Green Budget Europe. Environmental fiscal reform for the EU

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1 Green Budget Europe Creating the right incentives for the green economy: Financial and economic instruments in Europe Brussels EESC 29 October 2013 Kai Schlegelmilch Vice-President Green Budget Germany Senior Policy Consultant GBE

2 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

3 Green Budget Europe: a unique multi-stakeholder Expert Platform

4 Green Budget Europe's partnerships: collaborate enhance make a difference

5 Environmental Fiscal Reform: WHAT IS IT ALL ABOUT?

6 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

7 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

8 Taxes Subsidies Environmental Fiscal Refom (EFR) Tradable permits Border tax Adjustments fees

9 Environmental taxation: the double dividend in action

10 Rising labour costs Labour costs have continually and visibly risen: Labour costs manufacturing industry in /h (2010)

11 Falling commodity prices Overall, commodity prices have fallen since the beginning of the industrial revolution: Economist Metal-Detector : Industrial metal-index (1845 = 100%)

12 Environmental Tax revenue in % of GDP Source: Eurostat 2013

13 Environmental Tax revenue in % of GDP Denmark: 4,1 % The Netherlands: 3,5 % Slovenia: 3,4 % Spain, France, Lithuania, Romania and Slovakia: below 2 % Source: Eurostat 2013

14 Carbon and Energy Tax Reform in Europe (CETRiE) - Act instead of re-act 6 countries EU level 7 ministerial meetings 6 high level and 20 workshops We know Environmental everything we fiscal reform for the EU need to act

15 The package puts energy taxes in Spain on a more rational basis and Carbon raises taxes equivalent and Energy to 1% of GDP in Tax 2020 This is equal to more than 10bn (nominal prices) Reform in Europe (CETRiE) The proposed package makes the implied carbon tax rates on different transport fuels more similar, and also leads to convergence in the rates on non-transport fuels, but the gap in the rates between transport and non-transport tax rates grows total implied tax rate, /tco Taxes (including EU ETS) 2020 Taxes (including EU ETS) Residential // Electricity, 28 Transport equipment // Electricity, 23 Road // Gas/diesel oil (commercial), 110 Road // Gas/diesel oil (non-commercial), 121 Road // Motor gasoline, Residential // Natural Gas, 0 0 Emissions from energy consumption, tco2 Source: Environmental Vivid Economics: fiscal reform for the EU

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

17 EU ETS reform outperforms labour taxes 171 The 30% target could raise tax revenues of [0.5]% of EU27 GDP in 2020 in a less damaging way than through direct taxes % change from baseline Tightening the EU ETS cap has a smaller negative impact on EU GDP than raising the same revenues from direct taxes % change from baseline And a less detrimental impact on employment Tighten EU ETS cap Direct tax alternative Tighten EU ETS cap Direct tax alternative Source: Cambridge Econometrics E3ME model

18 CETRiE results anticipate 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 We know everything we need to act

19 Positive GDP-effects of ETR go up to 0.5 % 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! Source: COMETR 2007

20 Environmental Fiscal Reform: SOME EXAMPLES

21 All EU countries have some kind of green taxes Belgium Denmark Finland France Germany Italy Holland Norway Sweden UK Taxes CO2 SO2 NOx Fuels S in fuels Car sales and use Diff. annual car tax Water effluents Waste-end Dangerous waste Aviation noise Tyres Beverage cont. Packaging Bags Pesticides CFCs Batteries Light bulbs PVC/phtalates Lubrication oil Fertilisers Paper, board Solvents Raw materials INTRODUCED: Witness of EU-Creativity! 2. Many roads to Brussels! 3. Autonomy from neighbours! 4. Similar situation in new MS Examples from EEA 2005

22 Germany: direct effects of Environmental Tax Reform I More Fuel consumption (-17%) Unloaded truck mileage (- 2%-points between ) Fossil fuel imports (-13%) Overall tax burden (-4 %) Less Car sharing (+70%) Public transport (+5%) Energy saving technologies Energy efficiency Gas-powered cars (x10) Biofuel cars (x2) Renewable energies Source: Green Budget Germany calculations

23 Germany: direct effects of Environmental Tax Reform II More CO 2 -emissions (2-3%) Tax on goods : Pension costs (-16 bn or -1.7%) Costs for industry (- 1 bn) Tax on environmental bads : energy taxes ( bn) Employment (+250,000 jobs) Pensions (+1.2%) Less Source: Green Budget Germany calculations

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25 Germany: EFR elements implemented (Social Democrats and Greens ) Social security contributions were reduced Transport/heating fuel taxes were increased An electricity tax was introduced between From 2006 (Conservatives and Social Democrats ) Abolition of subsidising home ownership and reduction of commuting 2011 (Conservatives and Liberals ) 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, started as a banking charge) Not (yet?) implemented: Base company car taxation on CO 2 -emissions Environmental Fiscal Reform is now a cross-party consensus

26 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 lowresource development, the leading countries would be those with strongly developed resource-efficient technologies and industries competitiveness argument for environmental taxation Use the European Semester! Conclusions II

27 .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 We call for The EU-ETS needs an ambitious long-term reform (Border Carbon Adjustments)

28 GET INVOLVED facilitate share support! Patron (VIP) Active member Steering Committee Council of Experts Anchorperson for each country delegation Sponsor Environmental Fiscal Reformer of the Year We know everything we need to act

29 For more information, please don t hesitate to contact Brussels Office Avenue Marnix Brussels Kai.schlegelmilch@green-budget.eu We know everything we need to act

30 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 $) 30

31 Countries which introduced and air ticket tax 1. United Kingdom 1994, substantial increase in 2007 to a range from to France Ireland 3/ 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/ Italy 6/2012 (Aero-Taxi and Helicopter Taxi Tax: 10 for travels < 100 Km 100 for travels Km 200 for travels > Km)

32 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.

33 EU Emissions Trading System (EU ETS) Source:

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35 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

36 Linking?

37 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 rightwing opposition

38 Denmark 1. CO 2 tax from 1991, first on business only, from 1992 also on private households CO2 emissions were reduced by 24% against a business-as-usual scenario between (Source: Speck et al. 2005). 2. Sulphur tax: introduced in 1996 and levied on all fossil 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 Denmark now has the lowest SO 2 -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 income 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

39 Sweden Energy Tax (implemented in 1950s) on electricity, gas, fuel oil, coal und coke CO 2 Tax (implemented in 1991, gradual increases since) on CO 2 content of petroleum products, natural gas,coal, and coke Only households are taxed fully with CO 2 tax and energy tax (industry is broadly exempt from the energy tax) Effects: CO 2 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 CO 2 tax rates (50%) and imposing no energy tax for industrial consumers, in order to prevent the loss of a competitive edge (OECD 2000)

40 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 The tax structure is now based on energy content, carbon dioxide emissions and local/particle emissions 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.

41 Greece Fiscal crisis and deficit forced the government to also take some positive decisions regarding EFR: transport fuel taxes were increased very substantially: : petrol +91% diesel +40%

42 Ireland Also here the fiscal crisis helped EFR-elements to be implemented: Increase in excise taxes levied on transport fuels: : +30% Introduction of a CO 2 tax (15 Euro/ton CO 2 ) on all energy products and further increases (doubling) as part of the National Recovery Plan (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

43 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 CO 2 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: , road fuel duties increased by 5% p.a. in real terms (= above inflation) traffic levels remained same , good revenue raiser

44 Summary Asia 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

45 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) Conclusions I