Reducing CO₂ emissions in the EU member states: Do environmental taxes work?

The purpose of this paper is to investigate the impact of environmentally related taxes on carbon dioxide (CO₂) emissions in the EU member states. The paper uses a dynamic panel threshold regression model to determine the nonlinear relationship between environmental taxes and CO₂ emissions in 15 EU member countries between 1995 and 2013. The results confirm asymmetrical relationships, in which the thresholds of the environmental taxes for total environmental taxes, energy taxes (including CO₂ taxes), transport taxes, and taxes on pollution and resources are 3.02%, 2.20%, 0.88%, and 0.23%, respectively. The findings reveal that, after exceeding the threshold level, the effect of environmentally related taxes (excluding transport taxes) on CO₂ emissions changes from insignificantly positive to significantly negative. However, the analysis shows a significant effect of transport taxes on CO₂ emissions neither below nor above the threshold.