ECOLOGICAL TAX REFORM AND EMISSIONS TRADING - CAN THEY WORK TOGETHER?
Overview Industrialised countries are using more natural resources than the earth can provide in the long run. Fossil energies are scarce and limited. At the same time the emission of greenhouse gases into the atmosphere, causing climate change, is increasing. A promising way of tackling these global challenges is the implementation of economic instruments that increase the price of conventional energy and give incentives for economising and rationalising the use of energy and switching over to renewable energies. One important economic instrument of such a manner is the German Eco Tax in the context of the Ecological Tax Reform (ETR), introduced in 1999 and further developed until 2003. The ETR increases the taxes on energy and at the same time lowers non-wage labour costs in order to stimulate employment. The European Emissions Trading Scheme (EU ETS), started in the beginning of 2005, introduced another important economic instrument to tackle climate change. Energy-intensive industry and utilities have to have allowances for CO2-emissions. For compliance with reduction targets either reducing own emissions or buying allowances on the market is necessary. As both instruments address industry, a discussion emerged on how this ‘double burden’ for industry could be removed. Suggestions ranged from generous exemptions for industry either in the system of the Ecological Tax Reform or the Emissions Trading to a complete disposal of the Eco Tax. This paper will show that the Ecological Tax Reform and the Emissions Trading Scheme are not causing a double burden for industry, that they are complementary instruments and that both can work purposefully side by side.