Rethinking European energy taxation to incentivise consumer demand response participation. (January 2019)

• Record Type: Journal Article
• Authors: Voulis, Nina; van Etten, Max J.J.; Chappin, Émile J.L.; Warnier, Martijn; Brazier, Frances M.T.
• Is Part Of: Energy policy. Volume 124(2019)
• Page Start: 156
• Page End: 168
• Publication Date: 2019-01
• Subjects: Energy taxes -- Demand response -- Financial incentives -- Residential -- Service sector -- EU energy policy; Energy policy -- Periodicals; Politique énergétique -- Périodiques; Electronic journals; 333.79
• DOI: 10.1016/j.enpol.2018.09.018
• Languages: English
• ISSNs: 0301-4215

Abstract

Abstract: The European Union considers demand response to be an integral part of its future energy vision, in particular as a supporting mechanism for renewable resource integration. To achieve high demand response participation, the European Union recognises the need for adequate financial incentives for all consumers, especially for residential and service sector consumers. However, the European Energy Tax Directive, which regulates energy taxation in the European Union, is currently not in alignment with this vision, as it does not provide any financial incentives for demand response participation. This paper explores the potential of energy taxes to provide such incentives. First, through an analysis of the current energy taxation and demand response literature. Second, by quantifying the difference in financial incentives between two tax designs ( per-unit and ad valorem taxes) in a simulation case study of consumers heat pumps in the Netherlands. Results show that financial incentives are 3.5 times higher for the ad valorem tax than for the per-unit tax. The paper concludes with recommendations for policy makers for the design of energy taxes that provide residential and service sector consumers with adequate financial incentives for demand response participation. Abstract : Highlights: Combination of thus far disconnected fields of energy taxation and demand response. The impact of energy tax on demand response incentives is quantitatively analysed. Ad valorem energy tax is shown to have benefits over existing per-unit energy tax. Energy tax should be considered as a policy instrument to incentivise demand response. EU energy taxation should be redesigned as part of a second generation energy market.