Based on the results of the 2018 IPCC Special Report, all countries and sectors should speed up emission reductions to limit global warming to 1.5 degrees. In addition to regulations, carbon taxes are effective at reducing emissions. Based on research, the best way to introduce them is via a budget-neutral environmental tax reform (ETR).
This research analyses the potential tax instruments that could be used in Finland to support emission cuts and the circular economy. From the potential pool of instruments, a total of three different types of ETR scenarios are formed and their impacts on the economy and emissions are analysed. The first scenario includes environmental taxes that mainly target firms and that might harm the cost-competitiveness of energy-intensive Finnish industries without compensations. The second scenario includes environmental taxes mainly targeting consumers; we analyse their regressivity, which is one of the main concerns regarding environmental and emission taxes. The third ETR scenario aims to promote circular economy solutions.
Based on the findings, all three scenarios would bring about the “double dividend” effect by significantly reducing emissions and increasing employment and GDP compared to baselines.