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OECD Experience with Environmental Taxes and Charges

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Title: International GHG Emission Trading Author: OECD Last modified by: jesusgc Created Date: 11/27/1997 3:01:26 PM Document presentation format – PowerPoint PPT presentation

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Title: OECD Experience with Environmental Taxes and Charges


1
OECD Experience with Environmental Taxes and
Charges
Presentation at the Seminar on Tax Reform
Trends Institute for Fiscal Studies Madrid 16
May 2005 by Nils Axel Braathen OECD, Environment
Directorate
2
Use of environmentally related taxes
  • A detailed description of current use of
  • environmentally related taxes, fees and charges,
  • tradable permits,
  • deposit-refund systems,
  • environmentally motivated subsidies, and
  • voluntary approaches
  • is available to everybody in the OECD/EEA
    database on instruments used for environmental
    policy at
  • www.oecd.org/env/policies/database

3
Revenues from environmentally related taxes in
per cent of GDP
AUS
BEL
NOR
POR
ESP
SWI
UK
HUN
IRL
JAP
LUX
NET
CZE
FIN
GER
AUT
CAN
POL
SVK
SWE
TUR
US
ISL
ITA
KOR
MEX
NZE
DEN
FRA
GRE
4
Tax revenue raised on different environmentally
related tax-bases
5
Environmentally Related Taxes and Green Tax Reform
  • All countries apply one or more 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, Netherlands,
    United Kingdom, Germany

6
Green Tax Reform options
  • Remove environmentally harmful subsidies and tax
    provisions.
  • Restructure existing environmentally related
    taxes according to environmental criteria.
  • Introduce new environmentally related taxes.
  • Several options for the use of increased
    revenues
  • Reduce budget deficits/increase budget surpluses
  • Increase public spending generally or
    selectively
  • Reduce distortionary taxes a Double dividend?

7
The double dividend issue
  • There is no indication that Environmental Fiscal
    Reforms have significant negative impacts on
    employment in general.
  • Is there also a double dividend?
  • Recent economic theory make it not seem very
    likely.
  • Most 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 their
    approach.

8
  • Some commonly used tax-bases

9
Taxes on motor vehicle fuels
  • Exist in all OECD countries and many other.
  • Came into use at an early stage primarily for
    fiscal reasons.
  • In some countries several different taxes are
    levied on petrol and diesel.
  • In most OECD countries, the tax rate on petrol is
    higher than on diesel which makes no sense from
    an environmental point of view.
  • There is sometimes differentiation according to
    environmental criteria (lead and sulphur
    content).
  • Often special rates for commercial uses and/or
    public transport.

10
Tax rates on unleaded petrol and diesel 1.1.2002
?
Based on exchange rates as of 1.1.2002.
11
Motor vehicle taxes
  • Three main categories
  • Taxes on first-time purchase of the vehicles
  • Annual taxes levied on the right to use the
    vehicle
  • Charges more directly linked to the road use
  • Often introduced primarily for fiscal reasons
  • All categories have environmental impacts and
    can be environmentally modulated, e.g. related
    to
  • Engine size or power
  • Vehicle weight
  • CO2 emissions, according to vehicle type
    certification
  • Interesting new road-charging schemes in UK
    (London), Switzerland, Austria, Germany,

12
Waste management levies
  • User charges on waste collection and treatment
  • Flat charges
  • Variable charges (Frequency, volume, weight,
    bags, )
  • Taxes on the final treatment/landfilling of waste
  • (Australia NSW, Austria, Czech republic,
    Denmark, Finland, France, Hungary, Netherlands,
    Norway, Poland, Sweden, Switzerland, UK, )
  • Tax on measured emissions from incinerator in
    Norway.
  • Waste-motivated taxes on individual products
  • Batteries, Packaging, Disposable products,
    ODS-containing products, Lubricants, etc.
  • (Same Belgium, Canada, Italy, Japan, Slovak
    Republic, US.)
  • Sometimes links with deposit-refund systems and
    Extended Producer Responsibility schemes

13
  • A special case
  • The Load-based Licensing scheme in New South Wales

14
New South Wales, Australia Load-based Licensing
Scheme
  • Each polluter needs a licence to be allowed to
    pollute.
  • Everyone has to pay an administrative fee to
    obtain a licence.
  • Above a certain pollution level, the price for
    the licence varies with the size of the pollution
    allowed.
  • Above another, higher level, the price per unit
    doubles up to a specified annual load limit.
  • Polluters can commit to reduce their emission
    within a 3 year period and will in this case
    pay a fee as if they had already reduced the
    pollution.
  • Repayment of the tax reductions with interests
    if the commitments are not kept.

15
Load-based Licensing Scheme New South Wales,
Australia
www.environment.nsw.gov.au/licensing/lbl/index.htm
16
Load-based Licensing Scheme In summary
  • The scheme takes into account
  • differences in the danger of different
    pollutants
  • different characteristics of recipients located
    at different places
  • different emission characteristics of different
    sectors. (This is not necessarily a good idea!)
  • The scheme is relatively complicated ? but
    implementation is facilitated by the use of IT.
  • The scheme combines an economic instrument and
    negotiated agreements ? through fee reductions
    (subsidies).

17
  • Another case
  • Aviation charges

18
Emission and noise charges Zurich and Geneva
airports
  • Taxation of international commercial air traffic
    is complicated, i.a. due to the Chicago
    Convention and some thousand bilateral
    agreements.
  • A few countries do, however, tax domestic
    commercial aviation.
  • Also, authorities at the airports in Zurich and
    Geneva have introduced an elaborate system of
    landing charges, depending on
  • Emission characteristics of the aircraft
  • Noise characteristics of the aircraft
  • The actual hour of landings and departures

www.uniqueairport.com
19
Emission and noise charges The emissions part
  • Jet aircraft and shaft-engine powered aircraft
    are each grouped into 5 emission classes.
  • The emission classes are calculated based on the
    nitrogen oxide and hydrocarbon load over the
    landing and take-off cycle and the engine trust
    or power
  • g Emissions / kN Engine trust

20
Emission and noise charges The noise part
  • One sub-part depending on aircraft noise class,
    calculated by comparing the mean value for the
    aircraft of the energetic noise level at
    measuring points around the airport to the
    overall mean value of such measurements.
  • One sub-part depending on the hour (minute!) of
    take-off and landing.

21
  • The tax on ozone-depleting chemicals in the US

22
Tax on ozone depleting chemicals USA
  • Taxes sales of ozone depleting substances
    according to their estimated harm
  • Taxes the holding of stocks of such chemicals
  • Finally, it taxes imported finished products
    based on assumed ODS-usage in their production,
    i.e. it involves Border Tax Adjustments.
  • http//www.irs.gov/pub/irs-pdf/p510.pdf
    http//www.irs.gov/pub/irs-pdf/f6627.pdf

23
Tax on ozone depleting chemicals More on the
Border Tax Adjustments
  • ODS usage in the production of numerous
    finalproducts is estimated, based on the
    predominant production method in the US.
  • By default, taxation is based on these values.
  • If importers can document a lower usage of ODS,
    taxation will be based on this lower weight.
  • If the ODS weight is unknown, the tax is 1 of
    the entry value of the product.
  • A similar system has been accepted by WTO.

24
  • Environmental effectiveness

25
Determining 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 used and the
    environmental problem at stake.

26
Estimated price elasticities of gasoline
27
Fuel Efficiency of new cars and real gasoline
price in USA
28
Estimated price elasticities of residential
electricity
For additional references, see Runa Nesbakken
Price Sensitivity in Residential Energy
Consumption in Norway. Discussion Papers No.
232, September 1998, Statistics Norway.
http//www.ssb.no/cgi-bin/publsoek?jobforsideid
dp-232kodedplangen
29
Electricity prices and electricity intensity
Source Birol Keppler, Energy Policy 28 (2000).
Observations from 27 OECD and 22 non-OECD
countries, 1996.
30
  • Obstacle to overcome
  • Fear of loss of sectoral competitiveness

31
Sectoral 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

32
Competitiveness impacts (1)
  • Any policy instrument used to achieve
    environmental targets should cause changes in
    consumption and/or production patterns.
  • The relevant issues are who should change their
    behaviour, by how much and within which
    timeframe.
  • It is important to distinguish between
    competitiveness impacts at a national and at a
    sector or firm level and focus should be given
    to the former.
  • The Kyoto Protocol now gives most OECD member
    countries a legally binding and quantified
    obligation to limit emissions of greenhouse
    gases.

33
Competitiveness impacts (2)
  • The impacts of such policies on the
    competitiveness of most sectors will be modest.
  • However, the use of economic instruments to
    significantly reduce greenhouse gas emissions is
    likely to have negative impacts on the
    international competitiveness position of some
    industrial sectors, especially when such
    instruments are implemented in a non-global
    manner.
  • Different firms within a given energy-intensive
    sector would be affected differently.

34
Competitiveness impacts (3)
  • One should take into account possible adjustments
    in related markets when considering the impacts
    of a given policy.
  • For example, for the steel sector changes in the
    scrap prices would significantly impact on the
    relative competitiveness position of mini-mills
    and integrated steel plants.
  • In spite of some carbon leakage, significant
    global reductions in carbon emissions can be
    achieved.
  • The larger the group of countries that put
    similar policies in place, the more limited the
    impacts on sectoral competitiveness.

35
Competitiveness impacts (4)
  • Recycling part of the tax revenue back to the
    sector in question could help overcome the
    competitiveness obstacle.
  • This would, however, reduce global emission
    reductions.
  • Border tax adjustments could have better
    environmental impacts but practical and legal
    issues would need to be solved.

36
Competitiveness impacts (5)
  • Relatively modest compensation mechanisms can
    often suffice when introducing a tax or a trading
    scheme (even based on auctioning), in order to
    make the owners of the affected firms equally
    well-off as before.
  • The size of the necessary compensation depends
    on how insulated the domestic market is from
    international competition.
  • If some degree of compensation is the price one
    has to pay to be able to put in place a new
    environmental policy, this can often be done at a
    fairly modest cost to society as a whole.

37
Competitiveness impacts (6)
  • The prime reason for this is that far from all
    the scarcity rent related to the policy needs
    to be given to the most affected firms in order
    to maintain their profit or equity value.
  • If an unnecessary large share of the rent is
    given to the firms, the economic efficiency costs
    will increase because less money would be
    available to reduce distortionary taxes.

38
Competitiveness impacts (7)
  • It is important to provide firms with incentives
    to abate emissions at the margin.
  • Recycling (part of) any tax revenues back to the
    firms or sectors in questions can be done in ways
    that secure this.
  • Reduced tax rates / exemptions for certain
    sectors, or for certain uses of a tax-base,
    immediately limit the incentives to abate
    emissions.
  • Doubtful whether one can get around this problem
    by combining e.g. a tax with a voluntary
    approach to limit emissions.

39
  • Obstacle to overcome
  • Fear of negative social impacts

40
Distributive impacts (1)
  • Any undesirable distribution effects of economic
    instruments can in general be addressed through
    the social security systems and the tax systems.
  • The choice between the two will depend on each
    countrys situation.
  • Distinguish between mitigation measures
    (reduction of the tax rates of the environmental
    tax) and compensation measures (modifications to
    other policy instruments).
  • Compensation measures are preferable as they
    maintain the marginal incentive to reduce
    emissions.

41
Distributive impacts (2)
  • Several approaches may provide compensation
    through a countrys personal income tax system,
    including
  • An increase in the basic personal allowance
    i.e. deductions from the tax base
  • The introduction of a wastable tax credit
  • The introduction of a non-wastable tax credit
    with cash transfers for credit amounts that
    cannot be used to offset personal income tax
    liabilities.

42
Administrative costs
  • It is possible to design a number of economic
    instruments for environmental policy with
    relatively low administrative costs.
  • However, many economic instruments involve a
    large number of mechanisms that increase these
    costs.
  • Such mechanisms are often introduced for
    non-environmental reasons, e.g. to address
    competitiveness or income distribution concerns.

43
Administrative costs (2)
  • There often seems to be a trade-off between the
    size of the administrative costs and the
    possibilities for creating a fair or
    politically acceptable scheme.
  • In certain cases the administrative costs could
    be higher than the revenues raised.
  • This would not necessarily be a major problem if
    the environmental improvements obtained are
    sufficiently important and the tax is the most
    effective way to achieve them.

44
Political acceptance
  • The acceptance of an economic instrument seems
    to be related to the degree of awareness of the
    environmental problem the instrument is to
    address.
  • It is advisable to prepare the ground for later
    instruments by providing correct and targeted
    information to the public on the causes and
    impacts of relevant environmental problems.
  • The degree of political acceptance also depends
    on the perceived fairness of the instrument in
    question.
  • Policy makers could do well in trying to shift
    the discussion of fairness more towards who
    are the most important contributors to the
    problem at hand.

45
  • Conclusions

46
Conclusions
  • The use of environmentally related taxes and
    charges remains relatively limited in scope, and
    the environmental and economic efficiency of the
    existing levies is hampered by a number of
    shortcomings.
  • In many cases, the link between actual tax rates
    and estimated externalities is weak or
    non-existent.
  • This is most evident concerning industry and some
    other economic sectors, where a large number of
    exemptions, etc., undermines the environmental
    effectiveness and economic efficiency of the
    existing taxes.

47
Conclusions (2)
  • Many environmentally important tax-bases, like
    coal and coke, are hardly taxed at all.
  • Existing levies are often complex, with a
    confusing variety of tax rates and special
    provisions. While a complex structure might be
    required to reflect differences in environmental
    externalities, etc., many of the existing
    complexities seems to be due to other political
    concerns.
  • It is often not clear that these concerns are
    most effectively addressed through special
    provisions in environmentally related taxes and
    charges.

48
Conclusions (3)
  • Taxes often combine with other environmental
    policy instruments in an inconsistent and
    overlapping way.
  • There can also be conflicting incentives between
    different taxes. For example, while fuel tax
    rates (unfortunately) tend to be lower for diesel
    than for petrol, motor vehicle taxes are
    sometimes higher for diesel-driven than for
    petrol-driven vehicles.
  • The fear of loss of international competitiveness
    remains the main political obstacle to a broader
    use of environmentally related taxes.
  • The importance of this obstacle could be reduced
    through more international policy co-ordination.

49
Conclusion (4)
  • Environmentally related taxes and charges are
    nevertheless potentially effective instruments
    for environmental protection.
  • They could very well play an increasing role in
    addressing greenhouse gas emissions (alongside
    emission trading schemes) and they should also
    be used to address a broad spectre of other
    environmental externalities.
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