Possibilities of Environmental Fiscal Reform in Developing Countries

Size: px

Start display at page:

Download "Possibilities of Environmental Fiscal Reform in Developing Countries"

Louisa Edwards
6 years ago
Views:

1 Possibilities of Environmental Fiscal Reform in Developing Countries Dr. Stefan Speck Kommunalkredit Public Consulting, Vienna, Austria on behalf of GTZ (Deutsche Gesellschaft für Technische Zusammenarbeit), Germany Presented at the Bank Indonesia Annual International Seminar Macroeconomic Impact of Climate Change: Opportunities and Challenges Nusa Dua, Bali, August 1-2, Seite 1

2 Outline Concept of Environmental Fiscal Reform Rationale of Environmental Fiscal Reform Design of Environmental Fiscal Reform Experiences with Environmental Fiscal Reform transfer of knowledge Summary and conclusion Seite Page 22

3 Concept of EFR Policy measure in the overlap between environmental and fiscal policy - part of a policy process. Environmental Fiscal Reforms are a key instrument for raising fiscal revenues and fighting poverty while furthering environmental goals (GTZ, 2004) Instruments of an EFR package encompass a broad range of taxes, pricing instruments and reforming subsidies Seite Page 33

4 Concept of EFR Environmental benefit addressing the key environmental and resource challenges countries may face (application of the Polluter Pays Principle) Fiscal benefit raise revenues to finance government expenditure programmes Social benefit - EFR can contribute to poverty reduction: directly - EFR addressing environmental problems that impact on poor members of society, i.e. improving environmental quality indirectly generating or freeing up budgetary resources to be used for pro-poor investments (health, education, etc.) Seite Page 44

5 Rationale of EFR Countries are facing major challenges in different policy fields Fiscal needs investments in environmental infrastructure is often lagging (estimates are revealing that between 70 and 90 percent of investment is provided from domestic public sector) Greater use of economic (incentive-based) instruments (also called marketbased instruments) are promoted internationally: Earth Summit in Rio (1992); Financing for Development Conference, Mexico (2001); international organisation, such as OECD, World Bank, and countries (UK, Malaysia, etc.) EFR approaches can be seen as part of the development policy tool kit Seite Page 55

6 Rationale of EFR The interplay of EFR a tool for governments to be implemented along side other policy measures with the aim of achieving multiple objectives simultaneously: 1. improve environmental conditions (environment), 2. mobilise revenues (fiscal), and 3. reduce poverty (social - poverty eradication). Mobilising domestic resources which can be used to leverage international funds Seite Page 66

7 Rationale: The benefits of EFR (source: World Bank, 2005) Seite Page 77

8 Design of EFR instruments for raising revenues Whole range of instruments can be applied in developed and developing countries: Natural resource pricing measures (taxes on natural resources and fisheries exploitation) Reform of subsidies and taxes in particular in the field of energy and emissions Cost recovery measures - user charges on water supply, wastewater and waste EFR design and the selection of instruments varies depending on prevailing economic, social, institutional and political conditions of the countries Seite Page 88

9 Design of EFR - revenue The revenue allocation of an EFR can be carried out in different ways: Revenues accrue to National Treasury allocated to priority spending areas; Revenues are used for reduction in other taxes tax-shifting exercise; Revenues are earmarked for environmental / pro-poor investment programmes. Investment mitigation and adaptation measures in the context of climate change: scenarios are revealing an increase in required investment caused by climate change; additional funding sources for investment are required Seite Page 99

10 Experience EFR in developed countries EFR implemented in several European countries (for example: Denmark, Sweden, Germany and the UK) and Canada (British Columbia) EFR in Germany: Reform of energy taxation scheme environmental objective of reduction in energy consumption and in CO2 emissions is achieved! Revenues recycled into the economy via reduction of labour taxes but also support for renewable energy economic objective of reduction in unemployment! Revenue neutrality principle (no change in the overall tax burden) Seite Page 10 10

11 Experience in developing countries Energy subsidies Sri Lanka environmental subsidies (fertiliser and energy) around 1.4 percent of GDP and 9.5 percent of government revenues in 2005 as opposed to the budget of the main safety net amounting to about 0.4 percent of GDP Energy subsidies Indonesia - removal of energy subsidies would have led to a reduction in energy consumption by 7.1 percent (IEA 1999 as quoted in UNFCC 2007) Transfer of knowledge between developed developing countries (north-south) is limited: Yes - with regard to concept and underlying rationale of the approach; partly with regard to instruments (for example, user charges in water supply and sanitation) No policy objectives and the prevailing conditions differ Seite Page 11 11

12 ummary and conclusion EFR is addressing multiple policy objectives (environment, fiscal, poverty reduction) Synergies between different objectives can be achieved The potential of trade-offs between objectives must be taken serious and addressed Environmental benefits vs. mobilising revenues Removal of subsidies compensation measures can be implemented aiming to protect the poor or affected firms from higher prices caused by the removal of subsidies EFR no panacea but an important part of a development policy tool kit complementing and strengthening regulatory and other approaches to fiscal and environmental management not only in developed but also in developing countries! Seite Page 12 12

ETR in Europe: experience to date

ETR in Europe: experience to date Stefan Speck Final Conference of the Anglo-German Foundation s petre project: Environmental Tax Reform (ETR) in Europe: The Key to a Resource-Efficient and Low-Carbon