Taxation and ecological transition during climate and energy crises: the main conclusions of the 2022 Spanish White Book on tax reform



This paper aims to summarise and present the main proposals of the Spanish White Book on Tax Reform in the environmental domain, a particularly important chapter, amounting to around 15% of its total content. It attracted significant attention from the public due to its numerous and ambitious proposals, together with their detailed assessment. The White Book might be useful for an international audience, as Spain shares with other advanced countries many environmental problems and challenges associated with the ecological transition and has a very similar regulatory and tax structure. Moreover, the environmental and distributional conclusions of the environmental chapter are particularly relevant at times of energy and climate crises.


In April 2021 the Spanish Government commissioned a group of 17 experts, mostly professors of economics and law, to prepare a White Book (WB) on tax reform for the necessary adaptation of the Spanish tax system to the economic reality of the 21st century. To this end, the experts were asked to carry out an analysis of the optimal tax system in a broad sense, evaluating aspects such as the sufficiency, equity and efficiency of the different sources of public revenue. Specific analyses were also requested on environmental taxation, corporate taxation, taxation of the digital economy and emerging activities, and wealth taxation. The Government included the preparation of the WB, which was delivered in early March 2022 (CPELBRT, 2022), within its plan and commitments to receive the significant funding from the EU Recovery and Resilience Facility to mitigate the economic and social impacts associated to COVID.

In any case, it is not only the detailed and extensive exploration of the role of environmental taxation in solving Spain’s main environmental challenges that might make this working paper interesting for an international audience. Spain shares with other advanced countries many environmental problems and challenges associated with the ecological transition and has a very similar regulatory and tax structure (highly harmonised in the case of the EU). Therefore, I believe that the conclusions presented here can be highly useful beyond Spain’s borders.

The working paper is organised in five sections, including this introduction. The second section contains the chapter’s foundations and its diagnosis of the Spanish tax system in this domain. What follows is a concise presentation of the principles and guidelines that inform the WB’s environmental proposals. The fourth section details the main proposals and the results of their illustrative assessment in four main areas: electrification, transport, circularity and water. Finally, the last section of this paper presents the main environmental and distributional messages from the WB and highlights its relevance nine months later, in the midst of intense and simultaneous energy and climate crises.

Environmental taxation in theory and practice

(2.1) Foundations

Environmental taxes are levies that aim to foster changes in the behaviour and stock (equipment) of economic agents (consumers, producers) that can lead to a reduction of emissions and/or the use of material resources, thus achieving lower environmental impacts. For this purpose, it would be necessary for the environmental tax rates and base to be related to the environmental damage or to contribute to achieving pre-established environmental objectives. Since the taxes are designed to address negative externalities of economic activities, it would thus be desirable for their tax rate to be close to the marginal external cost of emissions, consumption or production. However, as environmental policies are usually set on the basis of emission reduction targets in the real world, environmental taxes might also be useful in this setting due to their ability to attain these targets.

Environmental taxes have several advantages that make them a preferred option for economists specialised in environmental policy, explaining the academic insistence on their use and the interest of many international organisations and think tanks. They are instruments that aim to ‘get the prices right’ by complying with the ‘polluter pays principle’, leading agents to make appropriate decisions. Since there is usually a great heterogeneity among those causing environmental damage, as well as problems of asymmetric information on costs and emission reduction possibilities between regulator and polluters, environmental taxes achieve improvements at a minimum cost because, compared with other policy alternatives, they allow agents to adapt and thus lead them to automatically reveal their costs and possibilities of reducing environmental impacts (Fullerton et al., 2010). In any case, these properties apply only when all those causing the environmental problem face the price signal with the same intensity, which recommends avoiding sectoral exemptions and tax reductions.

It is also important to stress the salience that is usually associated with taxation (Rivers & Schaufele, 2015). Unlike other policy alternatives, environmental taxes generally bring about a clearer view of the costs and their distribution by groups of citizens or by sectors, which facilitates the definition of compensatory measures to protect competitiveness or possible negative distributional impacts. Moreover, there is growing academic evidence that the higher the salience of a policy instrument, the stronger the reaction of agents and thus its environmental effectiveness.

Additionally, the evaluation of environmental taxes is imperative. This assessment should contemplate several criteria, including their environmental effectiveness (the extent to which they provide incentives to reduce emissions or resource use in the short and long terms), their socio-economic impacts and their revenue-raising capacity and distribution of burden by household group and economic sector (Gago et al., 2021a). In general, the academic literature shows that environmental taxes achieve positive environmental impacts, especially when compared with what would have happened without their introduction, have high cost-effectiveness, generate distributional impacts that strongly depend on the context of application and the existence of compensatory measures, and do not have significant effects on competitiveness. However, they face significant barriers, as they are unpopular measures and subject to lobbying by industry (see Gago et al., 2014).

(2.2) Spain in the international context

Environmental taxation plays a relevant role in tax systems around the globe, with revenues in 2019 accounting for 1.52% of GDP and 5.03% of tax revenue in the OECD (2021), as well as 2.4% of GDP and 5.9% of tax revenue in the EU-27. Energy taxes are the main source of environmental revenues in the EU-27 (78%), especially those levied on transport fuels, while other transport taxes account for 19% of revenues and pollution, while resource taxes account for only 3% (European Commission, 2021b).

The WB pays particular attention to the existing academic evidence for Spain, generally through ex-ante simulations of the effects of different environmental taxes. The sizeable literature generally shows a significant effectiveness in correcting the environmental problem, with limited economic and distributional impacts (Gago et al., 2021b). Furthermore, there is evidence of the social acceptance of these figures (IEF, 2021), although there are divergences between different taxes and, in general, citizens are in favour of proposals with a clear environmental rationale and distributional compensations. However, the Spanish experience with these taxes shows a limited number of applications as well as –in many cases– a deficient choice and tax design, which places the country at the bottom of the EU classification in the use of these taxes (Figure 1). Indeed, many environmental problems, polluting activities or sectors are not covered, and there is a use of tax rates that do not adequately reflect damages or contribute to the attainment of Spanish commitments in the field. Likewise, there is excessive administrative complexity, scant linkage with environmental problems to correct certain tax bases and an unequal and uncoordinated use of environmental taxes at different jurisdictional levels.

Figure 1. Environmental revenue in relation to GDP, 2019

Sources: CPELBRF (2022) and European Commission (2021b).

These problems have been repeatedly pointed out by the European Commission and many other international organisations, calling on successive Spanish governments to adopt a more proactive attitude to environmental taxation but with little result so far. Additionally, in recent years various official expert groups have been asked to provide a diagnosis of the situation and to formulate proposals in this area, showing up the lesser development, design deficiencies and scant progress achieved during the last decades. Undoubtedly, this has negatively affected the ability of Spanish public policies to deal with the damages and commitments associated with growing environmental problems and is likely to require more intensive and extensive efforts in the field of environmental taxation.

Principles and guidelines for Spanish environmental tax reform

Given the above-mentioned need to address the quantitative and qualitative problems of environmental taxation in Spain, several principles have guided the work of the expert group to underpin and guide the specific proposals of the WB.

(3.1) Environmental rationality

Environmental taxes should be understood as the necessary response to the high and increasing vulnerabilities and impacts seen in Spain. Indeed, Spain is one of the advanced countries most affected by climate change, which has important implications due to the dependence of many economic activities on environmental conditions and natural resources (Eckstein et al., 2020). Local pollution is also a persistent problem and the source of major human health problems in most urban areas, while Spanish biodiversity is threatened by human-induced disruptions.

This is the main context for deciding which environmental taxes to prioritise and the intensity of their application. Figure 2 shows some of the environmental targets to which Spain has legally committed itself, generally as a consequence of EU policies and strategies, to allowing a roadmap to be drawn up showing the priorities and timing of the necessary reforms. In particular, it highlights the need for action on greenhouse gas (GHG) emissions, especially in the so-called diffuse sectors (not subject to the EU emissions trading system or ETS), and on other relevant pollutants that are generated by transport and agriculture. There are also significant discrepancies between the commitments adopted and the current situation in solid waste, while in water there is a clear inability to recover the costs associated to its use.

Figure 2. Spain’s environmental commitments

Environmental problem / Reference year Target Evolution
1. Greenhouse Gas Emissions (GHG) / 1990 -23% in 2030 +8.5% (2019)
1b. GHG emissions diffuse sectors/2005 -26% in 2030 (-37.7% in 2030, Fit for 55) -15.1% (2019)
2. Emissions of Nitrogen Oxides (NOx) / 2005 -41% between 2020-29 -62% from 2030 -50.3% (2019)
3. Emissions of Volatile Organic Compounds other than Methane (NMVOC) / 2005 -22% between 2020-29 -39% from 2030 -23.3% (2019)
4. Ammonia (NH3) Emissions / 2005 -3% between 2020-29 -16% from 2030 -2.8% (2019)
5. Particulate Matter 2.5 (PM2,5) Emissions / 2005 -15% between 2020-29 -50% from 2030 -8.6% (2019)
6. Energy efficiency (Mtoe) Primary energy: 122.6 (2020); 98.5 (2030) Final Energy: 87.23 (2020); 73.60 (2030) Primary energy: 120.75 (2019) Final energy: 86,30 (2019)
7. Weight of waste produced / 2010 -10% in 2020 -15% by 2030 -8.1%* (2018) -6.9%** (2018)
8. Household and similar wastes destined for preparation for reuse and recycling 50% by 2020 35%*** (2018)
9. Non-hazardous construction wastes destined for preparation for reuse and recycling 70% in 2020 47%**** (2018)
10. Recovery of the costs of water-related services 100% 67,9%
Notes: * amount of non-hazardous and hazardous waste managed; ** amount of municipal waste collected; *** weight of waste recycled and composted out of total municipal waste collected; **** weight of waste destined for recovery and backfilling operations out of total non-hazardous waste.
Sources: CPELBRF (2022) from MITECO, Inventario Nacional de Emisiones a la Atmósfera; INE, Estadísticas sobre Recogida y Tratamiento de Residuos; MITECO, Memoria Anual de Generación y Gestión de Residuos; European Commission, Commission Assessment for Spain’s NECP; Eurostat, Energy Efficiency; and MITECO, Síntesis de los Planes Hidrológicos Españoles. WFD Second Cycle (2015-2021).

Proposals for the reform of environmental taxation in Spain

As indicated, the WB’s environmental tax proposals are grouped in four general sections that incorporate a general reflection on the usefulness of taxes to deal with the specific environmental problem, a description of existing taxes in the area in Spain and a summary of the available empirical literature. This procedure provides a basis for the proposals and their evaluation, as shown in the following subsections.

(4.1) Sustainable electrification

As pointed out, the availability and growing deployment of mature renewable technologies in the electricity sector makes this sector key to the ecological transition, particularly in decarbonisation. To enable the transition to a low-carbon economy, the electrification of other sectors in which the development of renewable energies is limited, such as transport, will be essential. Environmental taxation should favour this process by differentiating energy sources according to their environmental profile, promoting technological development and investments that enable widespread electrification. To achieve this, the environmental taxes levied on electricity in its different phases (generation, distribution and consumption) should be reformed to align them with three fundamental objectives for the ecological transition: electrification (replacing fossil fuels with renewable electricity); promoting energy efficiency; and reducing the negative environmental impacts associated with electricity generation.

At present, the Spanish government levies different taxes on electricity generation, including the tax on the value of electricity production (IVPEE), which is levied on the production and incorporation of electricity into the system, taxes on the production and storage of radioactive waste, and the tax on the use of inland waters for electricity production, which is levied on the value of the hydroelectric energy produced. There are also several regional taxes on electricity generation and distribution (taxes on installations, water reservoirs, atmospheric emissions, wind energy and electricity generation). Taxes on electricity consumption include the (harmonised) excise tax on electricity (IEE) and VAT at the general rate.[1] As a result of these figures, the tax burden on electricity in Spain has traditionally been higher than the EU average for households, but lower for industry (Eurostat, 2021a).

In this context, the specific proposals to favour the ecological transition in the electricity sector would be the suppression of the IVPEE, the modification of the IEE, the introduction of measures to improve the design and effectiveness of regional taxes in this area and the coverage of all costs associated with nuclear power plants.

The IVPEE was introduced with the aim of reducing the pervasive electricity sector deficits and it does not promote technological change in electricity generation (as it does not discriminate between technologies according to their environmental impacts), and it hinders electrification by increasing relative electricity prices. Thus, its only environmental benefits derive from its positive effects on energy efficiency, which could also be achieved with the IEE. Using electricity consumption data from CNMC (2020), as well as electricity price data from Eurostat (2021a) and the electricity price elasticity estimated for Spain by Labandeira et al. (2016).

(4.2) Mobility compatible with the ecological transition

The transport sector generates significant negative externalities that should be corrected by public intervention. These include GHG emissions and local pollution, but also the costs of congestion, accidents, noise or infrastructure, which together account for around 5% of GDP in developed countries (van Essen et al., 2019). To control these externalities, there are numerous regulatory options, but taxation can play a key role by incentivising behavioural changes and investments in clean technologies. Moreover, the existence of heterogeneous actors and multiple tax alternatives provides a suitable context for environmental taxation in this case. That is why environmental tax reforms should be aimed at incorporating the externalities associated with transport, facilitating compliance with environmental objectives at minimum cost, where modal shift should play a key role through incentivisation of less polluting alternatives.

Spanish taxation on transport includes: the EU-harmonised excise tax on hydrocarbons (IEH), which is levied on motor fuels in addition to other fossil fuels such as natural gas; the tax on certain means of transport (IEDMT), which is levied on the first registration of vehicles in Spain; and the municipal tax on vehicles (IVTM), which is levied annually on the ownership of mechanical traction vehicles. In addition, Catalonia levies taxes on CO2 emissions from motor vehicles and on nitrogen emissions from aviation. In any case, Spanish taxes on motor fuels are well below the weighted EU-27 average, while taxation on vehicle purchase and ownership was also relatively low. As Figure 3 shows, once again this places Spain at the bottom of the EU ranking in terms of the total tax burden on vehicles. Moreover, the average revenue per vehicle has been significantly reduced since the mid-2000s, so that the current situation is neither justifiable nor sustainable, taking into account the importance of both the externalities associated with transport and the public revenues from this sector, and requires short-term action on existing taxes, as well as a comprehensive reform in the medium term, introducing taxes on actual vehicle use (Gago et al., 2019).

Figure 3. Average revenue per vehicle in EU countries, 2019 (Spain = 100)

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Motor vehicle revenues (VAT on sales, services and repairs, sales and registration taxes, circulation taxes, fuel taxes, and others) from ACEA (2021) are divided by the vehicle stock in Eurostat (2021c).
Source: CPELBRT (2022).

In this context, it would first be advisable to increase the excise tax rate for diesel to equal that of petrol. Using data on fuel consumption (CORES, 2021) and fuel prices (MITECO, 2021a) in Spain in 2019, as well as price elasticities from Labandeira et al. (2016), Figure 4 shows that the proposal would reduce emissions and generate significant additional revenue, although it would have a regressive impact on households. However, if the revenue is used to compensate households in the lowest five income deciles so that, on average, these households are not affected by the reform, only 8.1% of the additional revenue generated would be needed to achieve this.

Secondly, the WB recommends a general increase in the taxation of hydrocarbons, in particular on motor fuels and natural gas.[2] In this respect, besides equalising the excise duties of diesel and petrol, an additional carbon price should be contemplated together with the impacts from the National Fund for the Sustainability of the Electricity System (FNSSE).[3] In the case of natural gas, in addition to introducing the carbon price and the FNSSE, the share of the IEH could be raised to the minimum of the ETD proposal (€0.9/GJ).

Figure 4. Distributional impact of the equalisation of petrol and diesel taxes by equivalent income deciles

image 3
Source: CPELBRT (2022).

In any case, the measures would also have a significant impact on certain economic activities, so it would be advisable to implement the reform gradually, to limit its impact on inflation and GDP, and to use part of the revenue to incentivise a transformation that is compatible with the ecological transition of the most affected sectors. In the case of natural gas, it would be advisable to use part of the revenue to encourage the development and implementation of less polluting technologies (biogas, green hydrogen, etc) to protect the competitiveness of the industrial sector.

The WB also recommends actions to introduce environmental variables into the IVTM, so that it contributes to an earlier replacement of highly polluting vehicles by clean alternatives. To this end, its design could be changed from levying the tax on the so-called fiscal power to the use of indicators of environmental damage, such as their environmental category (Euro), the official environmental classification labels of vehicles, or their level of CO2 emissions.

On the other hand, existing taxes on transport are currently ineffective in tackling congestion and local pollution, which are a significant part of the negative externalities associated with road transport, particularly in urban areas. It would therefore be advisable to introduce a vehicle tax that varies according to time of day and location, depending on the volume of traffic. Such a tax would reduce unnecessary journeys, generating significant benefits for users who really need access to congested areas. However, this charge could have regressive impacts, as it does not take into account the economic capacity of each driver, which could be mitigated by earmarking part of the revenue for public transport improvements (Fageda & Flores-Fillol, 2018). With respect to road infrastructure costs, although the environmental taxes considered above can contribute to their coverage, pay per use systems are more efficient and transparent approaches to this end. Therefore, it would be advisable to consider the introduction and extension of charges for the actual use of certain transport infrastructures.

(4.3) Increased circularity

The so-called circular economy is a model of sustainable socio-economic development that aims to reduce the linear flow of materials in production and consumption processes, by extending the useful life and relocating waste from the end of the supply chain to the beginning. In this context, many of the tax proposals in this area aim to minimise material use and waste by reinforcing re-use and recycling. Considering circularity as a general strategy to reduce material use and environmental degradation, other tax proposals are included in this section.

In Spain’s case, there are a series of commitments in the field of the circular economy that in many cases are far from being fulfilled and although municipal waste has been reduced in recent years its treatment has not improved significantly, so that the level of recycling is far from the European average since the beginning of the century (Figure 5), while the percentage of waste that ends up in landfills (48.2% in 2018) is well above the EU average (38.5%) (Eurostat, 2021b).

Figure 5. Percentage of municipal waste recycled in Spain and EU-15, 2000-20

image 4
Notes: population-weighted average of EU-15 countries. Data are not available for Denmark (2012), Ireland (2013, 2015, 2019 and 2020), Greece, Italy and Austria (2020), and the UK (2019 and 2020), and are therefore not included in the averages for the corresponding years.
Source: CPELBRT (2022) from Eurostat (2021b).

In this context, given the limited effectiveness of the regulatory approaches applied so far to waste and the use of materials, it is advisable to reformulate the strategies and instruments to achieve Spain’s environmental objectives. Within policies for making progress in the circular economy, taxation is a key instrument due to its capacity to provide incentives for agents to reduce waste and the use of materials. Thus, the specific tax proposals to favour the circular economy consist of the intensification and extension of the LRySC taxes, the reformulation of municipal waste taxation to link it to pay-as-you-throw systems, the creation of a tax on aggregate extraction, the introduction of a tax on nitrogen fertilisers, and the extension and harmonisation of taxation on certain emissions from large industrial and livestock facilities.

Nitrate pollution from agriculture, caused by an excessive use of fertilisers, is a very important environmental externality in Spain. As it is diffuse pollution, it is difficult to identify the cause of the problem, so the introduction of a mineral nitrogen tax could lead to a second-best solution (Jayet & Petsakos, 2013). Therefore, the WB proposes the implementation of a tax on the nitrogen contained in certain fertilisers so that part of the environmental costs are incorporated in their price, discouraging the abusive use of the most harmful fertilisers and favouring less polluting options. Moreover, given that these products enjoy a reduced VAT rate in Spain, it would also be desirable to raise it (in line with other proposals of the WB regarding indirect taxation). In any case, a gradual introduction of this tax would be advisable in order to avoid significant impacts on the agricultural sector, as well as the application of compensatory mechanisms and an adequate transmission of the correction of environmental costs to consumers.

Finally, there are certain atmospheric emissions that have significant impacts on climate change, human health, ecosystems and infrastructures. The emitters of these pollutants include large industrial facilities and livestock farming (especially intensive livestock farming), and it would therefore be advisable to introduce a tax on NOx, CH4, CO, NH3, COVDM and N2O emissions caused by large industrial complexes, as well as CH4, NH3 and N2O emissions from intensive livestock farming.[5] Using data from MITECO (2021b), applying a tax rate equivalent to one fifth of the environmental damage of each pollutant as calculated by CE Delft (2018) and assuming that agents do not react to taxes, Figure 12 shows that such a measure would generate significant revenues (note that environmental and price effects are not calculated due to the lack of data). Yet a gradual introduction of this tax and a partial revenue refund would be advisable to facilitate the adoption of cleaner technologies. Tax rebates based on the use of best available technology or best operating techniques would also be desirable.

Figure 6. Emissions, tax rate and revenue from emission taxation of large industrial sites and intensive livestock farming

Pollutant Emissions (tonnes) Tax rate (€/kg) Revenues (€ mn)
NH3 2,783.50 66,449.4 3.5 9.74 232.57
COVDM 52,925.07 0.23 12.17
CH4 165,640.36 232,380.2 0.348 57.64 80.87
CO 261,026.34 0.011 2.75
N2O 2,220.21 987 3 6.66 2.96
NOx 178,012.09 2.96 526.91
Total 810,740.56 615.88 316.41
Note: the tax on livestock (the remaining tax on large industrial complexes) is in italics.
Source: CPELBRT (2022).

(4.4) Incorporation of environmental costs associated with water use

Problems related to the availability of quality water are particularly serious and affect essential socio-economic sectors in Spain, generating significant environmental impacts. Indeed, Spain is one of the most arid countries in the EU, with a high degree of water stress, with droughts and periods of scarcity, problems that are being aggravated by climate change. However, per capita water consumption in Spain is among the highest in the EU, mainly due to its use in the agricultural sector.

Water governance in Spain is particularly complex, as it involves different administrative levels that sometimes act in an uncoordinated manner, resulting in a high degree of heterogeneity between territories, which, although desirable due to the high regional disparities, can sometimes lead to unjustified and inefficient differences in regulations and prices. Water management in the EU is based on the application of the EU Water Framework Directive, which establishes the principle of recovery of the costs of water-related services, including environmental costs and those related to water resources, as a key element in the definition of water policy. However, the degree of recovery of the cost of water services is below 70% in Spain. In this context, the European Commission (2019) recommended Spain should strive for cost recovery based on the ‘polluter pays’ principle to ensure sustainable water management.

The basis of the water tax regime in Spain has not been modified since the 1985 Water Law. At present, state water taxes include taxes on the use of the public domain (tax on the occupation, use and exploitation of public water assets and tax on the occupation of the maritime-terrestrial public domain), taxes to recover the cost of water infrastructures (regulation tax and water use tariff) and the discharge control levy. In addition, most Spanish regions have introduced their own taxes on taxable events linked to the different stages of the water cycle, mainly in the sanitation and discharge treatment phases. In many cases, local authorities apply charges and tariffs for the supply and treatment of wastewater.

Discussion and implications

Many things have changed since the constitution of the Spanish expert group for the WB on tax reform in early 2021. The IPCC (2022) completed its 6th Assessment Report, which provides a worrying picture of the sizeable impacts of climate change and the shortcomings of mitigation strategies across the world. A Summer of record temperatures in the Northern hemisphere, still with GHG concentrations well below those of 1.5ºC levels, also pointed to the urgency of taking action. Particularly, after growing price tensions from mid-2021, a severe energy crisis fully exploded following the Russian invasion of Ukraine.

In this context, are the energy and environmental proposals of the WB still valid? Many Spanish policymakers, industry representatives and commentators thought that the environmental chapter of the WB had been born dead and was not applicable in the real world. Nine months after its presentation, I believe that many of its suggestions are still fully valid to fight the energy and climate crises and to effectively protect those badly affected by the energy price spiral.

Indeed, in a context in which major energy tensions should not endanger the environmental agenda but also offer new reasons to accelerate the ecological transition, energy-environmental taxation is reinforced in its role to incentivise more energy efficiency and a larger deployment of non-fossil alternatives. Additionally, the current crisis also shows the urgent need for well-designed and permanent measures to mitigate the distributional impacts generated by increasing energy prices. In sum, two major contributions of the WB as summarised in this paper.

The WB and this working paper have also stressed the need for compensatory packages associated to more stringent environmental and climate policies. The WB suggests that a solid and lasting compensatory system for the ecological transition should be made up of transfers that are not linked to lower fossil fuel prices and are not generalised, supporting only households below a certain level of income. It is also convenient to reinforce these compensations with non-generalised programmes that accelerate the change of equipment, again facilitating the adoption of clean technologies for those groups with limited access to capital.

Unfortunately, as in most EU countries, the Spanish government has introduced solutions far removed from the WB’s proposals in the energy and environmental domain. Generalised subsidies on polluting goods are indeed against the corrective needs of environmental and climate policies and are also imperfect compensatory devices. In Labandeira et al. (2022) we provide empirical evidence on the several environmental, energy, public expenditure and distributional shortcomings of such offsetting policies, making them clearly inferior to those suggested by the WB.

[1] The government has suspended the application of the IVPEE on several occasions since 2018, while the Supreme Court has annulled part of the regulation of the tax for the use of inland waters for electricity production. Since 2021 the government has established temporary measures to reduce the level of the above-mentioned taxes as part of the packages to fight the energy crisis.

[2] Although natural gas is only marginally used in transport, it is included in this section due to its presence in the new ETD.

[3] The simulated (€50/t) carbon tax intends to capture the effects of the Fit for 55 new emissions trading system for transport and buildings. The FNSSE, currently under parliamentary procedure, aims to transfer the fixed costs of the specific remuneration regime for renewable, cogeneration and waste facilities, associated with previous systems for the promotion of renewables, to all operators in the energy sectors.

[4] Only the IEDMT should be maintained to ensure that purchasing decisions of vehicles are compatible with the extensive efforts to reduce negative externalities.

[5] As mentioned above, several regions apply their own taxes on some of these emissions, so the tax could set minimum tax rates giving regions the regulatory power to increase them.

Image: Urban orb. Photo: Joshua Rawson-Harris (Unsplash)

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