OECD Environment Working Papers N. 150 – Are environmental tax policies beneficial? Learning from programme evaluation studies. This paper provides a concrete example of how policy analysts can use empirical programme evaluation studies to perform ex-post assessments of environmentally related tax policies. A number of studies credibly identify causal effects of environmentally related tax policies, but do not necessarily provide all the information needed to fully inform the policy-making process. This paper argues that cost-benefit analysis (CBA) could enrich ex-post assessments of environmentally related tax policies, given that CBA provides decision makers with a broader perspective of social costs and benefits and allows the identification of potential trade-offs among policy objectives. These points are developed and illustrated by reference to the initial effects caused by the French feebate programme for CO2-efficient motor vehicles after its introduction in 2008. The way the feebate system was designed in the first year not only led to a decline in CO2 emissions (by an estimated 4.8 million tonnes over vehicles’ lifetime), but also came with non-climate effects, such as increased local air pollution, fiscal revenue losses, and changes in producer and consumer surplus. With respect to the first year of the policy, non-climate effects are estimated to have outweighed the climate effects in a CBA framework. The policy has, however, since been revised several times. This paper makes a number of observations on ex-post CBAs of environmentally related tax policies that should be of broader policy relevance: · Even ex-post CBA involves forward-looking elements, which requires making assumptions about future impacts of the changes triggered by the policy beyond the programme evaluation period. These assumptions should be made explicit. · The consideration of impacts that accrue after the end of the programme evaluation period can fundamentally alter results. Ex-post CBAs that build on programme evaluation studies should discuss the magnitude and reason for these differences. · If the social costs and benefits of a quantified effect are uncertain, it can be prudent to apply a reasonable range, even if only econometric analysis would make it possible to establish the degree of confidence one could have in such an interval. · CBA should not be limited to considering climate externalities, but should include all relevant externalities. · If there are relevant fiscal effects beyond the analysed environmentally related tax policy itself, these additional fiscal costs should be considered as well. · The application of a tax provision that reduces net public revenues causes a social cost per unit of revenue foregone that is equal to the marginal cost of public funds of the instrument used to raise the necessary additional revenue. Fiscal costs should be corrected accordingly. · CBA of environmentally related tax policies should not solely assess externalities and fiscal effects, but should consider consumer and producer surplus issues as well. · As the distribution of costs and benefits can be of great interest – for the people involved and from a political perspective – case studies should seek to discuss distributional issues at least qualitatively.
