Green Budget Europe - eesc.europa.eu · Vice-President Green Budget Germany · Senior Policy...

Environmental fiscal reform for the EU

Green Budget Europe

Environmental fiscal reform for the EUCreating the right incentives for the green economy :

Financial and economic instruments in Europe

· Brussels · EESC · 29 October 2013 ·

Kai SchlegelmilchVice-President Green Budget Germany · Senior Policy Consultant GBE


Outline

I. Environmental Fiscal Reform: enhancing a smart energy transition

II. Adding (properly taxed) meat to the bones: positive effects of Environmental Fiscal Reform – some examples

III. Recommendations


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WHAT IS IT ALL ABOUT

?

Environmental Fiscal Reform:


Challenges from various crunches:Crisis offers chances for EFR

• Climate Crunch- Need to tackle climate change- Costs for future generations

• Energy Crunch- Need to secure energy supply from clean and renewable resources

• Budget and Economic Crunch- Lived beyond one‘s needs for decades- Deepened due to the financial crunch

RATIONALE: price = strongest market signal

driver for changes and efficient allocation of resources

OBJECTICES: reduce energy consumption and unemployment (+ black labour markets)

‘double dividend‘

contribute to reduced health and transport problems and urban sprawl


Environmental Fiscal Refom

(EFR)

Taxes

Subsidies

Tradable permits

Border tax Adjust-ments

fees

Environmental taxation:the double dividend in action


Rising labour costs

Labour costs have continually and visibly risen:

Labour costsmanufacturing industry

1969–2004in €/h (2010)


Falling commodity prices

Overall, commodity prices have fallen since the beginning of the industrial revolution:

Economist „Metal-Detector“:Industrial metal-index

1845–2011(1845 = 100%)


Environmental Tax revenue in % of GDP

Source: Eurostat 2013


Environmental Tax revenue in % of GDP

Source: Eurostat 2013

Denmark: 4,1 %The Netherlands: 3,5 %Slovenia: 3,4 %

Spain, France, Lithuania, Romania and Slovakia: below 2 %


Carbon and Energy Tax Reform in Europe

(CETRiE) - Act instead of re-act

We know everything we need to act

6 countries · EU level · 7 ministerial meetings · 6 high level and 20 workshops

Environmental fiscal reform for the EUSource: Vivid Economics: http://www.foes.de/internationales/green-budget-europe/gbe-projekte/cetrie/?lang=en

Carbon and Energy TaxReform in Europe (CETRiE )

Residential // Natural Gas, € 0

Transport equipment // Electricity, € 23

Residential // Electricity, € 28

Road // Gas/diesel oil (non-commercial),

€ 121

Road // Motor gasoline, € 181

Road // Gas/diesel oil (commercial), € 110

0

50

100

150

200

250

tota

l im

plie

d ta

x ra

te, €

/tCO

2

Emissions from energy consumption, tCO2

2011 Taxes (including EU ETS)

2020 Taxes (including EU ETS)

The package puts energy taxes in Spain on a more ra tional basis and raises taxes equivalent to 1% of GDP in 2020

The proposed package makes the implied carbon tax r ates on different transport fuels more similar, and also leads to convergence in the rates on non-trans port fuels, but the gap in the rates between transp ort and non-transport tax rates grows

This is equal to more than €10bn (nominal prices)


Relative benefits with fiscal crisis:Carbon/energy taxes perform best (from CETRiE-proje ct)


171

The 30% target could raise tax revenues of [0.5]% o f EU27 GDP in 2020 in a less damaging way than through direct taxes

-0.7

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

02013 2014 2015 2016 2017 2018 2019 2020

% c

hang

e fr

om b

asel

ine

Tighten EU ETS cap Direct tax alternative

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

2013 2014 2015 2016 2017 2018 2019 2020

% c

hang

e fr

om b

asel

ine

Tighten EU ETS cap Direct tax alternative

Tightening the EU ETS cap has a smaller negative impact on EU GDP than raising the same revenues from direct taxes

And a less detrimental impact on employment

Source: Cambridge Econometrics E3ME model

EU ETS reform outperforms labour taxes


CETRiE resultsanticipate – analyse – communicate


• Spain: after decades of scepticism, the government declares environmental taxation is now a priority and announces new energy tax measures

• Germany: CETRiE delivered crucial arguments to undermine opponents at an expert hearing in the Bundestag on the ETD – i.a. the German car industry

• Poland: following the presentation of the study Poland declared itself open to discussion of energy taxation, but not a carbon tax per se


Positive GDP -effects of ETR go up to 0.5 %

Source: COMETR 2007

COMETR: ETR produces a small ‘double dividend’ effect in every

country, with GDP increasing by up to 0.5 % compared to the reference case.

0.4% in

Germany

There

are no

losers!

SOME EXAMPLES…

Environmental Fiscal Reform:


Belgium Denmark Finland France Germany Italy Holland Norwa y Sweden UKTaxesCO2SO2NOxFuelsS in fuelsCar sales and useDiff. annual car taxWater effluentsWaste-endDangerous wasteAviation noiseTyresBeverage cont.PackagingBagsPesticidesCFCsBatteriesLight bulbsPVC/phtalatesLubrication oilFertilisersPaper, boardSolventsRaw materials

INTRODUCED: 1996 2000 2004

All EU countries have some kind of green taxes

Examples from EEA 2005

1. Witness of EU-Creativity!2. Many roads to Brussels!3. Autonomy from neighbours!4. Similar situation in new MS


Germany: direct effects of Environmental Tax Reform I

� Fuel consumption (-17%)

� Unloaded truck mileage

(- 2%-points between 1998-

2000)

� Fossil fuel imports (-13%)

� Overall tax burden (-4 %)

� Car sharing (+70%)

� Public transport (+5%)

� Energy saving technologies

� Energy efficiency� Gas-powered cars (x10)

� Biofuel cars (x2)

� Renewable energies

Less

More

Source: Green Budget Germany calculations


� CO2-emissions (2-3%)

� Tax on ‘goods’: Pension costs (-16 bn € or -1.7%)

� Costs for industry (-€1 bn)

� Tax on environmental

‘bads’: energy taxes (+€18.7 bn)

� Employment (+250,000 jobs)

� Pensions (+1.2%)

More

Source: Green Budget Germany calculations

Less

Germany: direct effects of Environmental Tax Reform II

Germany: EFR elements implemented1999-2003 (Social Democrats and Greens 1998-2005)� Social security contributions were reduced� Transport/heating fuel taxes were increased� An electricity tax was introduced between

From 2006 (Conservatives and Social Democrats 2005- 2009)� Abolition of subsidising home ownership and reducti on of commuting

2011 (Conservatives and Liberals 2009-2013)� Ticket fees on air transport� Tax on nuclear fuel� Heavy goods vehicle toll extended� Reduction of industrial exemptions from the energy tax� Financial transaction tax (generally adopted, start ed as a banking charge)� Not (yet?) implemented: Base company car taxation on CO2-emissions

Environmental Fiscal Reform is now a cross-party co nsensus


Conclusions II

How could single EU countries implement ETR? �ETR has a minimal effect on national competitiveness and economic growth, and a slightly positive effect on employment

�ETR will stimulate resource-efficient innovation

�If all countries were committed to low-resource development, the leading countries would be those with strongly developed resource-efficient technologies and industries – competitiveness argument for environmental taxation

�Use the European Semester!


We call for…

….Take the lead!

� For a 10% tax shift from labour to environment and resource use

� Member States should develop a concrete strategy by 2015 on how to phase out Environmental Harmful Subsidies by 2020

� The EU-ETS needs an ambitious long-term reform (Border Carbon Adjustments)



GET INVOLVEDfacilitate – share – support !

• Patron (VIP)

• Active member

• Steering Committee

• Council of Experts

• Anchorperson for each country delegation

• Sponsor

• Environmental Fiscal Reformer of the Year

Environmental fiscal reform for the EUWe know everything we need to act

Brussels Office Avenue Marnix 28

1000 [email protected]

www.green-budget.e u

For more information, please don’t hesitate to contact

Environmental fiscal reform for the EU30

Need for EFR – Air transport

Polluting Subsidies and Tax Reliefs in Germany

• VAT exemption for international flights

Loss of taxes: 1.8 Mrd. €

• Energy tax exemption for commercial air traffic (kerosene)

Loss of taxes: 8.7 Mrd. €p.a. (12 bn $)


Countries which introduced and air ticket tax

1. United Kingdom 1994, substantial increase in 2007 to a range from €12.50 to €50.

2. France 20073. Ireland 3/20084. Germany 2011 (8/25/40 Euros for

domestic/European/international flights, in fact all slightly reduced due to ETS-price impact reduction)

5. Austria 4/20116. Italy 6/2012 (Aero-Taxi and Helicopter Taxi Tax:

10€ for travels <´100 Km100€ for travels 100-1.500 Km200€ for travels > 1.500 Km)


Need for EFR – automobile transport: 15 bn €

Polluting subsidies and tax

reliefs in Germany

• Energy tax allowances for

Diesel

Loss of taxes: 6.2 bn. €

• Taxes for company cars

Loss of revenues: 9 bn. €

EU Emissions Trading System (EU ETS)

Source: http://www.sandbag.org.uk/carbon/


Why doesn ´́́́t it work?

� Carbon offsets� 1,6 billion are expected to enter the system over

2008 and 2020� Massive frontloading: companies seek for

cheapest offset credits before new environmental regulations will be implemented

� Economic crisis EUA price not representative of 2050 goals


Linking?


Denmark

� The Danish government has presented a new action plan on climate. The proposal includes a tax increase on petrol and diesel of 0,5 DKK/l (roughly 0,062 €/l), a new km-charge on cars and vans, an increase of the ethanol mandate 2020 from 10 to 11 %, a second generation biofuels mandate 2020 of 1-12 %, abolishment of the deduction of costs for travel costs.

� The Danish centre-left government still holds a majority in the Parliament, but is way behind the right-wing opposition


Denmark

1. CO2 tax from 1991, first on business only, from 1992 al so on private households

� CO2 emissions were reduced by 24% against a business-as-usual scenario between 1990-2001 (Source: Speck et al. 2005).

2. Sulphur tax: introduced in 1996 and levied on all f ossil fuels with a sulphur content exceeding 0.05% (based on weight). The rate was set at €2.7/kg of sulphur in energy products, or at about €1.3/kg of sulphur dioxide (SO 2) emissions

� Sulphur tax resulted in 84% reductions in sulphur emissions between 1995 to 2004. Denmark now has the lowest SO2-intensity per unit of GDP in the OECD.

3. A major tax reform is being phased in from 2010 to 2019 with the aim of reducing the fiscal burden on personal incom e in order to stimulate labour supply in the long term

� Financing is partly provided by higher energy, transport and environmental taxes; energy taxes on business and households – except for petrol and diesel - are increased by 15%

� Potentially negative effects on household with a low disposable income, a lump-sum transfer (‘green check’) will be granted to adults and children


Sweden

� Energy Tax (implemented in 1950s) on electricity, gas, fuel oil, coal und coke

� CO2 –Tax (implemented in 1991, gradual increases since) on CO2 content of petroleum products, natural gas ,coal, and coke

� � Only households are taxed fully with CO2–tax and energy tax (industry is broadly exempt from the energy tax)

Effects:

� � CO2 emissions were reduced by 9% between 1990 and 2007, while economic growth amounted to 48% in the same period (Source: Ministry of Finance, SWE)

� Secrets of success: All political parties are willing to implement elements of EFR. This was achieved, in part, by granting reduced CO2 tax rates (50%) and imposing no energy tax for industrial consumers, in order to prevent the loss of a competitive edge (OECD 2000)


Finland

� Offsetting tax revenue losses due to the abolition of the national pension contribution for employers .

� Changes of the structure of energy taxes on fuel for transport and heat and power plants since 2011. The tax structure is now based on energy content, carbon dioxide emissions and local/particleemissions that have adverse health effects.

� In 2011, additional Euro 730 million were collected in taxes on fuel for heat and power plants and energy taxes on electricity.


Greece

� Fiscal crisis and deficit forced the government to also take some positive decisions regarding EFR: transport fuel taxes were increased very substantially:

2008-11:� petrol +91%� diesel +40%


Ireland

Also here the fiscal crisis helped EFR-elements to be implemented:

� Increase in excise taxes levied on transport fuels:2008-2011: +30%

� Introduction of a CO2 tax (15 Euro/ton CO2) on all energy products and further increases (doubling) as part of the National Recovery Plan 2011-2014 (part of the fiscal consolidation process) – for details see next slide.

� Introduction of an air ticket tax by 3/2008:basic €10 tax on tickets, €2 for inland flights and international flights less than 300km. Flights to London: €10, British west coast: €2.Revenue: €150m


United Kingdom

� The Climate Change Levy (CCL): introduced 2001 , is levied on natural gas, coal and electricity, applies to industrial and commercial energy use. Revenues recycled to companies - reduced social security payments. Rates equivalent to €27 (coal) – €51 (natural gas, electricity) per tonne CO2

� Energy demand decreased by 2.3% p.a. until 2010 (against 2001). Trade and the public sector accounted for the largest past of the reductions.

� CCL led to the introduction of energy management departments in most of the affected companies

� Fuel Duty Escalator: 1993-1999, road fuel duties increased by 5% p.a.in real terms (= above inflation)

� traffic levels remained same 1998-2000, good revenue raiser


� Many Asian countries are about to introduce broad energy taxes, often in the context of an Environmental Tax/Fiscal Reform (ETR/EFR) like China, Thailand, Indonesia, Vietnam:

� China announced introducing a carbon tax for 2015� Thailand considers several fiscal instruments within a

framework law on market based instruments� Indonesia started phasing out fossil fuel subsidies� Vietnam applies broad energy taxation, from 2012, no

exemptions for industry, but including shipping/ aviation. Addionally plastic bag and pesticides tax

SummaryAsia


Conclusions I

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 auction

�Energy Tax Directive in place – proposal to split between energy and carbon

�Carbon tax would put floor on permit price

�EU-wide carbon tax would dilute concerns about competitiveness (cf China)

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