Presentation on theme: "Environmental Tax Reform: Potential and Experience in Europe"— Presentation transcript:
1 Environmental Tax Reform: Potential and Experience in Europe ByProfessor Paul EkinsMember of UNEP’s International Resources PanelProfessor of Resources and Environmental Policy and DirectorUCL Institute for Sustainable Resources, University College LondonA presentation to the Corporate Leaders Group on Climate Change-CLG ChileSantiago, ChileMay 29th, 2014
2 The potential of ETR/GFR: ETR/GFR is the shifting of taxation from ‘goods’ (like income, profits) to ‘bads’ (like resource use and pollution)
3 Relevant projects on environmental tax reform (ETR) or green fiscal reform (GFR) COMETR: Competitiveness effects of environmental tax reforms,See Andersen, M.S. & Ekins, P. (Eds.) Carbon Taxation: Lessons from Europe, Oxford University Press, Oxford/New York, 2009petrE: ‘Resource productivity, environmental tax reform (ETR) and sustainable growth in Europe’. One of four final projects of the Anglo-German Foundation under the collective title ‘Creating Sustainable Growth in Europe’. Final report published October/November 2009, London/Berlin.See Ekins, P. & Speck S. Eds Environmental Tax Reform: A Policy for Green Growth, Oxford University Press, OxfordUK Green Fiscal Commission. Final report published October 2009, London.
4 What is the experience to date of ETR in Europe? Six EU countries have implemented ETRs: Denmark, Finland, Germany, Netherlands, Sweden, UKThe outcomes – environmental and economic – have been broadly positive: energy demand and emissions are reduced; employment is increased; effects on GDP are very smallEffects on industrial competitiveness have been minimalSee Andersen, M.S. & Ekins, P. (Eds.) Carbon Taxation: Lessons from Europe, Oxford University Press, Oxford/New York, 2009
5 Environmental and economic impacts of ETR, from COMETR study, 2007 Move this up?
7 Insights from PETRE (Resource productivity and ETR in Europe) What opportunities are presented by ETR in Europe?What might a large-scale ETR in Europe look like and what would be its implications for the rest of the world?What are the obstacles to ETR in Europe?What might be a way forward for ETR in Europe?How can single European countries like Germany seek to implement their own ETRs?What are the implications of ETR for ‘sustainable growth’ in Europe?See Ekins, P. & Speck S. Eds Environmental Tax Reform: A Policy for Green Growth, Oxford University Press, Oxford
8 What might a large-scale ETR in Europe look like.....? (1) Two European macro-econometric models: E3ME, GINFORS.Models deliver insights, not forecasts or ‘truth’Six scenarios:Baseline with low energy price (LEP)Baseline sensitivity with high energy price (HEP, reference case)Scenario 1: ETR with revenue recycling designed to meet 20% EU 2020 GHG target (S1 – scenario compared with LEP Baseline)Scenario 2: ETR with revenue recycling designed to meet 20% EU 2020 GHG target (S2 – scenario compared with HEP Baseline)Scenario 3: ETR with revenue recycling designed to meet 20% EU 2020 GHG target (S3 – scenario compared with HEP Baseline)proportion of revenues spent on eco-innovation measuresScenario 4: ETR with revenue recycling designed to meet 30% ‘international cooperation’ EU 2020 GHG target (S4 – scenario compared with Baseline with HEP)
9 What might a large-scale ETR in Europe look like.....? (2) Note that 2.7% of EU labour force is about 6m jobs
10 ... and what would be its implications for the rest of the world? CO2 emissions- GINFORS
11 What might be a way forward for ETR in Europe (in a time of financial crisis)? Need for substantial new sources of tax revenue (tax pollution)Need for substantial new sources of employment (make employment cheaper)Carbon tax very similar to permit auctionEnergy Tax Directive in place – proposal to split between energy and carbonCarbon tax would put floor on permit priceEU-wide carbon tax would dilute concerns about competitiveness (cf China)
12 UK Green Fiscal Commission Formed May 2007Running to October 2009Independent of government (funded by Esmée Fairbairn Foundation and Ashden Trust)22 Commissioners – to review and advise on work4 MPs, 3 Lords – politically balanced, senior political representation, shadow ministersbusiness, academic, NGOs (social and environmental)FSA, MPC membersgovernment observers – Defra and TreasuryPaul Ekins, Director and Secretariat provided by PSI
13 Green Fiscal Commission - objectives To break the political logjam on environmental tax reformTo prepare the ground for a significant programme of green fiscal reform in the UKCreation of evidenceRaising awareness of evidence – communications and engagementTo understand the social, environmental and economic implications of a major programme of environmental tax reform
14 Green Fiscal Commission – starting point Working assumption - environmental tax reform is a good idea in principleConsidering:a substantial tax shift – approx 20 per cent of tax revenues from green taxes by 2020 – quite a challengeUse of proportion of tax revenues to amplify environmental benefits – technology and behaviour – revenue neutrality?Should not have a disproportionate impact on already disadvantaged groupsWill take account of and seek to mitigate negative effects on business, and foster new sources of comparative advantage as the basis for new businessesNo view on appropriate level of overall taxation – a shift in the basis of taxation, not an increase.
15 Green Fiscal Commission - research New research and review/collation of existing work on (see Briefing Papers on website):Public opinion (including deliberative days)Modelling of economic, environmental and social implications of a major tax shift - CEDistributional issuesExperience of UK fuel duty escalator/income tax reductionInternational comparisons on the effectiveness of economic instrumentsETR and innovationETR and competitivenessBorder tax adjustmentsETR and transportRevenue stability
16 Engagement and communications Meetings with, and presentations, to target audiencesStakeholder engagement meetings – business, groups with distributional concernsMeetings of CommissionCommunicationsParliamentary LaunchBlog – ETR news and commentaryWebsiteSummary briefings/supporting papers/bookPress workEvents at political party conferencesThe politics is difficult, so need to develop a compelling narrative: see Briefing Paper No.4
17 Green Fiscal Commission - scenarios Three Baselines, with different assumed fossil fuel prices – medium (B1), low (B2) and high (B3)Two GFR scenarios (S1, S2) were compared against these Baselines. Range of carbon/energy and environmental taxes; reductions in income tax (households) and social security contributions (business) [B3 same end-user prices as S1, S2]Two ‘Eco-innovation’ scenarios: 10% of extra green tax revenues invested in household energy efficiency, fuel-efficient cars and renewable energy sources.
22 Green Fiscal Commission – Summary of Findings Environmental taxes work: they reduce environmental impacts Environmental taxes are efficient: they improve the environment at least costEnvironmental taxes can raise stable revenues The public can be won round to Green Fiscal Reform (GFR) The UK’s 2020 greenhouse gas targets could be met through GFR: small effects on output; positive effects on employment (450k in 2020) GFR would stimulate investment in the low-carbon industries of the futureGFR can mitigate the impact of high world energy prices: unlike GFR, high world energy prices are bad for the UK economy The impacts of GFR on competitiveness can be mitigated: concerns of relatively few economic sectors can be addressed. Low-income households would need special arrangements GFR emerges as a crucial policy to get the UK on a low-carbon trajectory; help develop the new industries that will both keep it there and provide competitive advantage for the UK in the future; and contribute to restoring UK fiscal stability after the recession. It is a key to future environmental sustainability and low-carbon prosperity.
23 How could single countries implement ETR? ETR has a minimal effect on national competitiveness and economic growthETR will stimulate resource-efficient innovation – need to support this with complementary policiesGermany has demonstrated this (low-carbon vehicles, energy-efficient houses, renewable energy, waste management technologies)If all countries were committed to low-resource development, the leading countries would be those with strongly developed resource-efficient technologies and industries
24 Will ETR lead to ‘sustainable growth’? ‘Sustainable’ growth will be resource-efficient and may in time turn out to be slower growth, with higher employment (lower productivity and incomes); depends on innovation - ETR would stimulate such innovation, supported by other policiesRelatively high-growth countries in a sustainable future will be those that have developed, and can export, resource-efficient technologies and industriesETR is a key policy for fostering sustainable growthThere is no evidence that ETR or other policies for environmental sustainability would choke off economic growth altogether‘Unsustainable’ growth will not last beyond this century, and could lead to environmental collapse well before 2100 (“there is no low-cost, high-carbon future”)The choice is clear from a cost-benefit angle at any but the highest discount rates (cf Stern Report).That will not make implementing the choice politically easy