Tax or trade: Community energy taxation in the context of climate neutrality

Abstract

The instant paper considers the ecological taxation and emissions trading scheme as alternative market instruments for achieving carbon neutrality in the EU by 2050. In particular, the paper evaluates the capacity of thecurrent energy taxation framework to contribute to zero net emissions. The analysis shows that EU energy taxation is detached from energy efficiency and the increasing share of clean energy consumption, which are important milestones for achieving climate neutrality. Such misalignment between climate and energy goals increases the social price due for carbon neutrality by duplicating the cost for energy taxation and emissions trading within the same economic sector. In Bulgaria, highly vulnerable to duplication of climate neutrality cost are the households and business sector. The most energy intensive industries in this country manage to negotiate tax incentives with the government, since they are mobile and can relocate to any other jurisdiction