ABSTRACT
Fiscal changes designed to achieve the objectives of a substantial increase in employment, and at the same time a large reduction in CO2 emissions, are explored using an energy-environment-economy model of the UK: the Cambridge Multisectoral Dynamic Model (MDM). Two options to achieve these objectives are considered in detail: the road-fuel duty escalator, introduced 164in the March 1993 Budget at 3 per cent in real terms and increased to 10.1 per cent from 1996, and the EC’s proposed carbon/energy tax rising to $10 per barrel by 2000 and then to $20.4 by 2005. Revenues for each tax are recycled via reductions in employers’ National Insurance Contributions (NIC) calculated to keep the ratio of the public-sector borrowing requirement (PSBR) to GDP at base scenario rates. The changes are introduced in 1996 and standardized so that each option increases employment by some half a million by 2005. A detailed analysis is made of the effects on industrial employment of the options; both appear to generate a pattern of extra employment which is different from that seen in the 1987–89 boom and also different from that which might be expected under conditions of more rapid economic growth in the 1990s. Most of the extra jobs created are full-time, especially male full-time when compared with historical experience. Both options appear to provide substantial environmental net benefits as well as economic gains. In addition, the road-fuel duty option is expected to have no impact on the rate of inflation, since the effect of the increases in the duties on consumer prices is offset by that of reductions in NIC on industrial costs. Each option has its strengths and weaknesses and a combination may allow the UK to increase the number of jobs by one million by 2005 and at the same time reach the Toronto target of a 20 per cent cut in CO2 emissions below 1988 levels by 2005.
