Energy Levies and Endogenous Technology in an Empirical Simulation Model for the Netherlands

Abstract

A major economic policy question today is to what extent (regulating) energy levies can contribute to a reduction of energy demand and, hence, of greenhouse gas emissions. Two different ways of modelling the effects of energy levies emerge from the literature. First, the analysis is conducted using highly aggrega- ted, theoretical, general equilibrium models (see e.g. Bovenberg and van der Ploeg, 1992, 1993, 1994 and Bovenberg and de Mooij, 1992, 1993, 1994). These models focus mainly on the possibilities of obtaining a so-called double dividend, i.e. the possibility of improving the quality of the environment and yielding a less distortionary tax system at the same time by substituting energy taxes for ordinary income taxes. The second approach uses disaggregated empirical models, either applied general equilibrium models (e.g. the GREEN- model of the OECD, see OECD, 1994) or dynamic policy models in the Tinbergen tradition (e.g. the combined use of the SENECA energy model and the ATHENA multi-sector model by the Netherlands Central Planning Bureau (CPB, 1992) and the HERMES model by the EC (see Laroui and Velthuijsen, 1992a, 1992b)).

The authors would like to thank Lans Bovenberg, Larry Goulder, Dale Jorgenson, Ruud de Mooij and three anonymous referees for useful comments on a previous version of the paper. The usual disclaimer applies.