Reformulating taxes for an energy transition

Highlights: • A CGE model is developed to assess energy taxes in a context of energy transitions. • It is a highly detailed dynamic economy-energy-environment for the Spanish economy. • Taxing only nonrenewable sources is better for the environment and the economy. -- Abstract: An energy transition toward clean energy sources would reduce environmental impacts. One proposal to trigger this energy transition uses economic instruments, particularly environmental taxes. This research studies the potential impact of taxes on electricity on the environment and the economy. Using a dynamic computable general equilibrium model for Spain with energy and environmental extensions, we assess their current impact on GDP growth, energy use, and a set of different pollutant emissions. Then we propose a reform that would foster an energy transition toward clean energies and assess their economic and environmental impact. We find that only taxing the production of electricity by coal, oil, and natural gas can be better for the environment and economy than taxing all forms of electricity production in a revenue-neutral context. Moreover, the production of electricity by biomass, though considered renewable, is an important source of pollutant emissions and, in these terms, should have less importance in an energy transition.