The effects of energy taxes level on greenhouse gas emissions in the environmental policy measures framework

Abstract

Over the last decades, all countries have pursued an ambitious climate policy, thus showing a growing concern about climate change, global warming, greenhouse gas (GHG) emissions, or environmental taxes. Water, air, and soil pollution caused by gas emissions directly affect human health, but also the economies of states. As people’s ability to adapt to novel changes becomes increasingly difficult, globally, they are constantly trying to reduce their greenhouse gas emissions in a variety of ways. Environmental taxes, in general, and energy taxes, in particular, are considered effective tools, being recommended by specialists, among other instruments used in environmental policy. The aim of this research is to assess, empirically, the influence of environmental taxes levels on greenhouse gas emissions in 28 European countries, with a time span between 1995 and 2019. Regarding the empirical research, the proposed methods are related to Autoregressive Distributed Lag (ARDL) models in panel data and also at country level. At panel level, we used the estimation of non-stationary heterogeneous panels and also the dynamic common-correlated effects model with heterogeneous coefficients over cross-sectional units and time periods. The results obtained show that the increase in environmental taxes leads, in most countries, to a decrease in greenhouse gas emissions. To test the robustness of our results, we have included supplementary economic and social control variables in the model, such as gross domestic product (GDP), population density, exports, or imports. Overall, our paper focuses on the role of environmental policy decisions on greenhouse gas emissions, the results of the study showing, in most cases, an inverse impact of the taxation level on the reduction of gas emissions.