Economics of Installing a CO2 Tax in the Dutch Tax System

This paper is written for an ad-hoc roundtable of economic and governance scientists, to advice politics, in spring 2019. The objective of this working paper is: The design of a national Carbon Levy and the expected Carbon Leakage effect and what can be done about this. With this paper, scientists aim to advice politics on the design and implementation of a carbon tax in the Netherlands. This text is originally written as a discussion letter, serving as input for an informal roundtable with a small society of scientists and politicians. This exploratory science-policy roundtable has been held on 10 April 2019 in the Dutch Parliament, with nine people around the table, half senior & half junior, half science & half political representatives. This paper forms the input, discussing a few options and consequences, in order to explore the ‘space’ for political and economic maneuverings into a future pathway that is consistent with climate science and with international agreements (the Paris Climate Agreement), as well as a feasible pathway in the current global and European market context and in the actual national political constellation.The roundtable serves to gain understanding across the boundaries of scientific circles and political systems, communicating both theoretical and practical insights. A diverse set of ingredients, both market-based and politics-based, limit the scope and feasibility of options for action, marking a significant divide between what is theoretically desirable and what is currently practically and politically possible, given the realities of a fragmented political landscape and polarized political viewpoints regarding climate change policy in the current timeframe. The roundtable is meant to deliberate the latest empirical analyses on the topic of taxing greenhouse gas emissions (expressed as CO2-equivalent tonnes), and learn from each other first-handedly about actual imperfect circumstances. The roundtable has been held after a party-internal motion on the topic of installing a CO2 tax had been accepted within one of the larger democratic political parties in the Netherlands. The paper contains a Dutch summary, principles and execution considerations of policy measures and considerations, a glossary of terms, and a short cv of the authors.