Can environmental taxes decrease final energy consumption in the old and new EU countries?

Abstract

Despite the harmonisation process within the EU area, there are many economic and political differences among European countries in promoting energy policies. Moreover, the status of implementation of environmental tax reforms in the new EU countries is very different from that in the old EU countries, and the economic and environmental impacts of such taxation are diverse. The objective of this paper was therefore to investigate whether the role of environmental taxes in reducing final energy consumption is the same in old and new EU countries. The analysis was conducted for 16 old and 11 new EU member states over the period 1995–2020 using Pooled Mean Group (PMG) and Mean Group (MG) estimators. The results indicate that environmental taxes have a negative long-term impact on final energy consumption in both groups of countries. However, this impact is much smaller in the new EU countries. Moreover, economic growth and greenhouse gas emissions increase final energy consumption. These results also suggest that in order to achieve climate neutrality by 2050, the new EU countries need to apply some stringent regulations and introduce further institutional and environmental reforms that support increasing the share of clean energy sources in the energy mix.

Keywords:

• Environmental taxes
• final energy consumption
• old and new EU countries
• dynamic panel regression models
• fiscal policy

JEL CODES:

• H23
• Q48
• Q56

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work has been supported by the University of Rijeka project number uniri-mladi-drustv-22-20 and by University of Rijeka, Faculty of Tourism and Hospitality Management, under project number ZIP-FMTU-001-11-2021 and ZIP-FMTU-010-05-2022.