1 17th GCET – Groningen – Environmental fiscal reform IIThe case for using green taxes as ‘own resources’ to finance the EU budget 17th GCET – Groningen – Environmental fiscal reform II Dr Constanze Adolf & Klaus Röhrig 22 September 2016
2 Brussels-based EU-wide experts platform Green Budget Europe Founded 2008 Brussels-based EU-wide experts platform Promoting Market-Based Instruments Our vision: An ecological and social market economy, in which "prices tell not only the economic, but also the ecological truth" (Ernst Ulrich von Weizsäcker)
3 Outline A momentum for Green Own ResourcesThe current system and its deficits Ecological own resource candidates Example: EU carbon tax Key messages and conclusion
4 Study background Commissioned by the Greens/EFABasis for intra party debate on EU budget reform Available on our website. High level group Next MFF Paris and SDGs luckily no catastrophe like Tihange Brexit
5 The current system and its deficits
6 Communicating the EU budget and its deficitsOpacity Demise of genuine own resources Insufficient democratic accountability Late payments No market steering effects of EU revenues Source: Green Budget Europe (2016). Green Taxes as a Means of Financing the EU Budget: Policy Options. Study published in July 2016.
7 Definition: “Green Own Resources”Genuine own resources providing European public goods Transformative potential of EU budget Fair competition within the Single Market Polluter-pays-principle Less tax competition Better allocation of resources
8 Promising Candidates Road fuel tax Carbon tax Energy taxRevenue from European Court rulings
9 Example: Road fuel tax Tackles emissions of the transport sector, as well as congestion, air pollution and related public health impacts Addresses the diesel-petrol price gap Reduces fuel tourism and eliminates distortions in Single Market ‘Dieselgate’
10 Example: Carbon Tax An EU-wide carbon tax can produce a reliable price for carbon Carbon price is crucial step in decarbonisation No coherent carbon price in non-ETS sectors Internalise the detrimental effects of carbon emissions Provide incentives for consumers, producers and investors to shift capital towards low-emission sectors Support the European Union’s commitment to its greenhouse gas reduction targets as well as implementing the Paris Agreement
11 Assessment criteria for green own resourcesGender equality
12 Outcome
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14 Conclusion Different strengths and weaknesses of the four optionsResults feed into discussions on an alternative EU funding system Provides starting point for further in-depth research
15 We have all the evidence …..Currently difficult to gain political capital with subjects like “environmental taxation” and “European Union” We have a rich evidence-base in favour of Green Own Resources A better communication is needed to generate broader support Identify policy barriers and widespread concerns about GORs Determine crucial target groups and their needs Frame arguments in response to main concerns Develop set of tailored key message … why not acting? Source: projectmanagementdocs.com/
16 Candidate taxes assessed in the studyEU carbon tax Energy tax Road Fuel tax Air ticket tax Border Carbon Adjustments EU Corporate Income Tax Financial Transaction Tax CJEU Fines
17 Better communication necessaryDetermine crucial target groups and their needs Develop tailored messages by framing arguments in response to main concerns Economy Frame (competitiveness and revenue stability) Equity Frame (social equity and regressivity) Ecology Frame (environmental effectiveness) Europe Frame (subsidiarity)
18 Exploring the myths Bad for Competitiveness? Disrupt Social Equity?Ensure competitiveness in low-carbon market (carbon tax DK) Disrupt Social Equity? Environmental taxes are less regressive than other forms of taxation Environmentally Ineffective? Multiple success stories prove the opposite (1) Revenue Stability Depends on the tax design and tax rate flexibility over time Infringement of the Subsidiarity principle? Green own resources provide European added value unattainable by member states alone (1) Overview of environmental tax reforms and their ecological outcomes in the final report of the Green Fiscal Commission, 2009.
19 Example: EU carbon tax
20 Example: Carbon Tax
21 Industry & Trade UnionsEconomy Ecology Equity Europe Green Community Decoupling economic growth from GHG emissions Prevent “Low-carbon leakage” Boost investments in low-carbon technology Effective instruments to achieve climate commitments Applying the polluter-pays-principle Immediate action Guarantee social justice No disproportionate burden on low-income households EU-wide carbon tax In favour of a stronger and more united Europe, in particular on climate matters Citizens No further financial burden, no overall tax increases No negative impact on jobs and growth Polluter-pays-principle Health issues connected to environmental pollution Burden should be compensated More Europe only, if Member states cannot provide the public good effectively Decisions on budget need to become more transparent and democratic Local Councillors Secure competitiveness of regions (especially those with energy-intensive industry) Beneficial impact on local environment (regions with high air pollution levels) Interregional equity: no disproportionate negative impact on poorer regions (regions with high emission levels and low economic growth) Participation in policy-process Industry & Trade Unions Secure international competitiveness of energy-intensive industry (tax exemptions) Enable investments Clear long-term strategy for emission reduction Allow for gradual transition process No disproportionate burden on workers and low-income households (Trade Unions) More Europe only, if Member states cannot provide better market conditions Member States No harm to national industry No big shift in contribution ratio Revenue stability Assistance in Effort sharing Interstate equity: no disproportionate negative impact on poorer countries with high emission levels No transfer of fiscal competences Retain discretion on tax rate and exemptions Example: Carbon Tax
22 Industry & Trade UnionsEconomy Ecology Equity Europe Green Community Enhance the development of low-carbon industry and the decoupling of economic growth from GHG emissions in the medium- and long-term Internalise the costs of up to 55% of the EU’s total GHG emissions Carbon content directly taxed (polluter-pays-principle) Implement Paris Agreement and SDGs Less regressive than other forms of taxation (income tax, VAT) Compensatory measures can offset regressive effects Strong case for European collective action Most effective if EU-wide and aligned tax rates Provide transnational public good (GHG reduction) Citizens Contribute to economic growth, if implemented as a tax shift Secure competitiveness among Member States Incentivise a shift in consumer and producer behaviour towards low-carbon activities Local Councillors Use of transition periods and tax reductions for specific industries/regions Need to ensure participation in national decision-making on tax rates, tax exemptions and compensatory measures (subsidiarity) Industry & Trade Unions Stimulate the investment in clean energy and low-carbon technology Provide investor certainty and allow for a clearly specified transition period Possibility of country-specific tax reductions for energy-intensive industry Member States Redistribution of national contributions might entail compensations to ‘net losers’ Make sure the EU is on track for its commitments under the ESD/ESR, the Paris Agreement and the Sustainable Development Goals Power to levy taxes remains at MS level Example: Carbon Tax
23 Example: Carbon Tax – Main messagesEconomy An EU-wide carbon tax can stimulate the investment in clean energy and low-carbon technology needed to achieve the European sustainability Strategy until 2030 and beyond (1) enhance the development of low-carbon industry and the decoupling of economic growth from GHG emissions in the medium- and long-term contribute to economic growth, if implemented as a tax shift (2) secure competitiveness among Member States provide investor certainty and allow for a clearly specified transition period Ecology An EU-wide carbon tax can Carbon content directly taxed (polluter-pays-principle) Internalise the costs of up to 55% of the EU’s total GHG emissions Incentivise a shift in consumer and producer behaviour towards low-carbon activities Make sure the EU is on track for its commitments under the Paris Agreement and the Sustainable Development Goals 1 Achievement of the 2030 Energy Union targets necessitates annual investments of EUR 200bn between , yet in 2015 only EUR 34.3bn have been invested in clean energy. 2 Vivid Economics, Green Budget Europe (2012). Carbon taxation and fiscal consolidation: the potential of carbon pricing to reduce Europe’s fiscal deficits.
24 Example: Carbon Tax – Main messagesEquity An EU-wide carbon tax can be implemented with a virtual non-regressive effect if country-specific compensation mechanisms accompany its introduction Experience with success stories of carbon taxation being part of a broader tax shift, as for example in Sweden, has shown “almost no evidence of regressive effects” (1) MS can provide vulnerable high-emitter industries with a temporary tax exemption Europe An EU-wide carbon tax can provide unique European public goods (reduction in GHG emissions, tax competition) 1 EEA (2011). Environmental tax reform in Europe: implications for income distribution. Technical Report No 16/2011. European Environmental Agency. 2 Vivid Economics, Green Budget Europe (2012). Carbon taxation and fiscal consolidation: the potential of carbon pricing to reduce Europe’s fiscal deficits.
25 Example: Carbon Tax – Target groupsLocal Councillors Subsidiarity should be respected Grant participation in the design of compensatory measures (social schemes for regional workers, tax reductions for local industries) Industry and Trade Unions Low-carbon industry: stimulate investment Energy-intensive industry: transitionary tax expenditures Trade unions: Grant participation in the design of compensatory measures (social schemes for regional workers, tax reductions for local industries)
26 Conclusions Currently difficult to gain political capital with subjects like “taxation”, “budget reform” and “European Union” There is enough evidence to defend GORs against widespread concerns But follow-up needed: Develop comprehensive communication strategies to reach outside the expert circles And spread the word!
27 Please join us and share our vision of Europe as a pioneer of green fiscal policy, green technology and a green economy! Become member of GBE, and be a part of a unique, non-profit expert platform on environmental fiscal reform!. Dr Constanze Adolf