Transcript Chapter 12: Saving the Planet

Chapter 12: Saving the Planet
By: Chris Balkaran and Braden Hutchins
Nudge: Brief Overview
 Traditionally, governments have sought to limit the
effects of emissions through command-and-control
initiatives, such as establishing thresholds that
certain types of emissions cannot exceed
 E.g. Acid Rain Agreements, California auto regulations
 The costs involved sometimes are higher than
anticipated (Regulation is expensive and
cumbersome)
 However, because we cannot monitor and reason
with every polluter (including all of us!), we must
expect some form of government intervention
Nudge: Brief Overview
Two main reasons for environmental
degradation:
Tragedy of the Commons
Little (if any) feedback on environmentally
damaging actions
E.g. Thermal Inertia
Solutions:
Taxation
Cap-And-Trade System
Nudge: Brief Overview
 Tax:
Places a value on natural resources to take into
account negative externality
E.g. Carbon
Pros:
Easy to implement - acts like any other tax
Consumers must take tax into account when making
purchases
Cons:
Taxes are unpopular
Does not limit actually emissions
Nudge: Brief Overview
Cap-and-Trade
The ‘rights’ to pollute within a given amount are
bought/sold in a market
Pro:
Actual limits to emissions set
Easier for big industry to adjust to
Cons:
Continual monitoring needed (more expensive)
Not feasible for individual consumers
Need a large enough market
Nudge: Brief Overview
Both a tax and ‘cap-and-trade’ provide
incentives and allow for choices for taking into
account negative externalities
These types of incentives allow for individuals
and firms to see how polluting impacts their
bottom line - it provides immediate feedback.
E.g. 50 liter gas tank filled up once a week
50 liters x 7.23 cent Carbon Tax Per Liter x 52 weeks in a
year
$3.62 per fill up
$188.24 in carbon tax paid per year
Article for Analysis
Environmental Tax Reform: The European
Experience
By J. Andrew Hoerner and Benoit
Bosquet
Written For: The Center For A
Sustainable Economy
February 2001
Summary of Article
Looks at Environmental Tax Reform
(ETR)
ETR is when revenue from taxes on
pollution or resource depletion is used to
lower taxes on economic activities (e.g.
labour) - also called revenue neutral
Summary of Article
In 2001, eight countries had implemented ETR
Denmark, Finland, Germany, Italy, Netherlands, Norway,
Sweden, United Kingdom
Typically reduce the tax burden placed on
labour by cutting income tax or social security
contributions paid by employers
Most focused on greenhouse gas emissions
Not all environmental tax is revenue neutral
E.g. In the Netherlands green taxes constitute 9% of all tax
revenue, only 0.5% is revenue neutral
Policy Implications
Market-based approach to environmental
control
Allow greater flexibility in deciding where,
when, how or to what extent to cut pollution
emissions, thereby reducing cost to the
economy and increasing personal freedom
If designed properly, national market-based
systems allow reductions of total national
pollution emissions with greater flexibility and
lower cost than with less flexible and
comprehensive approaches
Policy Implications
“When the revenues of environmental
taxes are used to reduce other distorting
taxes, the economic outcome is better
than if those revenues are not so
distributed, in terms of impacts on both
employment and GDP”
E.g. 87% of 104 economic simulations predict
that ETR will create employment.
Policy Implications
Of 100 simulations, 75% predicted a
negligible impact on GDP.
Policy Implications
However, how money is redistributed makes a
difference.
Social security contribution reduction:
86% chance of increased employment.
65% of simulations showed GDP gains
Income tax reduction:
35% chance of increased employment.
25% of simulations showed GDP gains
Policy Implications
 All eight nations adopted measures to promote new
clean energy technology when implementing carbon tax
 E.g. Tax incentives for energy efficient technologies and
electrical plants
 In all cases, the economic net benefit of a carbon tax
along side the other measures was preferable
 Policy packages that use a portion of the tax to finance
energy efficient or renewable energy improvements are
more likely to result in positive employment and GDP
impacts, as well as more emissions reductions/savings
Case Study: Denmark
1992 - CO2 tax introduced: initially
proposed at DKK 100/metric ton, but
later reduced to DKK 50/metric ton
If companies undertook new
environmentally-efficient technologies to
heat office buildings for example, the
Danish government would give a tax
refund (an incentive)
Case Study: Denmark
Other ways tax revenues were ‘recycled’
into the economy:
A large pool of funds was set aside to assist
small companies and agriculture
Reduced employers’ contributions to social
security
The Danish government also reduced
income taxes, particularly those in the lowincome tax bracket
Case Study: Denmark
Sweden
In 1991, the first major shift in the tax base
from traditional factors of pollution
New tax on carbon dioxide and sulpher dioxide
Reduced energy tax on fossil fuels
Income tax scaled back
Sweden
 In 1993, big industry complained that the tax hurt their
comparative advantage in Europe
 Carbon Tax reduced
 In 1997, political attitudes changed again - carbon tax
raised
 Now, the carbon tax is adjusted annually in line with
inflation
 In 2000, the scope of the carbon tax increased
 More fuels included (E.g. Diesel)
 Money used to finance continuous education of the
work force - goal to help shift economy from primary
skills (e.g. resource extraction) to secondary or tertiary
skills.
Sweden
Money returned to individuals and firms
through income tax reductions and cuts to
social security contributions
Key Exemptions limit effectiveness:
Energy production
Some agriculture
BC Carbon Tax
Applies to 70% of fossil fuels purchased or
used.
22 types of fuel are covered.
Currently 2.41 cents per liter (for gas)
Scheduled to rise annually until 2012 when the
price reaches 7.24 cents per liter.
Personal and corporate income taxes scheduled
to fall incrementally over the next five years.
BC Carbon Tax
 Affected by world oil prices
 E.g. $140 a barrel vs. $38 a barrel
 Certainty of price, uncertainty of emissions
 Time frame to short
 Total revenue neutrality limits alternatives
 Regressive or progressive?
 Exemptions
 E.g. Exporting goods, inter-jurisdictional shipping and aircraft,
aboriginals, visiting military and diplomats, aluminum and
cement manufacturing
Conclusions
 A carbon tax provides an incentive for individuals to
take into account emissions when making purchases
 If revenue neutral, can be used to encouraged
employment
 Will have negligible effect of GDP
 Hard for many big businesses to adapt to
 Does not provide actual limit on emissions
 But is cheaper to implement than a cap-and-trade
 More importantly, it provides more freedom and
flexibility that a command and control system