Ten taxes for a Better World Alexander Gillies

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Ten Taxes for a Better World

Governments can help to create an environmentally responsible future through taxation not by increasing their taxes but by changing how they tax. An international study entitled "The Greening of Government Budgets" has looked into emerging 'eco-tax' reforms across Europe and North America. Here are the top ten conclusions of the study.

By Alexander Gillies

Nobody likes to pay more in taxes. You don't, I don't. Still, environmentalists have argued that the pressing need to save the Brazilian rainforests and repair the ozone hole is worth the extra cost. Not a bad point, although with an increasingly tax weary public, that argument may be harder and harder to sell.

But wait, there's good news. You don't have to tax and spend more to save the environment. What you have to do is spend and tax differently. That's one of the major and most refreshing insights of a recent two and a half year international study looking into emerging 'eco-tax' reforms across Europe and North America.

The study, The Greening of Government Budgets: An International Casebook of Leading Practices, has just been published by Earthscan Press.

To conduct the study an international group of experts was brought together to look at a number of highly innovative and leading edge reforms:

ï Danish incentives for wind energy

ï American groundwater protection incentives

ï Scandinavian CO₂ taxes

ï Swedish charges on NOx production.

ï American taxes on CFCs

Fortunately, the work has many lessons for government. Here are the top 10 Most Exciting Things that governments can do with their tax systems if they want to forge an environmentally responsible future.

1) Use more polluter-pay taxes and higher energy taxes to cut income taxes and taxes on labour: Sweden has done this since 1990, shifting almost $3 billion away from income taxes and onto various energy and pollution taxes in the process helping to bring about greater energy efficiency and reduced pollution while stimulating job creation.

2) Stop giving tax breaks and other subsidies to the oil, gas, coal, and nuclear industries: All countries spend a lot of money in the form of tax concessions, or loan guarantees, or research and development spending on the coal, oil, and gas industry, all of which continues to add to global warming, acid rain, and local acid pollution. Just how deeply governments subsidise energy is a matter of some debate one which always produces not a single number but quite a wide range of numbers. Nonetheless, as Amory Lovins has said, it is better to be approximately right than precisely wrong.

3) If you must subsidise energy, subsidise renewables: Denmark produces more than 60 percent of Europe's wind energy. By 1990, Danish technology was being exported to 30 countries and in 1993, a Danish manufacturer won the world's largest order for wind turbines to Argentina. Behind this success was a system of tax allowances and rebates for wind energy. Or look at California's example. Starting in the 1970s California also redirected its tax system towards renewables. Today, approximately 14 percent of electricity generated in the state now comes from renewable resources not including hydropower. California leads the world in geothermal, wind and solar thermal electric generation, has the largest biomass electrical capacity in the United States and accounts for about one-fifth of world wide production of photovoltaic modules devices which convert sunlight into electricity.

4) Stop subsidising unsustainable agriculture: Farm subsidies are common in developed countries to protect domestic food producers from wide swings in food prices, or to promote exports. In OECD countries alone the subsidies amounted to $354 billion in 1992 the equivalent of $411 per person in each of those countries.The side effects? Soil erosion by making it profitable to cultivate marginal land pollution of lakes and groundwater through excessive use of fertilisers and pesticides, and the draining of wetlands that serve as breeding grounds for fish and wildlife.
Not only is this an expensive way to foster environmental degradation, it also overlooks the depressing effects this has on food production in the developing world.

5) Use more 'refundable taxes': Environmental or 'green' taxes are sometimes criticised as nothing more than a tax grab a fig leaf strategically deployed to mask the intentions of cash-hungry governments
This is not true of the refundable Swedish 'tax' on NOx production. The tax applies to all large energy-producing combustion plants.All the funds raised from the tax are returned in full to the firms which paid it in the first place. What's the catch? The tax payable is calculated on the amount of NOx emitted, while the refund is based on the energy produced.
Since those plants that are 'cleaner' than others get more money back than they pay in, this creates a horse race to become cleaner and cleaner. Sweden adopted the system in 1990 with the goal of reducing NOx emissions 35 percent by 1995 a target already surpassed by 1992.

6) Use other revenue neutral measures like refund deposit systems: 40 years ago, the Canadian beer industry, using a deposit-refund approach, got back 97 percent of its bottles for re-use and recycling. Now that same principle though not yet with quite the same results is being applied in an amazing variety of ways: batteries, beverage containers, and car hulks being just a few.

7) Use differentiated sales taxes, with a higher level of taxation on environmentally unfriendly products and technologies: This is being done in Finland and Arizona

8) Use pay-per-bag fees for collecting household and domestic garbage its being done in Denmark and at least 60 US cities.

9) Don't abandon regulations: In the US it was an added tax of $4.3 billion which speeded up the phase out of CFCs in that country, but there was also a regulatory requirement to get out of CFCs altogether.
However powerful eco-tax policies may be, they are not a substitute for regulations: the two need to be carefully used together to get the most efficient and effective results.

10) Remember being eco-friendly is not determined by how much you tax and spend, but how you tax and spend.

Will these messages be heard? They will if environmentalists help by stressing that you don't need to tax and spend more to save the environment. What you have to do is spend and tax differently. To a tax weary public that message will be welcomed with open arms or at least not a closed wallet.

Alexander Gillies is a former deputy cabinet secretary with the Saskatchewan government and has been developing a programme on sustainable government budgets for the Canadian International Institute for Sustainable Development.

Taken from "NEW ECONOMICS", Magazine of the New Economics Foundation London UK, Issue 33, Spring 1995. Address: 1st. Floor, Vine Court, 112-116 Whitechapel Road, London E1 1JE.

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Ideas	Previous - Next Contents
	Ten Taxes for a Better World Governments can help to create an environmentally responsible future through taxation not by increasing their taxes but by changing how they tax. An international study entitled "The Greening of Government Budgets" has looked into emerging 'eco-tax' reforms across Europe and North America. Here are the top ten conclusions of the study.
By Alexander Gillies
	Nobody likes to pay more in taxes. You don't, I don't. Still, environmentalists have argued that the pressing need to save the Brazilian rainforests and repair the ozone hole is worth the extra cost. Not a bad point, although with an increasingly tax weary public, that argument may be harder and harder to sell. But wait, there's good news. You don't have to tax and spend more to save the environment. What you have to do is spend and tax differently. That's one of the major and most refreshing insights of a recent two and a half year international study looking into emerging 'eco-tax' reforms across Europe and North America. The study, The Greening of Government Budgets: An International Casebook of Leading Practices, has just been published by Earthscan Press. To conduct the study an international group of experts was brought together to look at a number of highly innovative and leading edge reforms: ï Danish incentives for wind energy ï American groundwater protection incentives ï Scandinavian CO₂ taxes ï Swedish charges on NOx production. ï American taxes on CFCs Fortunately, the work has many lessons for government. Here are the top 10 Most Exciting Things that governments can do with their tax systems if they want to forge an environmentally responsible future.
	1) Use more polluter-pay taxes and higher energy taxes to cut income taxes and taxes on labour: Sweden has done this since 1990, shifting almost $3 billion away from income taxes and onto various energy and pollution taxes in the process helping to bring about greater energy efficiency and reduced pollution while stimulating job creation. 2) Stop giving tax breaks and other subsidies to the oil, gas, coal, and nuclear industries: All countries spend a lot of money in the form of tax concessions, or loan guarantees, or research and development spending on the coal, oil, and gas industry, all of which continues to add to global warming, acid rain, and local acid pollution. Just how deeply governments subsidise energy is a matter of some debate one which always produces not a single number but quite a wide range of numbers. Nonetheless, as Amory Lovins has said, it is better to be approximately right than precisely wrong. 3) If you must subsidise energy, subsidise renewables: Denmark produces more than 60 percent of Europe's wind energy. By 1990, Danish technology was being exported to 30 countries and in 1993, a Danish manufacturer won the world's largest order for wind turbines to Argentina. Behind this success was a system of tax allowances and rebates for wind energy. Or look at California's example. Starting in the 1970s California also redirected its tax system towards renewables. Today, approximately 14 percent of electricity generated in the state now comes from renewable resources not including hydropower. California leads the world in geothermal, wind and solar thermal electric generation, has the largest biomass electrical capacity in the United States and accounts for about one-fifth of world wide production of photovoltaic modules devices which convert sunlight into electricity. 4) Stop subsidising unsustainable agriculture: Farm subsidies are common in developed countries to protect domestic food producers from wide swings in food prices, or to promote exports. In OECD countries alone the subsidies amounted to $354 billion in 1992 the equivalent of $411 per person in each of those countries.The side effects? Soil erosion by making it profitable to cultivate marginal land pollution of lakes and groundwater through excessive use of fertilisers and pesticides, and the draining of wetlands that serve as breeding grounds for fish and wildlife. Not only is this an expensive way to foster environmental degradation, it also overlooks the depressing effects this has on food production in the developing world. 5) Use more 'refundable taxes': Environmental or 'green' taxes are sometimes criticised as nothing more than a tax grab a fig leaf strategically deployed to mask the intentions of cash-hungry governments This is not true of the refundable Swedish 'tax' on NOx production. The tax applies to all large energy-producing combustion plants.All the funds raised from the tax are returned in full to the firms which paid it in the first place. What's the catch? The tax payable is calculated on the amount of NOx emitted, while the refund is based on the energy produced. Since those plants that are 'cleaner' than others get more money back than they pay in, this creates a horse race to become cleaner and cleaner. Sweden adopted the system in 1990 with the goal of reducing NOx emissions 35 percent by 1995 a target already surpassed by 1992. 6) Use other revenue neutral measures like refund deposit systems: 40 years ago, the Canadian beer industry, using a deposit-refund approach, got back 97 percent of its bottles for re-use and recycling. Now that same principle though not yet with quite the same results is being applied in an amazing variety of ways: batteries, beverage containers, and car hulks being just a few. 7) Use differentiated sales taxes, with a higher level of taxation on environmentally unfriendly products and technologies: This is being done in Finland and Arizona 8) Use pay-per-bag fees for collecting household and domestic garbage its being done in Denmark and at least 60 US cities. 9) Don't abandon regulations: In the US it was an added tax of $4.3 billion which speeded up the phase out of CFCs in that country, but there was also a regulatory requirement to get out of CFCs altogether. However powerful eco-tax policies may be, they are not a substitute for regulations: the two need to be carefully used together to get the most efficient and effective results. 10) *Remember being eco-friendly is not determined by how much* you tax and spend, but how you tax and spend.** Will these messages be heard? They will if environmentalists help by stressing that you don't need to tax and spend more to save the environment. What you have to do is spend and tax differently. To a tax weary public that message will be welcomed with open arms or at least not a closed wallet.
	Alexander Gillies is a former deputy cabinet secretary with the Saskatchewan government and has been developing a programme on sustainable government budgets for the Canadian International Institute for Sustainable Development. Taken from "NEW ECONOMICS", Magazine of the New Economics Foundation London UK, Issue 33, Spring 1995. Address: 1st. Floor, Vine Court, 112-116 Whitechapel Road, London E1 1JE.
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