Innovation-Augmented Ecological Tax Reform: Theory, Model Simulation and New Policy Implications

Abstract

Energy policy is an element of infrastructure policy and thus is important for competitiveness and growth; at the same time it is a crucial element of environmental policy since the generation and use of fossil and nuclear fuels goes along with negative national and international external effects. Following the liberalization initiative, Germany has not chosen to implement the minimum gradual liberalization required by the EU; rather it fully liberalized the electricity market in April 1998 which will lead to falling electricity prices and industry restructuring in a more competitive European market. Since natural gas is an important input — with a competitive edge vis-à-vis alternative inputs — in electricity generation the liberalization of the gas market in the EU initiated by the European Commission will reinforce the liberalization of the energy market. Energy generation and use in turn are key elements for several emissions, most notably CO₂ and SO₂. These gaseous emissions naturally create transboundary pollution problems; other international aspects of ecological tax reforms concern competitiveness of the tradable goods industry and trade in energy resources and electricity. Moreover, there will be effects on international capital markets to the extent that there will be relocation of energy intensive industries or intensified merger and acquistion activities in the energy sector or in energy-intensive industries facing sharper price and cost competition.