IES Policy Forum

The conference began with David Gee’s presentation. He highlighted the three crises, which the world is currently facing: finance, energy/climate change, and natural resources/ecosystem. Environmental tax reforms could be a solution to the crises – especially to the two latter ones. Gee stressed that good governance comes from maintaining capitals, meeting needs, consuming resources wisely, and public participation. He noted that the environmental tax reform would help four current policy areas: environment, innovation and competitiveness, employment, and the tax system itself. When discussing actual tax legislation, Gee emphasised the importance of a switch from labour tax towards a greater share of environmental tax due to the aging of the society. The share of workers will decline and the share of pensioners will increase in the future. This means that a decreasing number of people will pay income taxes. However, all members of society consume products and services. Environmental taxes could be effective tools in addressing rebound effects. They could be a good solution for decreasing the demand for energy and the impact on ecosystems. Furthermore, Gee stressed that ETR should also include subsidies reform, called Economic Tax and Subsidy Reform (ETSR).

Samuela Bassi’s presentation was a continuation of Gee’s talk, focussing on the feasibility of the implementation of ETR in the EU. She presented some preliminary results of a project that IEEP and other research institute are currently conducting on behalf of EEA. The objective of this project is to “identify environmental taxes/charges (and associated use of revenues) that stimulate eco-innovation and contribute to competitiveness, distributional equity and environmental benefits.” Bassi spoke about Task C of the project: “Analysis of legal feasibility and political acceptability of a radical ETR in the context of EU policies”. The three aspects of this task are the legal, political and social implications. Some European countries have implemented ETR but there are major differences, also in the level of green taxes. The EU average of the shares of revenues from environmental taxes of the overall tax revenue increased in the 1990s up to 7% and is slightly decreasing now. The 2006 European average share was 6.7%. Bassi discussed different methods of coordination and harmonization of ETR at the European level, in particular the Open Method of Coordination and Enhanced Cooperation. The project team developed and circulated a questionnaire to ETR experts. One of the preliminary results is that many experts see a doubling of environmental taxes’ contributions to the overall tax revenues (from 7% to 15%) by 2050 as appropriate and feasible. The preliminary conclusions and recommendations include the need for a long term vision/strategy with objectives and targets and for a commitment to ‘get prices right’. A target is considered helpful and searching for policy synergies (climate change, water stress) is suggested. A commitment to a ‘strong’ OMC at EU level and international collaboration as well as the use of windows of opportunities round up the preliminary list of recommendations for the future.

The ensuing debate addressed the mutual supplementing of labour and environmental taxes and the shift from income to increased environmental taxes. The issue was recognised to be complex and different in the various EU Member States. It was highlighted that environmental taxes could be progressive and flexible to earn revenues just the same as the labour tax. Gee cited the cigarette tax as an example of a progressively increasing product taxes that continue earning revenues. Furthermore, the social equity aspect of environmental taxes was mentioned. Environmental taxes could have negative effects on lower income Europeans because product and service taxes are generally the same for every citizen whereas income taxes vary according to salary and social situation. The panellists agreed that this issue is of very high relevance but that there could be solutions by for example not or moderately taxing energy until a certain threshold.