ET 5 Environmental tax abatements and similar off- budget support Agenda point 5 Eurostat E2 – Environmental statistics and accounts; sustainable development TF environmental transfers Madrid, November 2014

25 November Task force on environmental transfers Content of the presentation  Tax abatements in env. support measures  Issues  What are (environmental) tax abatements  Measuring tax abatements  the benchmark issue, variants of the concept and sources  ESA 2010: treatment of tax credits (TC)  Other environmental support measures  Questions 2

25 November Task force on environmental transfers Env. support measures Env. tax abatements Other env. support measures Env. subsidies and similar transfers 3 Guidelines Section 1.2 (2 nd priority) Guidelines Section 1.3 (3rd priority)

25 November Task force on environmental transfers Issues Concepts, forms, measurement, data sources for tax abatements Texts regarding tax abatements and other environmental support measures in the guidelines 4

25 November Task force on environmental transfers What are tax abatements?  Often substitutes for transfers  Partial or complete relief from a tax 5

25 November Task force on environmental transfers What are environmental tax abatements? 6 Tax abatement related to EP and RM Relief from tax to support EP or RM Relief from environmental tax Forms of tax abatements are, for example, reductions of tax bases, reductions of tax rates, exemptions, amounts subtracted from tax liability, deferred tax payment.

25 November Task force on environmental transfers Measuring tax abatements: the benchmark issue  “normal” tax revenue  revenue after relief (reduced rate or base, exemption, deductions from liability)  reference-law tax revenue  revenue after relief (would not include differential tax rates on 2 product within a broader category)  revenue from “optimal tax”  actual tax revenue 7

25 November Task force on environmental transfers Measuring tax abatements: variants of the concept  Revenue foregone: 'rate of tax concession' X 'tax base'  Revenue gain: 'rate of tax concession' X 'tax base' ± 'revenue changes due to anticipated behavioral adjustments induced by an (hypothetical elimination of the) abatement'  See illustrative example in Doc. ENV/ET/TF/05 (2014), p. 4 8

25 November Task force on environmental transfers Measuring tax abatements: further concepts  Expenditure equivalent:  level of funding (e.g. through a subsidy or transfer) needed to achieve the same outcome for the relevant policy target variable  Abatement amounts of deferred tax payments:  nominal cash flows: normally negative in early years, positive in later years  present value: discounted values of cash flows 9

25 November Task force on environmental transfers Measuring tax abatements: sources  Normally not involving actual flows from the government to the beneficiary  not easily identifiable from government finance statistics and national accounts  But reports produced by governments (e.g. legal obligations to publish subsidy reports)  Two international data sources(extracts in the background document):  OECD database on instruments used for env. policy  European Commission State aid database 10

25 November Task force on environmental transfers ESA 2010: treatment of tax credits (TC)  ESA 2010 §§ 4.8, and :  TC = amount subtracted from tax liability (whereas tax allowances, exemptions or deductions are subtracted from the tax base)  non-payable TC = tax credit limited to size of liability  reduces government tax revenue  payable TC = tax credit not limited to size of liability  government expenditure for their full amounts  subsidies or transfers 11

25 November Task force on environmental transfers Other environmental support measures  Granted by government without representing transactions between government and supported unit  But can create financial obligations for government  Various measures, e.g.  assuming risk of default of loan for renewable energy investments  exempting from standards (landfill and waste incineration excluded from obligations to reduce GHG emissions) 12

25 November Task force on environmental transfers Questions  Tax abatements:  Remarks on the text in the guidelines’ section 1.2?  Agree on revenue foregone as standard for measuring amounts of env. tax abatements?  Other environmental support measures:  Remarks on the text in the guidelines’ section 1.3? 13