused by fluctuations in the application of other instruments.

Unconventional Gas and the European Union: Prospects and Challenges for Competitiveness

This article studies the likely impact of unconventional gas developments in the U.S. on EU competitiveness. We find, first of all, little evidence for a prosperous unconventional gas development in Europe. Second, the U.S. boom has already a strong impact on both world and European energy markets. In particular, lower U.S. gas and coal prices have changed relative energy prices both at home and abroad. Finally, competitiveness impacts in some (sub)sectors will be considerable. These impacts are not only related to production based on gas use as a feedstock but also on the ‘byproducts’ from unconventional gas production, such as ethylene, propane and butane. However, several indirect impacts, such as lower coal import prices, may soften the adverse competitiveness impact in the EU.

Grazing the Commons: Global Carbon Emissions Forever?

This paper presents the results from our investigation of the per-capita, long- term relation between carbon dioxide emissions and gross domestic product (GDP) for the world, obtained with the use of a new, exible estimator. Consistent with simple economic growth models, we find that regional, population-weighted per- capita emissions systematically increase with income (scale effect) and usually de- cline over time (composition and technology effect). Both our in-sample results and out-of-sample scenarios indicate that this negative time effect is unlikely to compen- sate for the upward-income effect at a global level, in the near future. In particular, even if Chinas specialization in carbon-intensive industrial sectors would come to a halt, recent trends outside China make a reversal of the overall global trend very unlikely.