Green Taxation in Question
Also by Carsten Daugbjerg POLICY NETWORK UNDER PRESSURE: Pollution Control, Policy Reform and the Power of Farmers Also by Gert Tinggaard Svendsen PUBLIC CHOICE AND ENVIRONMENTAL REGULATION: Tradable Permit Systems in the United States and CO 2 Taxation in Europe
Green Taxation in Question Politics and Economic Efficiency in Environmental Regulation Carsten Daugbjerg Associate Professor Department of Political Science Aarhus University Denmark and Gert Tinggaard Svendsen Associate Professor Department of Economics Aarhus School of Business Denmark
Carsten Daugbjerg and Gert Tinggaard Svendsen 2001 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2001 by PALGRAVE Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE is the new global academic imprint of St. Martin s Press LLC Scholarly and Reference Division and Palgrave Publishers Ltd (formerly Macmillan Press Ltd). ISBN 978-1-349-41710-0 ISBN 978-0-230-59553-8 (ebook) DOI 10.1057/9780230595538 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Daugbjerg, Carsten. Green taxation in question : politics and economic efficiency in environmental regulation / Carsten Daugbjerg and Gert Tinggaard Svendsen. p. cm. Includes bibliographical references and index. 1. Air pollution Government policy Europe Case studies. 2. Pollution Government policy Europe Case studies. I. Svendsen, Gert Tinggaard, 1963 II. Title. HC240.9.A4 D38 2001 336.2 7836373 094 dc21 2001032121 10 9 8 7 6 5 4 3 2 1 10 09 08 07 06 05 04 03 02 01
For our youngest daughters, Asta Marie and Marie
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Contents List of Figures List of Tables Preface x xi xii 1 The Politics and Economics of Green Taxation 1 Carsten Daugbjerg and Gert Tinggaard Svendsen Contribution 1 The economics of green taxation 7 Research method 9 Structure 12 2 Group Mobilization and Rent-Seeking17 Gert Tinggaard Svendsen Introduction 17 Group mobilization 19 CO 2 tax levels in OECD countries 21 Rent-seeking in Denmark, Norway and Sweden 23 Conclusion 40 3 Parties Matter 45 Carsten Daugbjerg Introduction 45 Institutionalization of the Left±Right Dimension 47 Parties and Green Taxation 53 Green taxation in the industrial sector 56 Liberal and conservative governance: Denmark and Britain 57 Social democratic governance: Sweden and Norway 62 Governance from the centre: the Netherlands 67 The five country comparison 72 Moving beyond correlation 73 The importance of policy design in green taxation 80 vii
viii Contents 4 Policy Networks 83 Carsten Daugbjerg Introduction 83 The policy network concept 85 Green tax design 89 Policy networks and tax design 91 Fertilizer and pesticide tax schemes in Scandinavia 92 Agriculural policy networks 99 Exercising power? 105 Conclusion 112 5 Designing Green Taxation 117 Carsten Daugbjerg with Gert Tinggaard Svendsen Introduction 117 Making green taxation more attractive 120 Reimbursement 120 Taxing production inputs or outputs? 123 Administration of tax revenues 124 The problem of redistributive reimbursement 128 Labour taxes 130 Annual turnover 131 Corporate tax 132 Nature of target sector 132 Conclusion: the limitations and opportunities of green taxation 134 6 Designing Permit Trading 137 Gert Tinggaard Svendsen Introduction 137 Why permit trading? 139 Grandfathering 139 Gains from permit trading 141 Interest groups 144 Special reward and hot air 144 Industry 145 Environmental groups 145 Hypotheses 146 The American Acid Rain Program 146 Market activity 146
Contents ix Monitoring Auction Industry and environmental groups The Kyoto Protocol Trade level and interest groups Bureaucratic preferences Governmental preferences Policy recommendations Conclusions Appendix: Observers at Kyoto Meeting Notes Bibliography Index 148 148 150 151 153 156 157 160 163 169 175 179 197
List of Figures 1.1 Number of green taxes in OECD countries 3 5.1 Standard versus taxation 121 6.1 Cost distribution 140 6.2 Permit trading between the United States and Russia 142 6.3 How much market prices exceeded minimum prices at the auction (per cent) 150 x
List of Tables 1.1 Total CO 2 emissions in countries with CO 2 taxation from 1990±97 4 2.1 Individual incentive to rent-seek against green taxation 19 2.2 Lower bound CO 2 tax rates for industry and households in 1997 21 2.3 Differentiated lower bound CO 2 tax rates for industry and households 23 2.4 Dithmer Commission proposal for industry 28 2.5 Modified Model 2 proposal with voluntary agreements 30 2.6 Existing and proposed CO 2 taxes in Norway, 1998 34 3.1 Aggregate time in office (expressed as a percentage) of various types of governments in 10 West European countries, 1959±98 52 4.1 Extremes on the policy network continuum 87 4.2 A comparison of green tax schemes 99 4.3 Indicators of structural power of farmers 105 6.1 Permit prices 147 6.2 Reduction commitment for Annex B countries (percentage of base year, 1990) 152 6.3 Number of observers present at Kyoto meeting 154 xi
Preface The book title Green Taxation in Question stems from our first motivation to write the book. We felt that there was something missing when discussing green taxation. Such discussions usually were based on economic theory which did not question the political feasibility of green taxation. What we observed from reality was that the use of green taxation did not have the intended environmental effects. Why not? The economic literature reveals that this question is under researched. This gap between theory and reality informed the point of departure for this book. Our discussions on this question motivated us to look for the answer that could not be found in the literature. In order to answer why green taxation did not work as intended, we had to develop an interdisciplinary approach which combined political science and economics. Our academic backgrounds in these two disciplines provided us with the necessary foundation to undertake the task. In essence, our political economy approach suggests what can be done in political terms, not necessarily what should be done in economic terms. Thus, we search for the best economic solution given that it must be politically attractive. We hope that this book will contribute to the academic discussions on green taxation. While primarily addressed to the academic world, the book is also aimed at environmental policymakers. It presents policy recommendations which might guide the formulation of future environmental policy. We suggest how green taxation might become more acceptable to industry and discuss emission trading as an alternative to green taxation. We are most grateful to Palgrave for its prompt offer to commit itself to publish this book and for its receptiveness to changes to the original book proposal. We owe a great debt to our research assistants Anders Branth Pedersen and Lene Hjùllund. Without their help, this book would, at best, have been considerably delayed or, at worst, not have been written at all. We also wish to express deep appreciation for the skilful assistance of Ann-Marie Gabel (layout), Sheila Kirby (lanxii
Preface xiii guage revision), Lone Winter Mathias (secretarial assistance), Inge Kùrvel (library assistance) and Peter Sidelmann (research assistance). A vote of thanks also goes to Jens Blom-Hansen, Andrew Jordan, Asbjùrn Norgaard, Jan-Tjeerd Boom, Jan Lien Christensen, Martin Paldam, Manfred J. Holler, Hannelore Weck-Hannemann, Niels Nannerup, three anonymous referees of Scandinavian Political Studies and two anonymous referees of Homo oeconomicus. Furthermore, we would like to thank colleagues at the Centre for Social Science Research on the Environment and at the Department of Economics, the Aarhus School of Business for valuable comments on earlier draft chapters. Needless to say, we alone are responsible for the content. The book project has been funded by the Danish Strategic Environmental Research Programme II and the Research Board, Faculty of Business Administration at the Aarhus School of Business. We are grateful for this support. We would also like to thank Scandinavian University Press for allowing on us to use parts of the article `Power and Policy Design: A Comparison of Green Taxation in Scandinavian Agriculture' in Chapter 4. It was published in Scandinavian Political Studies, vol. 21, no. 3, 1998, 253±84. Finally, we thank Accedo Verlagsgesellschaft, Munich, for allowing us to use parts of the article `The US SO 2 Auction and Environmental Regulation' in Chapter 6. It was published in Homo oeconomicus, Vol. XVI, No. 2, 1999, 191±203. The book is dedicated to our daughters, Asta Marie and Marie, whose arrival interrupted the work on this book but enriched our lives. They were born in late 1998 and early 1999 respectively.