The effects of energy taxes on energy consumption in Finland between 1995 and 2004 - An historical analysis using the VATTAGE-model

Abstract This study evaluates the effects of changes in energy taxes on energy consumption between the years 1995 and 2004 using an applied, general equilibrium model for a historical simulation. During this period, Finnish energy taxation was fundamentally changed, going from an up-stream, emission and energy content-based approach to one with a mixed fuel and electricity tax. The change put the burden more closely on the users of electricity and fuels. We find that while the sharp increases in energy prices since 1995 have significantly restricted the growth of energy demand, energy taxes have also been effective in curbing the growth of energy and especially electricity consumption. For transport fuels, the effective tax rate actually fell as the price net of tax increased over time. Nevertheless, for petrol and light fuel oil we do find the taxes to have slowed down overall demand growth.