1 Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future DevelopmentDialogue Japan – Germany October/ November 2005 Dr. Anselm Görres – Chairman Green Budget Germany

2 Executive Summary/ Introducing Green Budget CONTENT OF THIS PRESENTATION Germany’s Ecotax Reform : Implementation, Impact, Future Development Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure Red-Green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

3 About “Green Budget Germany” and the authorGreen Budget Germany (Förderverein Ökologische Steuerreform e.V./ FÖS) is a nonprofit organisation and NGO, founded in 1994. Topics: Ecotax Reform (ETR) and Emission Trading (ETS) or more general: Environmental Fiscal Reform (EFR) including Subsidy Debate Target Groups: Business, scientific and political communities. Publications: Many books, articles and newsletters in German in English: ÖkoSteuerNews and GreenBudgetNews. Dr. Anselm Görres, born 1952, economist and former McKinsey consultant, is manager and entrepreneur in Munich Germany (www.zmm.de). He is co-founder and President of FÖS/GBG and since 1985, has written many books and articles about ecotaxes in Germany. Förderverein Ökologische Steuerreform e.V. Landsberger Str. 191 • D München Fon , Fax -14 © Dr. Görres – October 2005

4 GreenBudgetNews: An NGO Platform for European and Global DebatePRESENTING GBN GreenBudgetNews: An NGO Platform for European and Global Debate Full Name: European Newsletter on Environmental Fiscal Reform. First edition appeared in october 2001 Cooperation Partners: ÖGUT - Austrian Society for Environment and Technology; DEC - Danish Ecological Council; CAAG - Clean Air Action Group, Hungary Topics: Green Budget Reform on EU-level, in individual European countries, and worldwide We are looking for Corresponding Partners who: Write articles case by case Report from their own country on a regular basis Send the newsletter to their own mailing list Or submit addresses to us for distribution © Dr. Görres – October 2005

5 Readers of our two newsletters: 7000 in D 3000 abroad...and how about you?!? German edition: ÖkoSteuerNews ...it’s easy: © Dr. Görres – October 2005

6 To subcribe to our newsletters: And here’s how: To become a member: To subcribe to our newsletters: To find useful information about Green Budget Reform: (..For Fossil Fuels) © Dr. Görres – October 2005

7 ..and thanks to MoEG Trittin, who paid for my tripSELECTED WORLDWIDE ECOTAX PRESENTATIONS BY GBG-MEMBERS After some time we realized that GBG is not only an NGO but also a travel agency ..and thanks to MoEG Trittin, who paid for my trip Talinn Hamburg London Krakau Vancouver Munich Ottawa Prag Wien Portland Vermont Barcelona Cleveland Madrid Tokyo Havanna .. thanks also to MoEJ Koike-san, for your new ETR proposal JIT for my trip! Sydney Hamilton © Dr. Görres – October 2005

8 Though I have never been in Japan, my books already are here...© Dr. Görres – October 2005

9 Let’s make our taxes as smart and efficient as our car factories!Germany and Japan have much in common, past and present, why not a strong fight for Kyoto? Everybody fights muda in AUDI and TOYOTA factories – but who fights the muda in the world? Nichts ist un-möglich! Let’s make our taxes as smart and efficient as our car factories! © Dr. Görres – October 2005

10 Prime Minister Junichiro Koizumi is supporting the concept of MottainaiMaybe I join GBG? “Recently, Madame Wangari Maathai, who received the Nobel Prize, upon her visit to Japan was most impres-sed by the Japanese word mottainai – that is, do not waste valuable things. The word mottainai really embo-dies the 3Rs-reduce, reuse and recycle resources, do not waste them. This is what Madame Maathai said. In English, French, Germany or other languages I believe it is difficult to translate this word mottainai, but perhaps we could simply use the Japanese word mottainai. After all, tsunami is a Japanese word. I believe this Japanese word mottainai really embodies all the 3Rs, and therefo-re, I introduced this word which means to attach impor-tance on environmental protection and value resources.” Press Conference following G8 Summit July 8, 2005 © Dr. Görres – October 2005

11 We’ve come to our next topic:CONTENT OF THIS PRESENTATION We’ve come to our next topic: Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure in comparison Red-Green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

12 Worldwide energy crisis – still BAU?!?WORLDWIDE CO2-EMISSIONS IN MILLION TONS The only way to stop and reverse current trends is by changing our behaviour and our structures Does anyone believe this will go on forever?!? „Radical change“ „Business as usual“ (BAU) It‘s our decision! © Dr. Görres – October 2005

13 Climate change costs moneyINCREASE OF DAMAGES FROM NATURAL DISASTERS SINCE 1950IES Climate change costs money Increase > factor 10 Katrina costs: up to 200 Bn $! Für den Wiederaufbau der zerstörten Gebiete nach dem Hurrikan «Katrina» hat der US-Kongress bisher 60 Milliarden Dollar bewilligt. Experten rechnen mit Kosten von bis zu 200 Milliarden Dollar. Reference: Munich Re © Dr. Görres – October 2005

14 © Dr. Görres – www.foes.de October 2005

15 Icebergs? Never heard about!DIFFERENT IMPEDIMENTS BLOCKING PROGRESS Whether iceberg (Greenhouse Effect) or Greenland (resource exhaustion): We must change course! ??? Icebergs? Never heard about! © Dr. Görres – October 2005

16 Congratulations! We’ve finally come back to the oil prices of 1870!OIL PRICE DEVELOPMENT FROM 1860 UNTIL TODAY Congratulations! We’ve finally come back to the oil prices of 1870! Look familiar? Every engineer knows: get out before the tub curve ends! © Dr. Görres – October 2005

17 As much as we look: There‘s less and less oil in the tubAnd if there were – we cannot risk to burn it all in the next few years! © Dr. Görres – October 2005

18 It’s not always easy being green and some people lose faith......but there‘s no reason to get cynical or pessimistic! © Dr. Görres – October 2005

19 TRANSITION FOSSIL TO SOLAR (1)Our only problem is to step from the old, fossil bathtub into the nice new bathtub of solar energy... Solar energy bathtub Fossil energy bathtub Sun Energy With ETR, ETS, and solar subsidies we’ll make the transit faster and smoother! plus ζ = efficiency © Dr. Görres – October 2005

20 TRANSITION FOSSIL TO SOLAR (2)Don’t scare people with higher prices forever – tell them about the sunlight at the end of the tunnel! Bad news for finance mini-sters: ecotax rates may still grow, but revenue declines! Switching price - upper limit - lower limit Switching corridor Sustainable price level Sun Energy Bad energy before ecotax Bad energy plus ecotax Alternative energy © Dr. Görres – October 2005

21 We’ve come to our next topic:CONTENT OF THIS PRESENTATION We’ve come to our next topic: Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure in comparison Red-Green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

22 Within the EU, the UK and D set a shining exampleAGREED AND REAL REDUCTIONS OF GREENHOUSE GASES (BASIS 1990) Within the EU, the UK and D set a shining example Luxemburg Germany United Kingdom EU-Total Real Development: Half of the Target France Danmark Sweden Netherlands Austria Italy Real Development Belgium Greece Target Average Ireland Portugal Spain Source: EU-Commission © Dr. Görres – October 2005

23 CO2-EMISSIONS PER CAPITA IN 2000 (TONS)But in per capita volumes and in the long run, both countries are close to EU average EU-Average: 11 Source: EU-Commission © Dr. Görres – October 2005

24 Putting things in perspective: Ecotaxes still smallGERMAN ECOTAXES IN COMPARISON TO JAPAN (in Bn. Euro) Putting things in perspective: Ecotaxes still small 3.798 Japan 2003 Population: 125 million GDP: 3798 billion Euro Taxes 16% Social Security 11% of GDP Ecotaxes: 1,7% of GDP 100% 1025 27% 65 < 1,7% German ecotax share more than double! GDP Taxes + Ecotaxes Social Sec. Germany 2003 Population: 82 million GDP: 2215 billion Euro Taxes 21% of GDP Social Security 18% of GDP Ecotaxes: over 10% of all taxes and contributions* About 4% of GDP* * Including road toll of 2005 and non-energy taxes like land tax, tobacco tax etc. 2215 100% 864 39% 89* = 4% (Percentage values = Share of GDP) © Dr. Görres – October 2005

25 By the way, isn’t Kyoto a city in Japan?TARGET AND REAL CARBON REDUCTIONS (BASIS 1990) Japan seems to have a hard time to fulfil the obligations that were agreed upon in Kyoto Since 1990, Japan should have saved 6% CO2 – but it raised emissions by 7,4%. So now the gap is 13,4% - app. 100 Mt! By the way, isn’t Kyoto a city in Japan? (Facilitated through German Unity) Source: Japan Times October 26, 2005 © Dr. Görres – October 2005

26 We’ve come to our next topic:CONTENT OF THIS PRESENTATION We’ve come to our next topic: Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure in comparison Red-green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

27 COMPARING JAPANESE CONCEPT FOR 2007 WITH GERMAN ETR 1999-2003The MoEJ-proposal is courageous, though less ambitious than Germany’s ETR Tax base Almost all energies + Coal - Transport fuels Both provide for large exemptions Rise Most 5 times All only 1 time Rate per ton of CO2 2 €/litre for heavy oil, 66 €/l for petrol 19 Euro across the board Traffic problems > CO2! ETS-price EU = 24 € Total volume € 19 bn € 5 bn (370 bn Y) D = .85% of GDP J = .15% of GDP Revenue use 90% to reduce labour cost 50% for forests 50% for REN and energy savings Forest maintenance = less CO2? CO2-re-duction 20-24 mn tons (2,4-2,9% of D) 43 mn tons (3,5% of J) Japan estimate a little too optimistic? Source: MoEJ/GBG-Analysis © Dr. Görres – October 2005

28 Germany’s Social-Ecological Tax Refom: What did we do?OVERVIEW GERMAN ETR Germany’s Social-Ecological Tax Refom: What did we do? Steady tax increases : Diesel/Petrol: +3,07 Ct/litre p.a Electricity: Ct/kWh in Ct/kWh p.a Single tax increases (only once or twice): Natural gas: Ct/kWh in Ct/kWh in 2003 Light heating fuel: +2,05 Ct/litre in 1999 Special provisions with reduced rates for industry, railways, public transport, energy intensive firms Revenues in 2004: 18.7 bn € (= 2% of total contributions); mainly used to reduce social security payments © Dr. Görres – October 2005

29 Total green taxes almost 90 Bn (incl. tobacco, land etc.)FINANCIAL EFFECTS OF ETR IN GERMANY (IN BILLION EURO) Energy taxes in Germany increased by 55 percent, additional increase in 2005 through truck toll ~ 56 ~ 53 + 3,0 3,0 Road Toll (0 → 9-14 cents/km) 2003 +4,3 18,7 bn € = 55% in- crease 2005 6,5 Electricity (0 → 2,1 cents/kWh) 2002 +2,5 5,0 Natural gas (0,2 → 0,6 cents/kWh) 2001 +3,0 2000 +2,5 1,8 Fuel oil (4,1 → 6,2 cents/l) 1999 +4,3 16,0 Diesel (31,7 → 47,2 cents/l) Road toll for trucks ETR Petrol (50,1 → 65,6 cents/l) ~ 34 22,8 Total green taxes almost 90 Bn (incl. tobacco, land etc.) Energy taxes Energy taxes 2003/2005 1998 © Dr. Görres – October 2005

30 Most energy taxes were increased by high percentagesTAX RATES ON ENERGY 1998 – 2004 (EURO CENT PER UNIT ENERGY) Most energy taxes were increased by high percentages 1998 2003 D 99-03 Energy source Unit prior to ecotax after ecotax Petrol litre 50.1 65.6 15,5 Diesel 31.7 47.2 Heating oil 4.1 6.2 2,1 Natural gas kWh 0.2 0.6 0,4 Electricity - 2.1 31% increase 49% increase 51% increase 200% increase © Dr. Görres – October 2005

31 GERMAN ETR: RECYCLING OF THE RETURNSAlmost 90 Percent was recycled to citizens in order to reduce labour cost Environment Projects Renewable Energies CO2-reduction for buildings Budget use (mainly in last year) Pension system Our Comment: Great idea, at least in principle Less than perfect execution Decrease in pension costs: Calculative: 1,7 % (ca. 480 € relief in average per employee) In fact: only 0,8 % (because of contrary effects) Govt. Soc. Sec. Economy = 17 Bn relief for employers, employees and pensioners © Dr. Görres – October 2005

32 Includes 4-5 bn. paid by utilitiesFISCAL INSTRUMENTS WITH ECO-IMPACT IN GERMANY (Bill. Euro 2003) Over 120 Billion of taxes and subsidies directly affect the environment Comments Negative value = environmentally, not fiscally! Many indirectly harmful subsidies here not considered Green taxes include road toll with 2005 volume Green subsidies include Third-party-subsidies (mainly EEG) Includes 4-5 bn. paid by utilities Estimated world total: $ Bn. 1500 Conclusions Taxes have 15 x more weight than green subsidies Red-Green Coalition had biggest impact through ecotax Harmful subsidies are 4-5 x bigger than green ones Cutting bad subsidies perhaps most important venue Includes non-energy © Dr. Görres – October 2005

33 LEVIES AND SUBSIDIES WITH ENVIRONMENTAL IMPACT IN GERMANY (Bill. Euro)In Germany, the pressure on ecologically counterproductive subsidies is mounting GREEN TAXES (2004): NEGATIVE SUBSIDIES (2004): Non-Energy Petrol Diesel Electricity Natural Gas Toll (2005) Heating Oil Tobacco, land, alcohol... Diesel Tax Reduction (TB) Home Builders (TB) Commuters (TB) Industry Eco Tax Red. (TB) Coal and Lignite (SU) Nuclear Energy (TB) Air Traffic (TB) No VAT, no Kerosene Tax POSITIVE SUBSIDIES (2004): Increasing pressures: Fiscal deficit rising (Maastricht!) Growing critique of overcomplexity Growing demands for tax reform Fiscal needs of the future REN Act – EEG (TPS) Co-Generation (TB) REN Bio-Fuels (TB) Other direct subsidies REN Market Intro (SU) TB: Tax Break SU: Subsidy TPS: Third Party Subsidy © Dr. Görres – October 2005

34 First Results of Ecological Tax ReformPOSITIVE EFFECTS ON NATURE, INNOVATION AND LABOUR First Results of Ecological Tax Reform Fuel consumption (>10%) CO2-emissions (2-2,5%) Overall tax burden Pension costs (5,6 bn) Costs for industry (1 bn) Empty truck travel Imported fossil fuels (14%) Car sharing Energy saving technologies Energy efficiency Gas-powered cars (x10) Bio-fuelled cars (x2) Job creation (≈ ) Renewable energies Tax shift towards nature More Less © Dr. Görres – October 2005

35 The base cost (cost before tax) rose much more than ecotaxesGERMAN PETROL PRICES IN COMPARISON (EURO CENT / LITRE SUPER) The base cost (cost before tax) rose much more than ecotaxes 122 115 111 104 Does Tanigaki-San know that like GB, Japan is an island? 79 Value Added Tax +42% 45 Mineral Oil Taxes +80% Cost before tax © Dr. Görres – October 2005

36 Within Asia, Japan has the highest fuel prices (excluding Turkey and Hongkong)Source: International Fuel Prices 2005 Dr Gerhard P. Metschies © Dr. Görres – October 2005

37 IMPACT OF ECOTAX ON TRANSPORT EMISSIONS IN D AND UKThe two exceptional cases in the EU: CO2 transport emissions are falling in Germany and the UK Other EU UK Germany © Dr. Görres – October 2005

38 Since 1998, the tax share of nature has increasedRELATIVE BURDEN SHARES IN TOTAL LEVIES GERMANY Since 1998, the tax share of nature has increased Increase ~20 percent Nature Neutral Capital +10-15% burden shift needed! Labour Nature: Taxes on energy, land, toll etc. Neutral: VAT, duties etc. Capital: business and capital taxes etc. Labour: income tax, social security © Dr. Görres – October 2005

39 Saving energy perhaps less costly than fighting wars for oil...TOTAL CHANGE IN OILIMPORTS FROM IN MILLION BARRELS PER DAY While the US increased their oil imports by 21 percent, Germany reduced it by 14 percent 1998 2004 Absolute Change Change in percent USA 9,764 11,851 2,088 Deutschland 2,867 2,459 -0,408 Von 1998 bis 2004 haben die USA ihre Rohölimporte um 23 Prozent gesteigert (von 9,8 auf 11,9 Millionen Barrel am Tag). Wir Deutschen konnten sie im gleichen Zeitraum um 11 Prozent senken (von 2,9 auf 2,5 Millionen Barrel)! Saving energy perhaps less costly than fighting wars for oil... © Dr. Görres – October 2005

40 We’ve come to our next topic:CONTENT OF THIS PRESENTATION We’ve come to our next topic: Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure in comparison Red-Green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

41 Only 20 years from textbook to lawbookBRIEF HISTORY OF ETR IN GERMANY Only 20 years from textbook to lawbook (Pigou: 1924) 1978 First proposal by Hans Christoph Binswanger, Swiss economist 1980s Politicians, parties, NGOs like BUND, and others discover the concept (e.g. Prof. Ernst von Weizsäcker). Radical approaches even advocate total substitution of conventional taxes through ETR (UPI) 1990s Double Dividend Debate. Social Democrats and Greens take ETR into their programmes, but German unity distracts from the debate 1994 FÖS/GBG presents first FÖS-Memorandum after DIW-study financed by Greenpeace. Both claim: Double dividend is possible. Second round of intensive political debate – in theory, all parties are in pro. But Helmut Kohl wins election and freezes debate. Merkel silent... 1998 Green Party triggers third round of debate with demand for fuel price to 5 DEM/litre. ETR becomes important issue in 1998 campaign 1998 Gerhard Schröder leads Red-Green Coalition to its first victory. 1999 On April 1st, German ETR enters into effect – after two decades. © Dr. Görres – October 2005

42 German ecotax met with similar attitudes as in other countries...“Mas vale un diablo conocido que un angel por conocer” (Spanish Proverb – better a known devil than an unknown angel) “Dear God, make me chaste, but not right away” (Saint Augustine as a young man) © Dr. Görres – October 2005

43 Until Galileo, people believed the earth to be a disk© Dr. Görres – October 2005

44 COMPETING VIEWS OF THE WORLDFor today's "Ecological Ptolemaians", the economy still constitutes the center of the world… View of "Ecological Ptolemaians" In Truth: Economy only Subsystem Brecht's Galilei: "Do we have to assume, that what is large revolves around what is small, or is it not rather the other way round?" © Dr. Görres – October 2005

45 So beware of Phantom Pain!One of the most played plays in this debate is from Molière – works fantastically since 1673! So beware of Phantom Pain! Very frequent and popular disease Particularly with business people Car drives also quite often affected Tabloids love to fight for the poor victims! © Dr. Görres – October 2005

46 German ETR debate was part of a widespread consensus throughout Europe1970/80ies: Wild array of Ecotax proposals Early 1990ies: EU-wide consensus emerges Concentration on energy/CO2: not 150 different ecotax candidates! Careful escalation/ no shocks: Slow, but steady growth,3-5% p.a. Concrete blueprints: (like Green Budget in Germany 1994) 100% Budget neutrality: No rise in tax quota – no gain for State Shifting of tax burden: From labour to nature Export protection for energy intensive branches European and global dimension of ecotax debate and reform Batteries SO2 Waste Chloride Plastic bags High speed cars ENERGY or CO2 Areas Packages Viele Gegner: Mas vale un diablo conocido que un angel por conocer. Doch für Pessimismus ist kein Anlass, es gilt: you‘ve come a long way, baby. Andere Steuern brauchten auch lang zur Realisierung! Sozusagen: Vom Mustopf ins Machtzentrum der Politik, in D wie in E. Ohne polemisch zu sein: Eindruck eines Generationenproblems: 40jährige Planer überwiegend dafür, 60jährige Minister und Regierungschefs noch dagegen. In Europa zudem: Protestantische Mitte und Norden dafür, katholisch/romanischer Süden dagegen, D genau gespalten Was heißt Ökosteuerreform: 1. ökol. Kontraprod. Subvent. weg, 2. Mineralölsteuer erweitern auf Strom und Kohle, 3. Behutsam aber stetig erhöhen. 4. Mit den Erlösen: Arbeit entlasten 5. EUROPAWEIT Konkret für D? Gesamtvol. Von 40 bis 60 mrd.: sind gerade mal 3-4% vom Gesamtaufkommen an Steuern und Abgaben (1,3 bill. DM) Das wird Ruin der Wirtschaft nicht herbeiführen! Problem nicht insgesamt, aber für einzelne Branchen schon! 6/96 Fertilizers One-way-bottles Water © Dr. Görres – October 2005

47 In the summer of 2000, there were anti-ETR demonstrations throughout EuropeUnlike many other EU governments, the red-green coalition didn‘t back down under pressure… © Dr. Görres – October 2005

48 ETR proofed that most former cons were wrongCOUNTERARGUMENTS ETR proofed that most former cons were wrong Competi-tiveness Net relief of € 1 bn yearly for German industry. Today, we are still world export leader Isolation Germany was in excellent company (Benelux, Scandinavia) Never wait for a supra-national ETR if you really want it! Higher taxes Tax quota 2004 much lower than 1998 ETR can reduce government spending, i.e. less eco-subsidies No elasticity! Reinforced by oil price increase, demand elasticity became obvious Self-defeat ETR contributes nearly 20 bn. Euro to budget Energy more stable than other tax bases – no Laffer effect! Hits poor har-der than rich Burden offset by general tax reform Pension financing relieves employers, employees and retirees Though popular demand, economically questionable Revenue in Germany much to high for ecological earmarking Pigou tax for internalization, fiscal revenue secondary Green Taxes, green projects © Dr. Görres – October 2005

49 P.S.: German ETR 5x > Japan’sEarmarking of green taxes works well for symbolical amounts, not for large steering volumes Some points against earmarking: Higher burden for citizens Inflation from higher spending No recycling possible Strong green taxes reduce need for eco-subsidies Threat to budget sovereignty Receipts and needs ≠ 1:1, thus inefficient allocation Beer tax for beer drinkers? Property tax for property owners? Car tax only for roads? Green taxes only for green projects? P.S.: German ETR 5x > Japan’s © Dr. Görres – October 2005

50 Bureaucracy? Ecotaxes with lowest admin costsADMINISTRATION COST OF DIFFERENT TAXES – PERCENT OF REVENUE Bureaucracy? Ecotaxes with lowest admin costs Without exemptions even lower admin cost! The tax with lowest admin costs gets the most bashing – are only old taxes good taxes?!? Average 1,6 % © Dr. Görres – October 2005

51 POSITIVE AND NEGATIVE EXPERIENCES FROM GERMAN ECOTAXESDespite overall positive effects, German ETR leaves room for improvement... Actual law much simpler than former models (litre, not joule) Budget neutrality nearly realised Part of more general reform, net tax relief for most tax payers Therefore mainly winners, very few losers First positive results for environment and labour market Only small concessions to gas-price-riots in 2000 Reversal in factor burden! Bureaucracy, loopholes and exceptions - more than necessary Coal totally excluded, heating oil and natural gas only in first step Budget neutrality not accepted by public that wants eco-taxes devoted to eco-purposes Winners (mainly industry) do not recognize relief and continue complaining Only small cuts in huge anti-ecological subsidies © Dr. Görres – October 2005

52 EXECUTIVE SUMMARY (0) German ETR fulfilled its promises for economy and ecology, but was less successful in political terms Effects Pos. Neg. Comment Economical + + + – None of the dire predictions came true! Environmental – It did what it promised, with a little help from oil prices Political + – – – Remained a net burden de-spite of good debate start IN TOTAL – – – – – WE MUST IMPROVE THE POLITICAL MARKETING! © Dr. Görres – October 2005

53 EXECUTIVE SUMMARY (1) In economic terms, ETR has generated clear benefits for pension system and labour market Positive Effects Negative Effects Relative simple legislation, only one new tax (electricity); moderate steps over five years; no shock effects Complications only due to exemptions (industry, public transport, energy-intensive, bio-fuels, cogeneration) Almost € 20 bn. fiscal returns 90 Percent used for reduction of labour costs (pension insurance) to new jobs created Industry relieved by app. € 1 bn., many companies net winners; many technological innovations Part of general tax reduction reform, therefore reduced national tax and contributions quota Social burden for people not profiting from lower pension rates offset through lower taxes (in most cases) Correction of decades-long abuse of pension system for social aims/ German unity etc. Generous exemptions lead to fis-cal losses from these branches Revenue loss in border regions from drivers filling up in neighbour states Phantom pain of perceived burden may have had negative influence on some investors/ managers (e.g. Opel-Boss Forster lost a bet because he actually believed in net cost burden for Opel) Actual pension reduction much lower than in theory (loss of credibility!) © Dr. Görres – October 2005

54 For the environment, there were almost exclusively positive effectsEXECUTIVE SUMMARY (2) For the environment, there were almost exclusively positive effects Positive Effects Negative Effects Energy becomes gradually more expensive (until oil price shocks accelerate price increase) ETR provides steady incentives for behavior change and innovations by entrepreneurs and individuals (instead of detailed prescriptions what to do) From , transport fuel sales fall by >2% p.a. (first time in after-war history!) CO2-emissions: 2.4% less until 2003, 3% until 2010 Use of ETR to subsidize better building insulation etc. Energy efficiency becomes purchasing criterion Each year, 0,5-1,5% more public transport passengers 10% growth of gas-powered cars Double-digit growth of solar thermal installations Important factor to fulfil Germany’s Kyoto obligations Nuclear energy and coal not included Electric power tax partly offset by price cuts from deregulation In some areas, inelastic custo-mer reactions to higher prices Lack of institutional reforms to facilitate customer reaction, i.e. in rented apartments Exemptions gave little or no efficiency incentives for energy-intensive industries © Dr. Görres – October 2005

55 In the political balance sheet, the negative effects dominateEXECUTIVE SUMMARY (3) In the political balance sheet, the negative effects dominate Negative Effects Positive Effects For most of the year , ETR was a political burden for the Red-Green Coalition Indirect recycling via pension system is complicated and difficult to sell, often criticized Use of revenues for non-environmental purposes is neither really understood nor appreciated Inconsistent public demands: calls for budget neutrality as well as spending for green projects Pro-business parties attack generous exemptions for business (after fighting for them!) Ecotaxes are perceived as socially unjust (for families, students, pensioners) Permanent attacks from yellow press and car lobby (ADAC) No recognition and support from winners, but hard attacks from real and perceived losers German Energy Policy gains high recognition within EU and overseas In 2000, Schröder cabinet holds firm against populist protest, making only symbolic changes Majority of serious press and academic community in favor Towards end of 2005 campaign, Katrina turns energy policy into an asset with many voters CDU, CSU, and FDP still fight ETR – but promise to sustain it ETR-debate converts even mar-xist greens to market advocates! © Dr. Görres – October 2005

56 EXECUTIVE SUMMARY (4) In sum: ETR is a phantastic product, but needs smart selling against populist and tabloid pressures Argue chances and innovation, not threats and doom Show simplicity of stepping from fossil into solar bathtub Win politicians with fiscal and practical advantages First tax in history actively asked for by citizens Efficient and unbureaucratic, lowest admin cost of all taxes More efficient than most other eco-instruments Win economists with beauty of prices saying the truth Win labour and people with jobs, jobs, jobs (double dividend) Revenue: Combine recycling, debt reduction and green projects Make reform package to combine ETR with social relieves Put small and mostly phantom cost of today in relation to saving the future of our kids and our beautiful planet Forge rainbow coalition of enlightened conservatives, innovative business people and progressive parties Involve competent and enthusiast NGOs like GBG © Dr. Görres – October 2005

57 Future ecotax campaigns should not stress dangers, but innovation, benefits and future jobs© Dr. Görres – October 2005

58 More jobs in RENs than in our heavily subsidized problem energiesJOBS IN THE ENERGY SECTOR IN GERMANY 2005 More jobs in RENs than in our heavily subsidized problem energies REN: jobs Water Geothermal power Solar Bioenergy Windpower Problem energies: jobs Source: BEE 2005 © Dr. Görres – October 2005

59 By turning off the light earlier, you get..Even our MoE officials in Berlin came up with very funny promotion ideas By turning off the light earlier, you get.. Bad eyes Movie about enery-conscious driving © Dr. Görres – October 2005

60 POLITICAL IMPLICATIONS OF BUNDESTAG ELECTIONS 2005For the new grand coalition, climate policy remains an important priority Situation after election Neo-liberal, anti-ETR coa-lition (black-yellow) lost Pro-ETR majority (red-red-green) only virtual Grand coalition has “work and growth” as top goals No member has very strong eco-profile/ -wing But: Priority for climate policy already confirmed! New MoE social democrat Our recommendations Concentrate on new venues tax air traffic (jet fuel, tickets, VAT) expand toll (trucks → cars?) reform vehicle tax Reduce harmful subsidies No all-out continuation of old ETR, but use opportunities to cut diesel subsidy reduce ETR-exemptions optimize interface with ET Build on fiscal needs of State Fight for support and higher rates in EU © Dr. Görres – October 2005

61 Air traffic must be a primary target for new measuresVAT Ticket tax Kerosine tax Integration with ET © Dr. Görres – October 2005

62 What would we recommend to Koike-San if asked?Congratulations to your proposal – it’s courageous and progressive. But: Since Japan is an island, why not include the transport sector? With Japan’s high national debt and low tax quota, - why not 1/3 for debt reduction - 1/3 for recycling/ social security - and only 1/3 for green projects? 3 And use all your charm and intelligence to win over the tough guys from METI! Great idea! © Dr. Görres – October 2005

63 We’ve come to our last topic:CONTENT OF THIS PRESENTATION We’ve come to our last topic: Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure in comparison Red-Green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

64 Economic Wisdom Political Courage Ecological AwarenessCONDITIONS FOR GOOD INSTRUMENT CHOICE For a high quality combination of eco-instruments, we need awareness, courage and wisdom High Quality of Eco- Policy Low Economic Wisdom High Political Courage High Low ? Ecological Awareness High Low Low © Dr. Görres – October 2005

65 Sustainability is a central part of „The European Dream”Five Dimensions of Sustainability Political Liberty Democracy Freedom Constitutional State +++ ++++ Economic Welfare Free Market Jobs and Growth Global Trade +++ ++++ +++ + Social Justice Basic Needs Just Distribution No Discrimination Global Develop-ment and Peace Global Justice Peace/ Cooperation Global Governance ++ + When speaking of Democracy, it's basically a European and American invention, we may think of Perikles, the French Revolution, and Thomas Jefferson. In the economic sphere we think at the founders of free market economie Adam Smith, John Keynes and Jaques Delors. While Karl Marx, Otto von Bismarck and Ludwig Erhard are connected to the idea of social life. With Environment and Nature Arthur Cecil Pigou, Petra Kelly and the Greenpeace Warrior boat cross our mind. As specialists in Global Development and peace we comprehend Albert Schweizer, Willy Brandt and Kofi Annan. Defense of Nature Climate Protection Ressources Amenity, Diversity ++/– +/– – © Dr. Görres – October 2005

66 TWO DISTINCT PHASES OF ECOLOGICAL POLICYBoth nationally and globally, we must progress from Pollution Control to Resource Productivity Pollution Control ? Resource Productivity Problem Substances Toxics, Waste, SOx, Fluorides… CO2, Energy, land use, other primary resources… Regional Focus/ Process Stage Mainly local / Mainly outputs/emissions Mainly global /mainly inputs/resources Predominating philosophy End of pipe/ Command and control As upstream as possible – mostly market incentives Affected economic activities About 5 Percent About 95 percent Most efficient tools Policy mix – anything goes (Coase Theorem) Not possible without market forces and allocative power of tax system Difficulty of task Prevent harmful activities – clean up our mess Change entire way of life – develop new prosperity model Source: Ernst von Weizsäcker © Dr. Görres – October 2005

67 Wanted Internationally: Global Governance and Global Sustainability!World situation defines multiple tasks: Just and sustainable World Order Globally shared responsibility for peace and security Worldwide protection of climate and resources In other words: New rules and new tools © Dr. Görres – October 2005

68 Mankind seems to learn only by catastrophes1859 Battle of Solferino – Book of Henry Dunant 1864 Red Cross founded in Geneva World War I 1920 League of Nations J+D both leave 1933! World War I 1945 United Nations founded 1945 Hiroshima, Nagasaki 1970 (!) Non-prolife-ration Treaty 1986 Czernobyl 1990s nuclear exit of some countries © Dr. Görres – October 2005

69 Katrina destroyed the dykes of New Orleans..... how many more Katrinas do we need, until the walls of ignorance and indifference are overcome? © Dr. Görres – October 2005

70 So let’s not behave like the famous three monkeys of the Toshogu Shrine!ありがとうございます © Dr. Görres – October 2005

71 We’ve come to our next topic:CONTENT OF THIS PRESENTATION This part was usually not shown We’ve come to our next topic: Executive Summary/ Introducing Green Budget The challenge ahead – from bathtub to bathtub Germany’s point of departure in comparison Red-Green Ecotax Reform: facts and figures Some lessons from the German ETR debate Some remarks about the instrument debate A global perspective – epilogue with monkeys © Dr. Görres – October 2005

72 MULTITUDE OF INSTRUMENTSLike motherhood, everybody seems to love an “intelligent instrument mix” Green taxes – hated by the conservatives Command and Control – Oldies are goldies ... Road toll and vignettes – not new for some countries Judicial/legal developments – perhaps underestimated Green Subsidies – most loved by populists Third party subsidies – saves money for the gov’t Moral Suasion – like when we were kids ... reduction of harmful sub-sidies – very often forgotten Industry agreements – Montesquieu at pain Emission trading – the new and rising star FISCAL IMPACT © Dr. Görres – October 2005

73 ERRORS ABOUT INSTRUMENT CHOICEIn all countries, you meet with the same errors in the instrument debate Dramatic problem underestimation: Scope of environmental problem and action deficit is ignored Coase’s Curse (or McDonald’s menu illusion): Some people still believe in the freedom of choice! Tinbergen versus “Singapore Lesson”: We usually need several instruments, even for one and the same problem Oversight of visible and invisible harmful subsidies: In most countries, billions of Euros or Dollars subsidize traffic, energy consumption etc. (e.g., German cities subsidize parking areas of shop owners) Underestimated fiscal and social costs of green subsidies: Some people still believe in free lunches (for good causes) © Dr. Görres – October 2005

74 Which mix of instruments?THE “MENU ILLUSION” OF INSTRUMENT CHOICE A lot of people think about ecological policy choices like eating out in a nice restaurant The bitter truth is: Even if we combine all known instruments, we cannot be sure if we will prevent a Climate Crisis! Which mix of instruments? © Dr. Görres – October 2005

75 I always believed in Tinbergen until I met a charming lady from Singapore...Nobel Laureate Jan Tinbergen: „you need at least as many instruments as targets“ Lady from Singapore: „use as many instruments as you can possibly think of to fight traffic“ © Dr. Görres – October 2005

76 Everything must aim to reconcile market and ecological rationalityMINIMISING CONFLICT BY CHANGING FRAMEWORK CONDITIONS Everything must aim to reconcile market and ecological rationality Market rationality Ecological rationality Individual consumer lifestyle leisure Society media societies elections State regional national supranational Laws laws jurisprudence taxes/ETR/ETS Wir haben Kernerfahrung der sozialen Mehrwertsteuer vergessen: Soziale Fragen wurden nicht mit Almosen gelöst, schon gar nicht mit Verdrängung. Sondern Delta Rahmenbedingungen. Genauso wenig ist Umwelt mit Almosen zu helfen; auch nicht mit individuellem Edelsinn oder allgemeiner Volkserziehung. Wie der geniale Schotte Adam Smith erkannt hat, müssen Eigennutz und Gemeinwohl sich nicht widersprechen. Wenn die Rahmenbedingungen stimmen, führt unsichtbare Hand die vielen Einzelegoismen zum kollektiven Gesamtnutzen. Der Eigennutz ist in der Wirtschaft, was die Schwerkraft in der Physik. Man kann ihn nicht ignorieren, nur überlisten. Nicht durch Verletzung der Naturgesetze, nur durch Demut und Respekt hat die Menschheit das Fliegen gelernt. Ohne materielle Anreize, ohne Geld oder Zwang würde nur die Oberfläche gekräuselt… Für Geld tun die Leute alles, auch das Gute (Josef Deimer). Ecologically rational behaviour must pay! © Dr. Görres – October 2005

77 THE TOTAL COST OF TAXES + LEGISLATION COMPAREDShift to ecological taxes + less complex legislation = relief for economy Today Future The same or a lower tax burden, but... ...more revenue from ETR and ETS ...fewer conventional taxes ...less complicated legislation and therefore, redu-ced overall burden! © Dr. Görres – October 2005

78 THE BUDGET REDUCTION POTENTIAL OF ECOLOGICAL TAXATIONGreen taxes favour budget cuts by using both sides of the budget for regulatory purposes Reduced Tax Receipts Reduced Expenditure Old level Old level Government savings: Less money needed to counterfeit negative effects of "red" taxes Less expenditures needed to achieve ecological objectives Less "red" taxes - - Avoided spending from better tax system More "green" taxes - + New level New level © Dr. Görres – October 2005

79 ECOTAXES AS INSTRUMENTS OF BOTH FISCAL AND ECOLOGICAL POLICYETR and ETS combine the best of two worlds, for both have fiscal and ecological effects Fiscal Instruments Eco-Instruments Conventional taxes Ecotaxes Conventional Eco-Instruments Modern ecological policy: Integrates all elements Overcomes “Coase’s Curse” Emission trading © Dr. Görres – October 2005

80 In the starting phase, we should use ETR and ETS according to their respective advantagesCompetition intensive Advantage emission trading Overlap is no problem! Advantage ecotaxes Only local competition Large groups Small groups © Dr. Görres – October 2005

81 Grandfather option in the long run not socially sustainableOver time, the optimal instrument mix should shift from ETR to ETS and from Grant to Auction 100 % Ecotaxes ←66 % Contribution of instruments to CO2-Control Grandfather option in the long run not socially sustainable ETS Auction ETS Grant 0 % 2005 2010 2020 2030 2040 2050 © Dr. Görres – October 2005

82 Only for smaller groupsTOOLS EVALUTION AS A FUNCTION OF PROBLEM PERCEPTION The bigger the problem and the number of people, the more we must resort to really powerful tools Scope of Problem/ Number of People Small Medium Big Moral Suasion Highly efficient Always useful Green Subsidies Command & Control Only for smaller groups Emission trading Too expensive! Green taxes Often only excuse Political Priority © Dr. Görres – October 2005

83 Table 1: Overview of my encounters in Japan (family names in capitals)Government/ Politics MoEJ: Ms. Yuriko KOIKE, Minister; Kenji KAMIGAWARA, Policy Coordinator; Yukato NAKAO, Dep. Dir. Env. + Econ. Div.; Hiroshi KAMAGATA, Dir. Env. + Econ. Div.; Yoshio TAMURA, Dir. Gen. Env. Pol. Bureau (in chronological order). Diet: Meeting prepared by JACSES, with app. 25 representatives and their collaborators German Embassy: Stefan GALLON (Gesandter, Leiter Wirtschaft) Peter Goerss, Christoph Oversohl (Umwelt) METI: Yasushi NAGAMI, Dep. Director Many more on conference, including many people from municipalities, see list of participants Business The Climate Experts (independent consulting firm): Naoki MATSUO, Senior Research Fellow and Executive Director; Maki SATO and Miki YANAGI, researchers Nippon Steel: Hirobonu NOSE, Environmental Relations NEC, Dr. Ryosuke UGO, Chief Mgr. Env. Mgmt. Division Toyota Motor Corporation, Masayuki SASANOUCHI, Project Gen. Mgr. Env. Affairs Division Many more companies were represented during the conference event, among others Aquabit, Tokyo Electric Power Company (see list of participants) Companies represented at Meeting with MRI (see below): Mitsubishi Electric Corporation, NYK Logistics & Megacarrier, Asahi Glass Co., Mitsubishi Rayon Co. Media Nippon Business Daily: Yoshiro FUJI, Senior Staff Writer in Nihon Keizai Shim­bun (Nikkei) newspaper © Dr. Görres – October 2005

84 Table 1: Overview of my encounters in Japan (family names in capitals)Academic and Research institutions Reitaku University: Prof. Terue OHASHI IGES (Institute for Global Environmental Studies): Prof. Akio MORISHIMA, Chair; Shinichi IIOKA, Program Manager CDM; Rie WATANABE, Climate Researcher IEE Institute of Energy Economics, Climate Change Policy Group: Takahiko TAGAMI, Junko OGAWA, Masazumi HIRONO Mitsubishi Research Institute: Dr. Kiichiro HAYASHI, Project Manager Env.+ Resources Research Group .. in Kyoto Meijo University, Prof. Soocheol LEE Kobe University: Daisuke NUMATA Kyoto University: Prof. Kazuhiro UETA and Prof. Kazuo MATSUSHITA, Environmental Economists; Yasuko MATSUMOTO (was in Tokyo); Kyoto xxx University: Dr. Park NGOs JACSES: Jiri ADACHI and his team KIKO Network: Naojuki HATA Carbon Tax Research Group: Prof. Yasushi ITO, Dr. Kimio HARADA IGES: Many members during the events FoE Japan: Tokiharu OKAZAKI WWF Japan: Yuria AYUKAWA, Climate Change Policy Senior Officer KIKO Network: Mie ASAOKA, President, Kenro TAURA, Executive Director © Dr. Görres – October 2005