No. 11




Ecological Tax Reform and Sustainable Development

15 June 2005


RiTo No. 11, 2005

The tax policy that Estonia has to date followed – creating a climate favorable to the private sector and motivating employees – has been criticized as well as praised, the latter on the international level.

On the other hand, the opportunities of this policy to reduce the effect of environmental pollution as well as the inefficient consumption of natural resources and inadvisable activities has not been systematically evaluated. A solution is seen in ecological tax reform, which holds far-reaching opportunities to push consumer culture in the direction of greater sustainability. Based on the needs of preparing ecological tax reform, the Ministry of the Environment, the Ministry of Economic Affairs and Communications and Eesti Energia ordered an analysis from an international group of experts on the macroeconomic effect on Estonia of establishing a carbon dioxide tax. To evaluate the effect, a general balance model was created which, once the CO2 tax is established, will allow the effect of changes in the energy sector on other sectors and, in aggregate, on the entire economy to be gauged. This is a base model for analyzing the Estonian economy and does not yet take into account all possible factors (demographics, technology, tendency for savings etc); these can be considered in the future as the model takes shape. Developed further, this prototype can be used to analyze the effects of other natural resources and pollution taxes.

Full article in Estonian