THE EFFICIENCY OF ENVIRONMENTAL POLICY: EMPIRICAL EVIDENCE BASED ON THE APPLICATION OF VEC MODEL

Abstract

This paper considers the relationship between CO₂ as the main variable of climate change and environmental policy instruments covering environmental taxes and government spending on environmental protection. By these, the effects of the gross domestic product, carbon price, final energy consumption and quality of air were considered using the Vector Error Correction Model. The analysis is based on the survey of environmental policy instruments in the Czech Republic using time series data over the period 1996-2012. The data are extracted from the Eurostat database. The research performed identified negative relationships between CO₂ and government spending on environmental protection and between CO₂ and carbon price. Furthermore, the research revealed that the government spending on environmental protection and the carbon price has a stronger effect on CO₂ than environmental taxes in the Czech Republic. This implies that environmental taxation is mainly used as a source for raising budget revenues in the Czech Republic without any effect on the level of consumption of goods producing CO₂ emissions. Therefore, it can be concluded that currently imposed environmental taxation is inefficient.

DOI: http://dx.doi.org/10.5755/j01.ee.27.5.13394