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Ecological Tax Reform and direct democracy
From market failure and policy failure
Budapest July 2010
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The carbon budget• To stay bellow
2º (with a 75% chance) we can emit about 700 Gt CO2 until 2050. At current emission rates this budget will be consumed in less than 20 years.
• Meinshausen et al 2009; Prof. Rahmstorf (PIK) , Vienna, Nov 2009
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Global sharing of reduction targets
Rahmstorf, Vienna 2009 + own completion (blue lines, percentages, brackets, continents-states)
- 30%
- 70%
EU
CHI
Afrika
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Biggest market failure in history
• Stern report 2007, Chapter I:
• “Thus, climate change is an example of market failure involving externalities and public goods”
• “All in all, it must be regarded as market failure on the greatest scale the world has seen.”
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CO2-prices
• IEA 2008: 180 $/t CO2 until 2030 to stay below 450 ppm CO2e and in consequence <2°C global warming
• William Nordhaus, a Yale economist, estimated in 2007 that a carbon tax should start at no less than $30 a ton and rise to $85 a ton by 2050 in order to change people's greenhouse gas emissions.
• British economist Nicholas Stern estimated in his 2006 report that the price should be about $300 a ton.
source:http://newsweek.washingtonpost.com/postglobal/energywire/2009/01/exxon_c
hief_embraces_carbon_ta.html
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Austrian Experiences on ETR
• Many attempts but almost no results
• electricity tax: from 0,75 to 1,5 cent/KWh in 2001
• Fuel taxation on diesel: (5cent) and gasoline (3cent) more in July 2007
• Shrinking percentage of green taxes
• Austria has 5,9% eco taxes of total tax income < 6,4% of EU states, tendency
• “cold progression”: quantity tax vs. ad valorem tax
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Main reasons for blocking ETR I
• Common sense of main political groups against ETR
• Labor unions, chamber of labor, Social democrats (until now):• Social policy needs “low and affordable energy
prices”; avoiding “energy poverty” -> “social policy at the gas station”
• “Cost by cause principle” or “polluter pays principle”
-> financial crisis is caused by “rich people”, “speculators”, “bankers”, “capitalists” etc. -> they should pay for the costs of the crisis not the working class -> no new or higher mass (including ecological) taxes
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Main reasons for blocking ETR II
• Social partnership against ETR and effective feed in tariff regimes
• Federation of Austrian Industries (IV), chamber of commerce, conservative party (until December 2009):
• Carbon leakage
• International competition
• Kyoto mechanism cheaper
• No trust in budget neutrality, lower tax burden on labor
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Conservative structures
Head of Unions +
Head of business
lobby groups
mostCO2/energy-intensive
Less CO2/energy-
intensive
green industries/jobs
– RES/EE
more ambitious targets, CO2-taxes,
feed in tariff regimes, auctioning of permits
neutral
Government, Parliament
Environmental NGOs,
independent experts
Proposals, demands
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Clientele policy
Conservatives, chamber of commerce,
business/industry-special interest
groups
Business, hauler, industry
companies
Social democrats, trade/labor-
unions, chamber of labor
Workers, car drivers, state
owned companies….
R&D money,
subsidies, exceptions
Tax exceptions, transfers
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How special interest groups influence
• Job hopping between:
• Parliament/government
• State owned or private companies, mainly energy sector or energy/CO2-intensive industries
• Special interest/Lobby groups
• Know how-, and labor transfer
• “leasing” or borrowing of secretaries paid by special interest groups, expertise in law making process
• Financing Parties/election campaigns
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Democracy/policy failure
• The sum of special interests is different from the common welfare
• There is no “invisible hand” in the political area, in western style democracy, except Ch
• In Austria the recently finished energy strategy (national action plan) is a good (bad) example:
• Many subsidies
• A lot of regulation
• Very segmented and sector specific approach
• A lot of exceptions and caps on RES funding, tax burdens on industry etc. not touched
• Only the start of a discussion on ETR
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Adam Smith on special interest groups
• “Adam Smith does not desire greater political power for these merchants or "shopkeepers." In fact, he warns that the interest of merchants is exactly opposite that of sovereigns”
• http://webspace.webring.com/people/hs/stewjackmail/Tripod-2.html
• „Das Interesse der Kaufleute aller Branchen in Handel und Gewerbe weicht [...] stets vom öffentlichen ab, gelegentlich steht es ihm auch entgegen. Jedem Vorschlag zu einem neuen Gesetz oder einer neuen Regelung über den Handel, der von ihnen kommt, sollte man immer mit großer Vorsicht begegnen. Man sollte ihn auch niemals übernehmen, ohne ihn vorher gründlich und sorgfältig, ja sogar misstrauisch und argwöhnisch geprüft zu haben, denn er stammt von einer Gruppe von Menschen, deren Interesse niemals dem öffentlichen Wohl genau entspricht und die in der Regel viel mehr daran interessiert sind, die Allgemeinheit zu täuschen, ja sogar zu missbrauchen.“ (Adam Smith 1776, FÖS news letter)
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Consequences on welfare
my.epri.com
Corporate
Average
Fuel
Economy
(Spritver-
brauch)
CO2-
tax/
trading
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There is always hope!
• Fiscal pressure:• Finance minister Pröll: 3 billion Euro/year
• 1,5 bill Euro raising taxes
• 1,5 bill Euro reducing expenditures
• Environment minister Berlakovich:
• 20-30 Euro/t CO2 on coal, natural gas and heating oil? electricity? In the household sector> 1,5-2 bill. Euro
• Cap on energy taxation for energy intensive industry (0,5% of NPV) + ETS- sector should not be affected.
• Economic minister Mitterlehner:
• 2x5 Eurocent/l gasoline and diesel -> up to 1 bill. Euro
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Strategies for ETR
• I)Direct democracy:
• referenda on ETR, feed in tariff regimes, road pricing, …
• II)Know how transfer, information
• III)Contact companies directly and present green companies
• New definition of CSR: from voluntary measures to supporting strong targets and efficient and effective political instruments -> Green Tax Reforms
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I Let the people, the sovereign decide!
• Swiss sovereign said NO to ETR in 2000
• Global and EU-Opinion Polls show sometimes a higher than 50% chance for ETR
• Conditions: “budget” (pocket) neutrality
• Tendency for earmarking instead of tax shift
• Deciding can raise acceptance:
• Difference of top down vs. bottom up
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II Inform politicians
• Participation in “Perspektivengruppe” of ÖVP
• ETR with a CO2-tax
• Participation in “Austria 2020” of the SPÖ
• Social democrats Party Convention: ETR to combine with social equity: “tax what you burn not what you earn!”
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III Convince companies
• to expensive• “If we all think we’re going to win the game by giving
incentives to people who behave well, instead of levying a tax for those who pollute, then we are a long way from home. If we only do this by sending out carrots and not using sticks, we will run out of carrots”
Bart Kuper, Tax Director, TNT Holding B.V. in “appetite for change”,
Global business perspectives on tax and regulation for a low carbon economy; PWC; 2010
• Al Gore + Ralph Nader + Rex Tillerson (Exxon) … in favor of CO2-taxes : that a tax was a "more direct, a more transparent and a more effective approach" to curtailing greenhouse gases than other plans popular in Congress and with the incoming Obama administration.