Ecological Tax Reform Research Articles

A fiscal revolution inspired by the Capabilities Approach to reduce socio-economic impact of climate change and strengthen the resilience of tax systems

This paper shows that a fuller integration of the economic theory of well-being into strategies adopted to reduce the impact of climate change could help to avoid potential conflicts between the mitigation measures applied and the consumption of energy derived from fossil fuels. The paper moves along the path traced by Wood and Roelich (2019) with their Tensions Triangle Theory, but aims to develop it further from an operational point of view, showing how contemporary ecological tax reforms, if inspired by the Capabilities Approach, could more effectively contribute to achieving an inclusive, sustainable, accessible and secure global energy system, that provides solutions to energy challenges and, at the same time, creates value for business and civil society as a whole, without compromising the balance between the three fundamental elements of the tensions triangle described by Wood and Roelich. In particular, this chapter aims to show how the enlargement of the tax area according to new criteria of distributive justice inspired by the Capabilities Approach could serve to increase the mobility of social assets and to develop strategies to adapt public finance systems to the changes produced not only by environmental emergencies, but also by other sudden and adverse phenomena, such as economic crises and significant revenue losses caused by the adoption of non-transparent or harmful tax practices. Finally, the paper considers the proposal to establish taxes on so-called global commons—such as the atmosphere, climate, healthy environment, oceans—and to redistribute their revenue to reduce economic inequalities and poverty.

A new framework for EU energy security: putting sustainability first

ABSTRACTThe EU energy strategy is hard-poised to ensure energy security for the Union, mainly due to its fixation on fossil energy imports. This paper argues that energy security can holistically be addressed only in case sustainability becomes a priority goal. Such a re-conceptualisation does not only pave the way for a radical restructuring of the energy systems in Europe that can cater for the EU’s energy needs in a sustainable way, but also theorises energy as a scarce resource that hence should be highly priced. On the basis of a thorough ecological tax reform, energy prices can convey accurate signals to households and enterprises and allow for a smooth function of the economy that is today frequently upset by energy price hikes and slumps. The paper aims to make a timely contribution to the current debate on the shape and priorities of the Energy Union by making a strong case for a re-ordering of priorities in EU energy strategy.

The role of environmental taxes in Serbian tax system

The aim of this paper is to point out the lack of giving importance to ecological taxes and the low participation of dedicated revenues in the structure of these taxes in the tax system of the Republic of Serbia. Environmental taxes have gained in importance, especially through the ecological tax reform in a number of European countries, which have proved to be significantly more effective compared to other available instruments in the struggle against environmental problems. The premise of this paper is that the inadequate structure of environmental taxes has a negative impact on allocations in the field of environmental protection. This hypothesis will be tested by using statistical methods and comparative analysis.

Ecological tax reform initiatives in Africa

Ecological Tax Reform (ETR) is featuring high on the policy agenda. The key idea is to shift the tax burden from 'goods', such as productive labour, to 'bads' such as energy use and environmental pollution. Since the 1980s, most OECD countries have installed several environmental taxes and several reports provide an assessment of these instruments. Attention for ETR in developing countries is of a more recent nature and very little information on their ETRs is available. This review paper contributes to the effort by screening nine African countries: Algeria, Benin, Mali, Mozambique, Tanzania, Niger, Senegal, Uganda and South Africa. Data on environmental taxes was collected through various sources. The aim of this paper is to review the current state of the art with regards to environmental taxation in these selected countries. We show that there are currently several interesting initiatives in several countries.

Ecological Tax Reform in Germany

Ecological Tax Reform in Germany

A theoretical framework for explaining the choice of instruments in environmental policy

Explaining the choice of instruments in environmental policy is an important research question for political science. Especially the fundamental change in the use of environmental policy instruments since the late 1970s in different countries needs explanations: as alternatives to command-and-control instruments, other instrumental forms (e.g., market-based or cooperative forms of governance) have been discussed and successively implemented in different countries. This paper aims – against the backdrop of German ecological tax reform – to develop an analytical framework to explain the choice of environmental policy instruments better than the most important traditional approaches (naïve instrumentalism and public choice). By using the analytical framework presented here, it is possible to study processes of environmental policy instrument choice without overestimating or underestimating factors that support and limit instrument change.

Will progress in science and technology avert or accelerate global collapse? A critical analysis and policy recommendations

Industrial society will move towards collapse if its total environmental impact (I), expressed either in terms of energy and materials use or in terms of pollution, increases with time, i.e., dI/dt > 0. The traditional interpretation of the I = PAT equation reflects the optimistic belief that technological innovation, particularly improvements in eco-efficiency, will significantly reduce the technology (T) factor, and thereby result in a corresponding decline in impact (I). Unfortunately, this interpretation of the I = PAT equation ignores the effects of technological change on the other two factors: population (P) and per capita affluence (A). A more heuristic formulation of this equation is I = P(T)·A(T)·T in which the dependence of P and A on T is apparent. From historical evidence, it is clear that technological revolutions (tool-making, agricultural, and industrial) have been the primary driving forces behind successive population explosions, and that modern communication and transportation technologies have been employed to transform a large proportion of the world’s inhabitants into consumers of material- and energy-intensive products and services. In addition, factor analysis from neoclassical growth theory and the rebound effect provide evidence that science and technology have played a key role in contributing to rising living standards. While technological change has thus contributed to significant increases in both P and A, it has at the same time brought about considerable eco-efficiency improvements. Unfortunately, reductions in the T-factor have generally not been sufficiently rapid to compensate for the simultaneous increases in both P and A. As a result, total impact, in terms of energy production, mineral extraction, land-use and CO2 emissions, has in most cases increased with time, indicating that industrial society is nevertheless moving towards collapse. The belief that continued and even accelerated scientific research and technological innovation will automatically result in sustainability and avert collapse is at best mistaken. Innovations in science and technology will be necessary but alone will be insufficient for sustainability. Consequently, what is most needed are specific policies designed to decrease total impact, such as (a) halting population growth via effective population stabilization plans and better access to birth control methods, (b) reducing total matter-energy throughput and pollution by removing perverse subsidies, imposing regulations that limit waste discharges and the depletion of non-renewable resources, and implementing ecological tax reform, and (c) moving towards a steady-state economy in which per-capita affluence is stabilized at lower levels by replacing wasteful conspicuous material consumption with social alternatives known to enhance subjective well-being. While science and technology must play an important role in the implementation of these policies, none will be enacted without a fundamental change in society’s dominant values of growth and exploitation. Thus, value change is the most important prerequisite for avoiding global collapse.

Differentiation of Green Taxes: A Political-Economy Analysis for Germany

In this paper we study political-economy determinants of the differentiation of environmental taxes between sectors. Using a common-agency model, we provide predictions on tax differentiation which are then tested using data from the German Ecological Tax Reform. As the reform is revenue neutral and reduces labor costs, tax differentiation is not only determined by the activity of lobby groups favoring reduced tax rates, but also by the groups' interest in revenue rebates to labor. Empirical data underpin our theoretical findings: A regression analysis of Germany's green tax reform explains environmental tax differentiation by the presence of sectoral interest groups. Besides market concentration and energy demand elasticities, the exposure of industries to international trade flows plays an important role in the environmental tax design.

Ecological tax reform and the double dividend of ecological sustainability and low unemployment: an empirical assessment

Ecological Tax Reform (ETR) is a policy designed to tax such 'bads' as resource depletion and pollution and to reduce tax impositions on such 'goods' as labour and income. The aim of ETR is relatively straightforward: (1) taxing depletion and pollution should decrease the rate of resource throughput per unit of economic activity and relieve any growing pressure on the natural environment; (2) reducing tax rates on labour and income should encourage the employment of labour and reward value-adding in production. For these reasons, many observers believe that ETR has the capacity to deliver the double dividend of ecological sustainability and low unemployment. Some ecological economists are quite comfortable with the positive employment effect of ETR but are not altogether confident that conventional ETR measures will result in ecological sustainability. They argue that sustainability is essentially a throughput problem, yet market prices – and this includes tax-adjusted resource prices – are an allocative instrument with the limited capacity to induce greater resource use efficiency. Despite the logical benefits of a more efficient allocation of natural resources, ecological economists believe that, left unchecked, efficiency gains are likely to be overwhelmed by the scale impact of increased economic activity (the 'Jevons' effect'). As such, tax-adjusted prices cannot prevent the intensity of environmental stress from eventually exceeding sustainable limits. To achieve ecological sustainability, many ecological economists believe it is necessary for an ETR package to include a separate policy instrument in the form of quantitative throughput controls that must be based on ecological rather than economic criteria. With the ecological economic position in mind, this paper reveals the ETR performances of four nations – Sweden, Denmark, The Netherlands, and Finland. Using CO2 emissions as an indicator of environmental stress, it appears in all four cases that significant efficiency increases have eventuated (as represented by the ratio of real GDP to CO2 emissions). The employment impact of reduced income and labour taxes is much harder to discern but, importantly, total CO2 emissions have either changed very little (Sweden and Denmark) or have markedly increased (The Netherlands and Finland). This evidence cautiously supports the ecological economic position and raises doubts as to whether conventional ETR measures can achieve ecological sustainability and, furthermore, the promised double dividend.

How far are developing countries from the call of ecological tax reform? A review of environmental fiscal policy for Kenya

The main objective of this paper is to determine whether the ecological tax reform paradigm that hitherto is employed by a section of industrialised countries as an instrument of environmental management has potential applications in developing countries. The paper focuses on a case study of environmental management policy in Kenya and reveals that there is strong evidence of global environmental policy convergence. However, ecological tax reform does not have free way into the Kenyan policy environment. The hurdles include an over-reliance on standards and enforcement, north-south politics, the industrialisation myth and the double-dividend flaw. The overall conclusion is that ecological tax reform is possible and perhaps desirable for a developing country situation, but with requisite contextualisation.

Unemployment and Pollution: Is One Policy Suited for Two Problems?*

Frequently, hope is expressed that a revenue-neutral ecological tax reform may serve as a remedy for both unemployment and pollution. The idea is to recycle the proceeds from green taxes by cutting taxes on labour, thus boosting employment while discouraging polluting activities. We investigate this issue in a general-equilibrium framework with different non-competitive labour markets. For all scenarios, we show that a decrease in the labour tax increases employment without letting net-wage incomes fall. However, this leads to a positive aggregate income effect, which plausibly raises both clean and dirty consumption, leading to a lower environmental quality than before.

Money Illusion and the Double Dividend in the Short Run

Abstract In their seminal paper, Bovenberg and de Mooij (1994) elucidate why an ecological tax reform will not yield a double dividend, i.e. fails to increase the efficiency of the tax system. The present paper slightly modifies the Bovenberg and de Mooij model by introducing money illusion. With this modification, an environmental tax reform that raises the price level may generate a double dividend, since the additional tax on the dirty good does not reduce labor supply. A prerequisite for the double dividend to occur is a sufficiently small elasticity of substitution between clean and dirty consumption. Moreover, accounting for money illusion always reduces the intertemporal gross cost of the tax reform.

The rise and fall of French Ecological Tax Reform: social acceptability versus political feasibility in the energy tax implementation process

The French government has a 10-year history of negotiations with industry, resulting in voluntary agreements on energy consumption. When implemented, these voluntary agreements produced very few results in terms of global reduction of greenhouse emissions (Politiques et Management Public 11(4) (1993) 47), hence the idea of an energy tax became increasingly attractive for many French decision-makers. Ecological/Environmental Tax Reform (ETR) should have been one of the major political decisions and successes of the past leftwing coalition government. Instead it became one of its major failures as the Constitutional Court decided to terminate the energy tax project in December 2000. Through insights gleaned from focus groups and interviews with business-people and decision-makers, an attempt is made to understand the failure of the energy tax project. Firstly, decision-makers lacked crucial information about public and business opinions and secondly, there were conflicts between the relevant administrations. The fuel revolts of 2000 ended any hope of resolving the conflicts and implementing ETR, which was ultimately found unconstitutional. This paper examines the political controversies raised by the ETR project and the reasons for its eventual collapse, in the hope of contributing new understanding to the body of knowledge on the political difficulties of introducing environmental policy instruments.

Social and political responses to ecological tax reform in Europe: an introduction to the special issue

This paper introduces the special issue on the Policies for Ecological Tax Reform: Assessment of Social Responses (PETRAS) project about responses to ecological tax reform (ETR) in Europe. Although ETR is widely accepted to be a policy with desirable effects, its implementation has been limited by problems of political acceptability. The project aimed to address the question of how to make such a policy more acceptable. It is the first study to examine in depth the thinking of members of the general public about the ETR policies and is also the first international comparative study of the thinking of ordinary business people about ETR policies. The PETRAS project methodology was based around the use of interviews and focus groups to inform the assessment of social responses to ETR policies and the development of improved designs for them. A number of issues emerged relating to awareness, trust, understanding of the purpose, visibility, incentives, regressivity, levels of taxation, terminology, communication about ETR and the use of alternative instruments. Together with these similarities, a pattern of differences between the countries can also be seen. The final section of this paper introduces the national studies described in the following papers.

Ecological tax reform in Germany: handling two hot potatoes at the same time

Combining environmental with employment objectives, ecological tax reform (ETR) envisages a double dividend. While research has mainly focused on the socio-economic and environmental impacts of ETR, there is less literature on the social responses. This paper gives an overview and history of German ETR as well as investigating the understanding of perceptions and attitudes towards ETR of those being “subject to tax”. The research is based on qualitative social research methods. As with the other PETRAS papers, interviews were conducted with policy-makers and business leaders and focus groups were formed with lay persons. The results show that responses of policy-makers and business leaders are modest. Although some criticisms about the specific design of the German ETR remain, complaints towards ETR are settled. Attitudes appear influenced by more fundamental convictions such as economic interest or altruistic views. In contrast, ETR appears to politicise common people. Attitudes are influenced by the overall comprehension of the ETR concept, the expected impacts, perceived information deficits, as well as a general distrust in politics. Our data show that the linking of environmental and employment objectives is not understood and not welcomed. In order to increase social acceptance, the paper discusses refocusing ETR on environmental objectives, modestly increasing the share of ETR revenue spent for environmental purposes, removing inconsistencies in the ETR design, and improving information policy.

Ecological Tax Reform in Denmark: history and social acceptability

Despite the long-term and positive experience with Ecological Tax Reform (ETR), the PETRAS study indicates that awareness about the principles behind ETR is low among both businesses and the general public in Denmark. As well as the lack of awareness of ETR, attitudes towards environmental taxation appear negative. When explaining the political intentions behind ETR, attitudes seem to improve somewhat, but they still remain overall sceptical. Based on the history and the results of the PETRAS project the article will describe some of the main impediments for further development of environmental tax and ETR policies in Denmark. The article concludes that the main reason why the ETR policy has been met with such apparently low social acceptability in Denmark is that the “green” of the “green” tax reform has been somewhat oversold. On this basis it recommends the pursuit of a courageous government strategy of, openly and repeatedly, stressing the revenue purposes of environmentally related taxes over the environmental purposes in an effort to redirect public discussions towards relevant issues like the pros and cons of environmentally related taxation compared with other types of taxation and the connection between the overall tax burden and demands for government spending. Such a bold government “confession” to the obvious revenue purposes of the environmentally related taxes could make them, if not popular, then at least a bit more acceptable to businesses and the general public.

INDICATOR-BASED REPORTING ON URBAN ENVIRONMENTAL PROBLEMS: THE CASE OF AIR POLLUTION

ISEE-536 Introduction: An international project has been established to develop a core set of environment and health indicators for Europe based on standardized definitions and methods. A demonstration of the utility of these indicators was provided by their use in the assessment of the changes associated with a tax on petrol and other fuels introduced by the German government on 1 April 1999 as part of its ecological tax reform. Methods: Data on passenger kilometres, fuel consumption, and pollutant emissions by year were obtained from official sources; annual average and daily PM10 data were obtained from 1996 for cities with continuous pollution monitoring. The changes in these indicators associated with the new tax in Germany were estimated: (i) from the difference between the two years before and after the introduction of the tax; and (ii) from the difference between post-taxation data and extrapolations of pre-1999 trends. Attributable gains in life-expectancy were calculated using AirQ 2.1.01 software using life table data for Germany and published exposure-response relationships. Results: Against a previously rising trend, the number of passenger kilometres travelled by car declined from 1999 by approximately 4%; previously static petrol consumption fell by around 6%; and the trend in PM10, though more difficult to interpret, also showed some early evidence of decline of between 0 and 8%. The health impact (central estimate of a gain of 63 years life expectancy per 100,000 in one year) depended on a range of factors whose influence was explored by sensitivity analysis. These factors included: different estimates of change in pollution, the reversibility and time lag of the associated health effects, and the sustainability of changes in vehicle use. Discussion: This is one of very few government policies for which the air pollution-related health benefits have been examined. Although there are evident uncertainties, the estimation of health impacts alongside other parameters provides evidence that is valuable to policy makers.

Ecological Tax Reform and Unemployment: Competition and Innovation Issues in the Double Dividend Debate

The question of a double dividend from revenue-neutral ecological tax reforms (an ecological advantage plus an economic advantage) has recently become a widely discussed topic both in real-world economic policy and in economic theory. The subject has produced many advocates and opponents in the scientific community. This paper examines potential economic dividends from revenue-neutral ecological tax reforms by systematically distinguishing between an efficiency dividend and an employment dividend. Their occurrence is discussed from the viewpoint of two different theoretical approaches: namely, the optimal taxation view and the market process view. According to the optimal taxation view, which dominates recent economic analysis on this subject, an efficiency dividend seems doubtful whereas an employment dividend is likely to occur under specific circumstances (e.g. involuntary unemployment and sub-optimal initial tax system). However, there is a considerable number of unsuitable assumptions which create doubt when questioning how appropriate the use of optimal taxation theory is when discussing real-world ecological tax reforms. The market process view enlarges the analysis by integrating effects on and from competition and innovation. This strengthens the occurrence of an employment dividend in an imperfect world with involuntary unemployment. In this framework the reduction of involuntary unemployment results from declining wage costs which boost labour demand, a shift in the bias of the innovation process, and an evolution of the consumption basket because of changing relative prices.

Reconciling the policy goals of full employment and ecological sustainability

Ecological economists believe that the growth in real Gross Domestic Product (GDP) is ecologically unsustainable. They have subsequently called for a transitional shift to a steady-state economy. The dilemma that ecological economists face in trying to promote ecological sustainability is its potential employment implications. This paper outlines some policy initiatives to reconcile the conflict between the sustainability and full employment objectives. They include: policies aimed specifically at severing the GDP-employment link; judicious combination of supply-side and demand-side solutions; ecological tax reform – a revenue-neutral tax package involving a reduction in taxes on such "goods" as labour, income, wages and profits and an increase in taxes and charges on such "bads" as resource depletion and pollution; a job guarantee to absorb all remaining unemployed workers; and in view of the constraints that a steady-state economy imposes on demand-side solutions, such as the Job Guarantee, a Basic Income to remunerate non-paid household and volunteer work. Set at something less than a living wage, the Basic Income encourages workers to reduce their hours of employment or exit the labour force altogether.

Investment Markets and Sustainable Agriculture : A Case for Ecological Tax Reform

This paper considers the outcome of recent inquiries into mass-marketed tax effective investment schemes in Australia within the broader context of promoting ecologically sustainable development in the agribusiness sector. The recent inquiries have revealed some significant shortcomings in the application of the self-assessment system to agribusiness investors, which have to some extent been remedied by the introduction of product rulings. Whilst product rulings have provided investors with a certain degree of security, there has been a significant decline in agribusiness investment and a convergence in the range of agribusiness ventures being offered. The author concludes that the income tax system is currently providing the wrong market signals, by promoting many agribusiness investment schemes that are not ecologically sustainable. Accordingly, there is a strong case for ecological tax reform, whereby the taxation treatment of agribusiness investment schemes needs to be better integrated with environmental policy.