For example, in a country that is very road transport-dependent such as the United States, environmental taxes levied on transport fuels will probably be more regressive than SBPCs levied on electricity. Similarly, inhabitants of densely-populated areas or apartment dwellers tend to be less dependent on wood and oil for heating than single-family-housing dwellers, and in this comparison earmarked environmental taxes would be more regressive for the latter group. It is clear, therefore, that there is potential for regressive impact in both SPBCs and earmarked environmental taxes.
This paper has tried to demonstrate how some criticisms of earmarked environmental taxes may hold for SPBCs as well. More investigation is needed to explore the similarities and differences regarding the two energy efficiency funding mechanisms. The brief discussion above suggests that the greatest potential concern is allocation of SPBC revenues to relatively inefficient activities, whether due to market distortions or political acceptance issues. More research is needed on whether these are real issues and if so how they can be avoided.
One approximate way to prevent overspending and static inefficiency is to set the SPBC charge at a level that will collect the external costs of electricity consumption. The amount of public energy-efficiency investment required in a given jurisdiction might also be estimated by the policy maker to overcome market failures. The SPBC revenue could then be allocated to meet this estimate, rather than tailoring energy-efficiency spending to match the sum of SPBC revenues. If the external costs of electricity have been internalised in electricity prices, it may be argued that any additional funding needed to address market failures should come from the general budget.
The prevalence of market and price distortions resulting from previous fiscal policies makes it difficult to compare the relative static inefficiencies between the three funding mechanisms shown in Table 5. The most powerful arguments for and against SPBCs and earmarked energy taxes will therefore derive from fiscal and governance considerations together with equity implications. In each country, the outcome will depend on the development of governance conditions in the energy sector relative to those for general government.
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