Title: Environmental Fiscal Reform in OECD Countries
1Environmental Fiscal Reform in OECD Countries
Presentation at the conference The Consolidation
of Governance and Entrepreneurship in the Czech
Republic and the European Union Prague, 1
November 2002 by Nils Axel Braathen OECD,
Environment Directorate
2Outline of the presentation
- Extent of Environmental Fiscal Reforms
- Removal of environmentally harmful subsidies
- Use of environmentally related taxes
- Fiscal reforms
- Some experiences
- Environmental impacts
- Social impacts
- Economic impacts
- The way forward
- Overcoming the income distribution obstacle
- Overcoming the competitiveness obstacle
3Removal of environmentally harmful subsidies
- Very few examples of a systematic removal of
subsidies due to their environmental harm. - New Zealand removed almost all subsidies
- The Green Tax Commission in Norway looked at
environmental impacts of many types of
expenditures - More examples of reform of subsidy schemes, to
make them less environmentally harmful - Agriculture
- Fisheries
- Economic restructuring in transition countries
- Subsidy removal is now a priority area for OECD.
4Use of environmentally related taxes
- Detailed description in the OECD/EU database on
environmentally related taxes, fees and charges. - Is available to everybody, free of charge, at
- www.oecd.org/env/tax-database
- Will be supplemented by another database on
tradable permits, deposit-refund systems,
environmentally motivated subsidies and voluntary
approaches.
5Environmentally Related Taxes and Green Tax Reform
- All countries apply several environmentally
related taxes. - Fuel taxes
- Motor vehicle taxes
- Packaging and/or waste taxes
- A few countries have also engaged in (revenue
neutral) Green Tax Reforms or Environmental
Fiscal Reforms - Denmark, Finland, Sweden, Norway and Netherlands
- United Kingdom, Germany
6Revenues from environmentally related taxes in
per cent of GDP
7Tax revenue raised on different environmentally
related tax-bases
8Tax rates on petrol and diesel, 1.1.2002
9Tax rates on final treatment of waste, 1.1.2002
10Environmental impacts
11Determining factors
- Impacts of the levies on the marginal prices /
costs facing the economic decision-makers. - Fixed rates per capita, etc., provide no
incentives! - Price elasticities of the tax-bases, which i.a.
depend on - Substitution possibilities
- Short term gt Technologies are given
- Longer term gt Impacts on technological change
- The link between the tax base and the
environmental problem at stake
12Estimates of price elasticities
- Significant differences between different studies
- Time perspective
- Cross-section / Time-series / Panel data / etc.
- However, for many types of energy products,
values in the area of -0.4 in the short run and
-0.6 in the long run have been found. - Hence, a 10 price increase could reduce use of
energy products by about 6 in the long term.
13Fuel Efficiency of New Cars and Real Gasoline
Price in USA
14Social impacts
15Income distribution
- There are some indications that certain
environmentally related taxes can have a slight
negative impact on low-income households. - However, little empirical evidence is available.
- The improvements in environmental quality should
also be taken into account. - Poor people often live in areas that are
particularly affected by pollution.
16Employment impacts
- There is no indication that Environmental Fiscal
Reforms have significant negative impacts on
total employment. - Is there also a double dividend?
- Recent economic theory make it not seem likely.
- Still, most tax reforms seek to reduce
unemployment. - Very difficult to tell from mostly lacking ex
post empirical evaluations whether this was
achieved. - Disentangling problems other factors also
impact on employment. - What would otherwise have happened?
- Some available studies are too partial in the
approach.
17Economic impacts
18Sectoral Competitiveness
- We have not found significant negative
competitiveness impacts for any sector from
current environmentally related taxes. - But, this is probably largely due to numerous
mitigation measures, such as - Complete exemptions for certain products or
sectors - Reduced tax rates for certain products or sectors
- Tax refunds for certain products or sectors
- Upper ceilings on the tax payments in some
sectors - Recycling of revenues to certain taxpayers
19Economic costs of environmental policies
- The flip-side of the coin (the exemptions) is
that the burden on other sectors increases if a
given environmental target is to be reached. - The marginal abatement costs are not equalised
between different polluters. - Hence, total economic costs of environmental
policy are higher than necessary. - However, there are no indications that the total
abatement costs are excessive at present.
20Overcoming the income distribution obstacle
21Expenditure on domestic fuels in EU countries
(1988)
Source Presentation made by Terry Barker at
EEBs annual conference, Brussels, 10 October
2002
22A Czech case
- I'm NOT an expert on the Czech situation!
- However, concern for the impacts on low-income
households seems to explain the full refund given
in taxes on fuel when the fuel is used to produce
heat. - This lowers the incentives for energy efficiency
improvements and thus leads to higher emissions. - Better to address the concerns by modest
increases in pensions, some subsidies for housing
insulation, non-wasteable tax credits, etc?
23Overcoming the sectoral competitiveness obstacle
24Case study the steel sector
- Sectoral competitiveness impacts is a real issue.
- A model-based simulation of a 25 per tonne CO2
tax. - An OECD-wide carbon tax would reduce OECD steel
production -- and related CO2 emissions --
significantly. - Also global CO2 emissions would decrease.
- The production reduction would be much greater
for integrated mills (BOF) than for scrap-based
mills (EAF). - Unilateral policies by single regions or
countries may lead to quite dramatic cut-backs in
the production of BOF steel, because there would
be smaller opportunities to shift the tax burden
over to suppliers or customers.
25Case study the steel sector (continued)
- Most of the emissions in the steel industry are
related to energy consumption. To exempt
process-related emissions from a carbon tax would
therefore not imply a big relief in the tax
burden of BOF steel producers. - If the tax revenues were recycled back to the
steel industry as an output subsidy, the decline
in OECD steel production would be quite small.
There could, however, be a significant
restructuring towards the relatively clean EAF
steel making. - Revenue recycling could, nevertheless, reduce
global emission reductions.
26Possible policy approaches
- Integrate EFR with broader fiscal reforms.
- Phase-out current rebates and exemptions
gradually. - Use a two-tier rate structure, rather than full
exemptions, for internationally exposed sectors. - Announce new taxes and tax rate increases well in
advance. - Impose eventually full tax rates on industry, but
channel part of the revenues back in such a way
that marginal abatement incentives are maintained
-- e.g. the Swedish NOx charge. - Work for increased international co-operation.
27Current OECD work
- The impacts on sectoral competitiveness and
income distribution are at the core of OECDs
current work on environmentally related taxes. - We are undertaking a quantification of
environmentally harmful subsidies. - We encourage greater international co-operation.