Carbon taxation, carbon subsidies and ETS payments in Luxembourg (integrated report). An Environmentally Extended Input-Output Analysis

This study is an analysis of current energy and transport taxation and carbon relevant subsidies in Luxemburg, utilizing an Environmentally Extended Input-Output model. The method allows to not only calculate direct taxation and emissions that are produced and paid by a sector, but also indirect emissions and taxation that is paid and produced indirectly because of the interconnectedness of the value chains. Besides current carbon-related taxation, we also ran the model for four fictional taxation scenarios, with further versions including a sensitivity analysis for selected scenarios with a varying ETS price. The analysis is based on Eurostat data on greenhouse gas emissions, taxation and sectoral connections of international economies (FIGARO-tables). Descriptive statistics show that Luxembourg had the highest GHG emissions per capita of all EU countries in 2019, while a relatively large share of energy and transport taxes was paid by non-residents. Therefore, we extended the model and introduced non-resident corporations and non-resident households in addition to the usual units, such as (resident) households and industries, in the model. In one of the fictional scenarios, we analyzed the effects of the planned carbon tax in Luxembourg in 2023 (30 Euros per ton of CO2). In the short run, this tax would generate almost 295 million Euros of revenues, in addition to already existing carbon-related taxation (1 billion Euros in 2019) if emissions stayed at their 2019 levels. In all scenarios, non-resident corporations would bear the brunt of carbon taxation, as these produced around one third of greenhouse gas emissions in Luxembourg in 2019. Energy and transport taxation in 2019 was very unevenly distributed in Luxembourg, when considering the emissions of the respective economic unit. While sectors such as agriculture paid only one Euro per emitted ton of CO2, construction and mining paid around 300 Euros for the same pollution. Moreover, we found that a selected list of carbon subsidies in Luxembourg amount to 417 million Euros, whereas entities not located in Luxembourg (foreign households and corporations) profit the most of these, while households located in Luxembourg profit the least. We suggest that policy makers in Luxembourg should come up with a taxation scheme that is stronger connected to GHG and CO2 emissions and carbon-related subsidies should be abolished to a large extent.