Xxix Conferenza Italiana Di Scienze Regionali Environmental Taxation in an Enlarged Europe: a Regional Perspective

The recent enlargement of the European Union brings many opportunities, but also presents many challenges. While some regions and industries are likely to experience welfare gains and increased turnover respectively, others will likely find themselves net losers in this new system. One particularly relevant issue at the current time is that of the environment. This is understandable given the substantial consequences of movements of goods and pollution across Europe. Broad differences in trade patterns and environmental policy still exist between European countries (in particular between those of the existing states and those of the new accession countries) meaning that environmental and trade policies can influence the structure of whole economies and emissions levels. Of particular concern in the context of European enlargement is the idea of leakage of heavy industries to the new accession countries where labour costs are lower, but industry is typically more polluting. This paper therefore examines the effects should measures be taken to anticipate and avert such an increase in pollution, specifically through the introduction of a tax on various pollutants, harmonised at the European level. As the European Emissions Trading Scheme is already in place to deal with greenhouse gas emissions within Europe, we instead focus on other pollutants, namely Nitrogen Oxides (NOx) and Sulphur Dioxide (SO2). These are not global in nature as are greenhouse gases, but rather have also localised effects. There are many techniques that could be utilised for such a study, but this paper employs one of the most comprehensive. CGE modelling is a three stage process for analysing the potential impacts of policy changes or other economic shocks to a system. At the first stage, economic parameters (such as the substitutability of imported goods for domestically produced and goods, the substitutability between polluting and non-polluting input factors of