ENVIRONMENT:CARBON TAXES will not result in any lasting drop in profitability in business sectors that can pass on the cost of the taxes by charging higher prices to their customers, according to an analysis of green tax reform by the ESRI.
Researchers John FitzGerald, Mary Keeney and Sue Scott studied six business sectors, including chemicals, food and beverages, cement, paper, wood and basic metals, and found that the basic metals sector had the least pricing power and, as a result, the greatest vulnerability to the introduction of environmental taxes.
The cement sector was found to be in the strongest position to pass on the cost of the taxes and retain profitability.
Six EU states – the UK, Germany, Sweden, Denmark, Finland and the Netherlands – have already introduced some form of carbon or energy tax.
According to the ESRI’s analysis, if particular business sectors within those countries were able to pass on the increased cost of higher taxes in the form of higher prices without affecting their market share, they had less to fear from carbon pricing.
However, some sectors may be “particularly vulnerable” to a lack of trade competitiveness if they passed on the higher costs.
The researchers said that if carbon taxes were applied across the EU rather than on a country-by-country basis, most businesses would not be at risk of losing their price competitiveness.
