The need to reform EU funding and recent political developments such as Brexit and the withdrawal of the USA from the 2015
Paris climate agreement could revitalise the debate about the introduction of border carbon adjustments (BCA) for the European
emission trading system (ETS). The introduction of a BCA would allow the EU to phase out current carbon leakage provisions
of the ETS and to auction off all emission allowances, thus rendering the ETS a more effective unilateral tool to price and
reduce carbon emissions. By using a dynamic new Keynesian (DYNK) model, we estimate that a BCA for the ETS would generate
substantial and stable revenues. Given different assumptions about the development of the carbon intensity of non-EU production
and different BCA designs we find that estimated revenues would suffice to finance between a third and all of current EU expenditures
by the year 2027, thus allowing EU countries to reduce their current contributions to the EU budget accordingly. Administered
at the EU borders a BCA would represent a sustainability-oriented instrument to finance the EU allowing EU member countries
to cut more distortionary taxes such as those on labour, thereby increasing growth- and employment-friendliness of taxation.
The proposed measure could thus contribute to tackle both environmental and fiscal challenges currently facing the EU.
This paper calculates the carbon footprint of private consumption in the EU 27 by five groups of household income, using a
fully fledged macroeconomic input-output model covering 59 industries and five groups of household income for the EU 27. Due
to macroeconomic feedback mechanisms, this methodology – besides induced intermediate demand – also quantifies: 1. private
consumption induced in the other household groups, 2. impacts on other endogenous final demand components, and 3. negative
feedback effects due to output price effects of household demand. The carbon footprint is calculated separately for the consumption
vector of each of the five income groups. The simulation results yield a non-linear income elasticity of direct and indirect
emissions at each income level: the value of the direct footprint income elasticity decreases from 1.32 (first quintile) to
0.69 (fourth quintile). The value of the indirect footprint income elasticity is always below unity and decreases from 0.89
to 0.62. The results in general reveal a relative decoupling effect: the share of the top income group in income (45 percent)
is much larger than its share in the carbon footprint (37 percent) and vice versa for the bottom income group (6 percent in
income and 8 percent in footprint).
We analyse the economic and environmental impacts of different CO2 tax (uniform or progressive) and rebate (reduction of VAT,
social contributions or lump-sum payments) schemes with focus on private consumption (i.e., heating and mobility) as well
as distributional impacts on different household income quintiles in Austria. We use the econometric input-output model DYNK
to investigate these impacts. DYNK is able to consider macroeconomic feedbacks of CO2 taxes and accompanying rebate schemes.
An energy module allows to link production and consumption activities with energy demand and associated GHG emissions and
includes behavioural estimations with regard to energy demand for private household income quintiles that are fully integrated
in the macroeconomic part of the model. First preliminary results indicate that a uniform CO2 tax on fossil fuel use for private
consumption (including a tax rebate on VAT for other commodities) has a weak regressive impact on household incomes. The distributional
impact of CO2 taxes differs between heating and mobility consumption.