Reform of electricity taxes and energy transitions

Since I started in my new post at ENT Environment and Management in Catalonia, I have been analyzing the electricity taxes in Spain, as well as their effectivity as environmental taxes. That is, which are the effects of these taxes on different environmental and macroeconomic indicators.

There are two taxes on electricity: the excise duties on electricity and the tax on the production value of electricity. Neither of them differentiate between clean energy sources and dirty ones, applying the same tax rates to wind, solar, hydro or biomass electricity generation than to hydrocarbons-based or nuclear production of electricity. So they could be considered environmental taxes, as can stimulate a reduction in the use of electricity in general, but they do not promote a transition towards renewables, a key issue to tackle climate change. My hypothesis then, is that a reform focused on electricity taxation on hydrocarbons and nuclear rather than on all sources of generation of electricity, in a revenue-neutral context, would improve the environment, not only in the short term but also in the long term by boosting an energy transition.

To test this hypothesis, I have developed an adaptation of the dynamic energy-environment-economy model I built for other similar purposes. I have assessed the environmental and economic impacts of electricity taxes in four different scenarios: A) Effects of current electricity taxes; B) Effects of a reform that exempts renewable energy sources and ensures the same total revenue from just taxing non-renewable energy sources; C) Effects of scenario B including a gradual transition of the economic structure towards more use of renewables; and D) Effects of scenario C including a transition that reduces the energy intensity of the economic structure.

The results so far show how a reform (scenario B,) would improve the environment, reducing most of pollutant emissions. This effect is increased if we consider the effects of energy transitions (scenarios C and D).


Regarding the economic effects, we observe a slight reduction of GDP in relation to the current situation if there is no transition. However, the energy transition boosted by the tax reform would improve the economic performance.


Moreover, even in the less likely case of no energy transition, the reform can include a reform in the use of the revenues from these taxes. If they are used to reduce other pre-existing taxes, like labor, capital or consumption taxes a double dividend is achievable as we demonstrated in previous research.




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