Reducing air pollution: Are environmental taxes enough to help the EU member states reach climate neutrality by 2050?

Abstract

Recently, the European Union has officially announced that its’ objective in terms of environmental policy is to achieve climate neutrality, including long-term low greenhouse gas emission, by 2050. In light of this, the current study aims to offer a new and updated perspective on the effectiveness of environmental taxes in reducing air pollution in the European Union. Firstly, cluster analysis is used to group the member states of the European Union according to characteristics that will make the research results more robust. Secondly, panel data dynamic error correction models were estimated for each cluster to assess the effect of environmental taxes (and other explanatory variables) on emissions of carbon dioxide on the one hand, and greenhouse gases in general on the other hand. The research looks at both short-run and long-run effects on air pollution. The results show a statistically significant negative long-run relationship between environment taxes and atmospheric pollutants emissions. However, this effect would happen with a certain delay and it would be short lived, which makes additional environment policy measures necessary to achieve the 2050 targets.