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Recycling carbon tax revenues in Spain. Environmental and economic assessment of selected green reforms

Author

Listed:
  • Ángel Estrada

    (Banco de España)

  • Daniel Santabárbara

    (Banco de España)

Abstract
The design of the key elements of a public budget-neutral environmental fiscal reform could have very different implications in terms of its environmental and macroeconomic impact. Our proposals rely on a carbon tax on fossil fuels covering all economic sectors. It would be a powerful and efficient instrument for reducing emissions, as it gives economic agents an incentive to find ways to save energy and switch to greener energy sources while generating significant tax revenues whose judicious use may have positive macroeconomic effects. In addition, a carbon tax is easy to administer since it can be integrated into existing fuel excise duties. We build a novel model to assess the environmental and economic impact of a set of environmental fiscal reforms in Spain which are defined by different levels of the carbon tax, the possibility of a border carbon adjustment and alternative uses of the tax revenues generated. In this framework, we incorporate technological innovation, which will allow firms to produce with non-polluting inputs and, specifically, the electricity sector, to increase the role of renewables in its generation mix. The results indicate that carbon tax designs with border carbon adjustment tend to be more effective in lowering emissions in Spain. They also suggest that an appropriately designed environmental fiscal reform may even boost economic activity in the medium term if the revenues are used to reduce other, more distorting taxes.

Suggested Citation

  • Ángel Estrada & Daniel Santabárbara, 2021. "Recycling carbon tax revenues in Spain. Environmental and economic assessment of selected green reforms," Working Papers 2119, Banco de España.
    • Handle: RePEc:bde:wpaper:2119
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/21/Files/dt2119e.pdf
    File Function: First version, May 2021
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    References listed on IDEAS

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    Citations

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    Cited by:

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    2. Breckenfelder, Johannes & Maćkowiak, Bartosz & Marqués-Ibáñez, David & Olovsson, Conny & Popov, Alexander & Porcellacchia, Davide & Schepens, Glenn, 2023. "The climate and the economy," Working Paper Series 2793, European Central Bank.
    3. Avgousti, Aris & Caprioli, Francesco & Caracciolo, Giacomo & Cochard, Marion & Dallari, Pietro & Delgado-Téllez, Mar & Domingues, João & Ferdinandusse, Marien & Filip, Daniela & Nerlich, Carolin & Pra, 2023. "The climate change challenge and fiscal instruments and policies in the EU," Occasional Paper Series 315, European Central Bank.
    4. Luis Ángel Maza, 2022. "An estimation of the carbon footprint in spanish credit institutions’ business lending portfolio," Occasional Papers 2220, Banco de España.
    5. Lipari, Francesca & Lázaro-Touza, Lara & Escribano, Gonzalo & Sánchez, Ángel & Antonioni, Alberto, 2024. "When the design of climate policy meets public acceptance: An adaptive multiplex network model," Ecological Economics, Elsevier, vol. 217(C).
    6. Daniel Santabárbara & Marta Suárez-Varela, 2022. "Carbon pricing and inflation volatility," Working Papers 2231, Banco de España.
    7. Clara Isabel González Martínez, 2021. "The role of central banks in combating climate change and developing sustainable finance," Economic Bulletin, Banco de España, issue 3/2021.

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    More about this item

    Keywords

    carbon tax; environmental policy; modelling; green tax reform;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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