Transcript Keynote Speaker 3

Distributional and competitiveness
implications of environmental tax
reforms – revisited
Stefan Speck and David Gee
11th Global Conference on Environmental Taxation
3-5 November 2010
Bangkok, Thailand
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European Environment Agency
Content
ETR in the European context
Recent projects assessing the effects of an ETR
• Competitiveness Effects of Environmental Tax Reform
(COMETR)
• Resource Productivity, Environmental Tax Reform and
Sustainable Growth in Europe (PETRE)
• The European Environmental Agency (ETR) project on ETR
• The UK Green Fiscal Commission
A summary - the potential of environmental taxes and ETR in the
current policy and fiscal debate
The views expressed in this presentation are those of the author and may not in
any circumstances be regarded as stating an official position of the European
Environment Agency
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European Environment Agency
EEA: European Environment Agency
• “The EEA aims to support
sustainable development
and to help achieve
significant and measurable
improvement in Europe’s
environment…
• … through the provision of
timely, targeted, relevant
and reliable information to
policy making agents and
the public.”
• EEA is an independent EU
institution with 32
member countries incl.
Turkey, Switzerland and
Norway
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Member countries
Collaborating countries
• 200 staff in Copenhagen
headquarters - and 5-6
Topic Centres with wide
network throughout
Europe
European Environment Agency
ETR – the European context
Environmental Tax Reform (ETR) is a particular public policy tool
applying revenue-raising economic instruments to resource use
and pollution, in order to increase the efficiency of resource use
and improve the environment.
Revenues can be used for different policy purposes. ETRs
implemented in Europe closely followed the revenue-neutrality
principle – a tax-shifting policy programme!
Main obstacles hindering the more radical implementation of
ETR:
• Competitiveness considerations – topic not only relevant in
the context of ETR (environmental taxes) but also regarding
the auctioning of emission allowances (EU Emission Trading
Scheme)
• Equity issues – social considerations
• Unstable tax base / revenue stability
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European Environment Agency
Competitiveness Effects of
Environmental Tax Reform (COMETR)
Analysis of ETRs implemented in Europe (ex-post analysis)
Focus was on studying the ETR effects on competitiveness
• Six EU countries have implemented ETRs: Denmark,
Finland, Germany, Netherlands, Sweden, UK
• The outcomes – environmental and economic – have been
broadly positive: energy demand and emissions are
reduced; employment is increased; effects on GDP are
very small
• Effects on industrial competitiveness have been small
See Andersen, M.S. and Ekins, P. (Eds.), 2009, Carbon Taxation: Lessons
from Europe, Oxford University Press, Oxford
and http://www2.dmu.dk/cometr/
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European Environment Agency
COMETR – the economic impacts of
ETR on GDP
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European Environment Agency
COMETR – the impacts of ETR on
CO2 emissions
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European Environment Agency
Resource Productivity, Environmental
Tax Reform and Sustainable Growth in
Europe (PETRE)
Analysis of a large scale ETR in Europe (EU-27) and what
would be its implications for the rest of the world (ex-ante
analysis)
• a carbon tax was introduced on all non-EU emission
trading scheme (EU ETS) sectors. The carbon tax rate was
equal to the carbon price in the EU ETS
• the taxation of material inputs apart from energy products
The ETRs were modelled in a revenue-neutral fashion as
all revenues were recycled back to the economy as the
revenues paid by industries were used for a reduction in
employers’ social security contributions and the revenues
paid by households via an income tax reduction
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European Environment Agency
Resource Productivity, Environmental
Tax Reform and Sustainable Growth in
Europe (PETRE)
Two macro-econometric models
• Scenario HS1: ETR with
revenue recycling designed
to meet unilateral EU 2020
GHG target (20% reduction
from 1990 levels)
• Scenario HS2: ETR with
revenue recycling designed
to meet unilateral EU 2020
GHG target, with 10% of
revenues spent on ecoinnovation measures.
Models deliver no forecasts
but insights how economies
develop!
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E3ME
(GINFORS)
HS1
Carbon price
(€ per ton
2008)
59 (68)
GDP
0.3 (-0.6) 0.8 (-0.3)
Employment
1.1 (0.4)
HS2
53 (61)
1.1 (0.4)
Note:
Figures show percentage change in EU27 main
indicators in 2020 compared to the relevant
baseline for each scenario
European Environment Agency
Resource Productivity, Environmental
Tax Reform and Sustainable Growth in
Europe (PETRE)
Results:
• ETR would raise employment, lower resource consumption
and will have only small effects on GDP
• Labour intensity increases, meaning that average labour
productivity falls. This is a trade-off with the reductions in
unemployment.
• Carbon productivity (defined by GDP per unit of CO2 emission
and material productivity (GDP per unit of material
consumption) increase
Ekins, P. and Speck S. (Eds.), 2011 (forthcoming)
Environmental Tax Reform: A Policy for Green Growth, Oxford
University Press, Oxford.
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European Environment Agency
The EEA project on ETR
The European Environment Agency (EEA) funded a follow-up
project based on the PETRE project and studied aspects of:
• eco-innovation and ETR;
• equity effects/distributional implications of an ETR; and
• the feasibility of implementing a radical ETR and its
acceptance
The feasibility of implementing a radical ETR and its
acceptance:
a qualitative analysis aiming to understand the scope for
using ETR to address current and future environmental
challenges as well as assessing possible paths to develop a
more harmonised approach to ETR in the EU
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European Environment Agency
Eco-innovation and ETR
The literature review suggests
“that price-based policy instruments can (in theory) and do (in
practice) have a positive impact on both innovation and
diffusion of environmental technologies”.
“... caution should be exercised in drawing general, definitive
conclusions about the impacts of price-based policy
instruments such as environmental taxes and investment
subsidies on innovation – particularly relative to other policy
instruments”.
Based on scenarios it can be summarised that an ETR with
spending revenues for eco-innovation leads to a positive
outcome in terms of GDP and employment as compared to the
results of other (PETRE) scenarios.
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European Environment Agency
Distributional implications of an ETR
The actual distributional impact depends, inter alia, on the
subject of taxation: notably, taxes on household energy
tend to be clearly regressive, while transport-related taxes
have mixed distributional results.
Result of the modelling exercise:
In most countries, and at the aggregate EU level, the
impacts were not found to be regressive across
income groups
The modelling results showed that the ETR would generally
create a positive change in real incomes for all socioeconomic groups and that only a limited number of
households in some EU member states would be facing a
lower income as a consequence of the ETR.
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European Environment Agency
Distributional implications of an ETR – change
in household income by quintile, 2020
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European Environment Agency
The UK Green Fiscal Commission
Objective: to prepare the ground for a significant programme of
green fiscal reform in the UK, in terms of both assembling the
evidence base for such a reform, and raising stakeholder and
public awareness of it.
Key message:
“Green fiscal reform 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”
“The politics is difficult, so need to develop a compelling
narrative!”
Final report published 10/2009: www.greenfiscalcommission.org.uk
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European Environment Agency
Last but not least … and most recent
ETR Public/Policymakers Awareness
Campaign
• Disseminating results of ETR projects and
potential of ETR based on experience in other
European countries
• Workshop with politicians and civil servants
• Conference with the civil society
First event took place in Dublin/Ireland on 28/29
October 2010
European Environment Agency
Summary - the potential of ETR
• ETR has a minimal effect on national competitiveness and
economic growth
• ETR can stimulate resource-efficient innovation – need to support
this with complementary policies
•“Environmental taxes can spur innovation” (OECD)
• ETR doesn’t need to be regressive – significance of ETR design /
recycling and compensation mechanism
• Public finances deteriorated during the financial and economic
crises of the last years
• Fiscal consolidation strategies can be implemented at the revenue
and at the spending side (austerity programmes)
• IMF – revenue side: “to strengthen broad-based taxes by an
increase in excise tax rates and by introducing (and capturing
revenues from) efficient carbon pricing”
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European Environment Agency
Summary - the potential of ETR
The aspect that environmental taxes are least detrimental to
growth, in particular in comparison to labour taxes, is also
highlighted by the EC (2010):
“…simulations …indicate that a shift from the most distortionary
taxes (on labour and capital) to the least distortionary taxes (on
consumption, housing) could mitigate the output losses
associated with fiscal consolidation in the short run and have a
positive impact on GDP in the long run”.
OECD Secretary-General Angel Gurría: “Shifting part of the tax
burden onto pollution makes it more attractive to develop and
adopt these clean technologies and promotes green growth.”
ETR is a key policy tool for fostering green
growth
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European Environment Agency
Thank you for your attention!
Stefan Speck
European Environment Agency
email: [email protected]
http://www.eea.europa.eu
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European Environment Agency