greentaxreport.co.uk

1 INTRODUCTION

There is no doubt that the earth is warming and that there is a strong link to human activity. To prevent significant, and perhaps catastrophic, change in our environment and the way we live our lives we need to change our behaviours and to some degree our economies.

Our current economies, built on fossil fuels, are unsustainable: unsustainable due to the amount of harmful greenhouse gas emissions that are thrown up into the atmosphere, and unsustainable as we know fossil fuels, for the most part, are finite resources. Recent volatility in Russia, for example, led to concerns over the supply of natural gas to Europe. How much better to have an economy built on sustainable and renewable energy sources, solving both the threat of energy insecurity and climate change and thereby creating a more stable economy and a stable environment?

Governments, business and individuals all must play their part; individuals through choosing sustainable options, which requires business to provide and supply sustainable alternatives at a reasonable price that does not create barriers to demand. Business requires governments to assist them in meeting competitive demands yet transitioning to sustainable business solutions through implementing a variety of policies and measures to limit or reduce greenhouse gas emissions and incentivise investment in alternative, sustainable solutions. In short, governments are critical to ensuring action is taken. This chapter considers some of the actions which have already been taken by governments in other developed economies, and the reaction to them. A detailed analysis of the actions taken by individual countries will be accessible from the online version of this report; below, they are classified by the type of measure taken by governments.

Governments have a number of measures available to them to influence behaviour. These can generally be categorised into taxes, through levying charges or providing incentives, laws and regulation, trading schemes or voluntary agreements.

2 TAXES

When it comes to tackling climate change, particularly in such economic times, governments must juggle a number of different objectives. They need to raise revenues to support spend in the economy while not stifling growth, and meet greenhouse gas emissions reduction targets that they have committed to under the Kyoto Protocol.

While taxes can produce a double dividend for governments in raising revenues and reducing emissions, they are often politically unpopular and cannot guarantee that emission targets will be met.

The majority of governments in the developed world levy ‘green taxes’ that fit into the following three categories: taxes on energy or electricity, taxes on the disposal of waste and taxes on transportation.

2.1 Taxes on energy or electricity

A number of governments around the world levy taxes on electricity or energy consumption with the purpose of reducing the consumption of energy being derived from high-carbon technologies. Alongside this, many countries, for example Sweden and Finland, provide subsidies or exemptions from this tax for energy derived from sustainable or renewable sources, such as wind or solar powered energy.
China taxes energy consumption and offers corporate income tax allowances to companies that reduce energy consumption and make efforts to move to sustainable business solutions.

The US and Japan are also working to increase investment in renewable energy sources; the US through enacting tax credits for the expansion of wind, solar, biomass and other renewable energy technologies, which President Obama has just increased in the US economic stimulus package, and Japan is removing duty tariffs on items and services that are closely related with energy saving.

Certain provinces in Canada, for example Quebec, have introduced a carbon tax on energy producers and energy consuming industries, such as mining companies. The revenues generated from the tax are being used to fund investment in renewable energy sources. Equally, British Columbia, for example, levies a ‘revenue neutral’ carbon tax on all businesses and individuals who purchase or use fossil fuels to produce heat or energy; the revenues from this tax are distributed back to individuals and businesses through a mix of personal and corporate tax reductions.

For the most part, taxes on energy and electricity appear to go some way to limiting energy consumption derived from fossil fuels. However, so far, the taxes do not seem high enough, nor the incentives strong enough, to switch off high-carbon and switch on low-carbon energy sources. Furthermore, some countries, including Germany, have offered refunds of energy duties paid by energy-intensive companies, particularly in the manufacturing sector, to prevent the tax having a negative effect on the economy, which seems to have lessened the pressure to act.

2.2 Taxes on waste and disposal

Many governments also levy taxes on the disposal of waste materials, particularly those that are harmful to the environment.

China levies a tax on the disposal of household and commercial waste, together with a separate tax on the disposal of waste water; at the same time companies that preserve water and reduce their consumption are offered corporate income tax allowances. Sweden also levies taxes on both domestic and commercial waste and has successively reduced the amount of waste going through landfills and increased recycling. Finland has successively widened the scope of tax on beverage containers to now include bottles, cans and plastics. Containers that can be reused are exempted from the tax, which has also successfully reduced the amount of non-recyclable waste. A special duty levied on products containing hydro fluorine and per fluorine carbons in Norway has led to a significant increase in sales of refrigerators that do not contain harmful products and are therefore easier to dispose of at the end of their life-cycle.

The provinces of Ontario and Quebec, for example, in Canada have used taxes to transfer the cost of waste disposal away from local governments and onto companies. Businesses that introduce packaging waste or hazardous products into the market-place incur the tax. Annually, these taxes raise over CAN$100m in the various provinces and are causing businesses to increasingly look at ways of reducing their environmental footprint, and therefore their ‘green tax’ footprint, through their supply chains.

Interestingly, while it is dangerous to generalise, taxes on waste appear to be more effective in reducing the use of harmful products, rather than those taxes that are applied on energy consumption. This may, however, be because it is easier to deal with waste differently than it is to switch to low-carbon energy consumption.

2.3 Taxes on transportation

Another key area of focus that appears to be consistent across governments is the introduction of taxes that target high polluting vehicles.
Germany and Finland are good examples of countries that have introduced taxes that are calculated directly on the level of emissions. Similarly, a number of countries, including Sweden, influence behaviour through levying lower duty rates on fuels that are considered less harmful to the environment. Japan has eliminated duties on biofuels and reduced taxes on low emitting vehicles with the result that cars with low emissions and hybrids are seen as something of a status symbol and are becoming increasingly popular.

In Norway, duty rates on diesel fuel were reduced, together with a reduction in the duties levied on emissions from diesel vehicles. This caused a significant increase in the sale and use of diesel cars and a corresponding reduction in petrol cars. Norway also introduced a special duty on nitrogen dioxide emissions from ships, boilers, turbines etc. The introduction of this tax has indeed led to a change in shipping routes to reduce NO2 emissions, but has also reduced the number of ships calling at Norwegian ports. Similarly, an airport tax introduced in Schipol in the Netherlands has reduced the number of people travelling from Schipol, but increased the number of commuters between the Netherlands and Belgium and increased air traffic in Belgium, consequently causing more emissions and thereby potentially defeating the objective of the tax.

These last two examples demonstrate that if taxes are going to be used to change behaviour and reduce greenhouse gas emissions, they need to be carefully designed and implemented to ensure the desired behavioural change is achieved with limited adverse economic consequences. There needs to be a joined-up and consistent approach among governments to avoid tax arbitrage and competition.

Denmark is considered one of the leaders in successfully incorporating environmental taxes into its tax system. In 2007, revenues raised from the wide variety of green taxes applied in Denmark was in the region of DKK 82bn (approx €11bn), which is 4.5% of Denmark’s GDP, and consequently companies and consumers in Denmark are paying a lot more attention to the environment.