Extraction of depletable energy resource such as oil, coal and natural gas has two important factors to be considered in the production process. One is its scarcity, the other is environmental pollution along with the production. Due to the scarcity of the reserves, future generations will get nothing to consume if we exhaust most of resources now. Moreover, using fossil fuel will emit air pollutants and CO2 which is the main component of GHG and the cause of global warming. Energy resource plays a vital role not only in the national development and economic growth, but also in improving people’s living quality. Taiwan is a densely populated island with only limited indigenous energy resources and therefore is extremely highly dependent on imported energy. Currently, the level of energy price is too low and this level results too much consumption which is inefficient use of energy. In addition, the “Nuclear-Free Homeland” policy also exacerbates the security of energy supply mix structure. These are the main problems in Taiwan current energy environment. The main purpose of implementing “Energy Tax” is to internalize the externality cost. Two kinds of externality are reflected, intergenerational externality and environmental externality. Intergenerational externality indicates the opportunity cost of losses for future generations in the use of energy when current generation uses one more unit of energy resource. The environmental externality is the environmental damage resulted from energy use. The current market low energy price leads to overly use of energy, more pollutant emissions and more environmental degradation. Many literatures have presented that “energy tax” is a useful economic incentive instrument to reduce the emissions and can achieve even the results of “double dividends”, i.e. pollution reduction and improvement of economic efficiency.
This study is to explore the impact of government newly designed energy tax on the economy of Taiwan. We will apply three CGE models (computable general equilibrium model, including TAIGEM-D model, AIM-Material model and Enfore-CGE model) to estimate the economic and environmental impact including GDP, employment, inflation and CO2 emissions under the constraint of fiscal neutrality. Simulation results have shown that, though the impact of new taxation charges is not generally positive to the economy, it can achieve double dividends if we have a sound policy design in the use of the tax revenue.It is our opinions that energy tax can get even “triple or quadruple dividends” if energy tax regime can include a careful design in the use of tax revenue. It is worth to say that, though we may not find out the optimal energy tax rate, if we can maintain the “fiscal neutrality” while implementing a sound policy for the use of tax revenue, we may get multi-dividends, and come closer to the vision of a sustainable society.