Environmental Fiscal Reform for Poverty Reduction.

111 Pages·2005·1.903 MB·English

by  OECD

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DAC Guidelines and Reference Series D
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Environmental Fiscal Reform for Poverty Reduction G
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id DAC Guidelines
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This DAC Reference Paper outlines key issues faced when designing Environmental Fiscal lin
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Reform (EFR). EFR refers to a range of taxation and pricing measures which can raise fiscal s
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revenues while furthering environmental goals. The objective is to provide insights and n
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“good practice” on how development co-operation agencies can help developing countries R
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take advantage of EFR approaches in both their development and poverty reduction e
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strategies. n
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Experience in many countries has shown that despite their potential fiscal, poverty e
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reduction and environmental benefits, EFR measures are constrained by political and ie
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institutional factors. Overcoming these factors requires thorough analysis of the political
context, followed by effective management of the reforms as an inclusive political process.
Accordingly, following a review of the instruments of EFR and related technical issues,
Environmental Fiscal Reform for Poverty Reduction focuses on the political economy
and governance aspects of EFR. This includes an examination of the precondition for E
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successful design and implementation, the various steps involved through the EFR Policy v
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Cycle, the challenges faced at each stage, and the main stakeholders involved. The role o
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of donors in supporting EFR processes is also outlined. m
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Subsequently, these issues are reviewed in relation to sectors of particular relevance for a
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developing countries: forestry, fisheries, fossil fuel, electricity, drinking water and industrial is
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pollution control.
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The analysis and recommendations in this publication will be of use to policy makers f
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as well as to representatives of civil society groups and the private sector in developing rm
country partners. F
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OECD’s books, periodicals and statistical databases are now available via www.SourceOECD.org, our online library. v
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This book is available to subscribers to the following SourceOECD themes: t
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Development Emerging Economies R
Environment and Sustainable Development Taxation e
Transition Economies d
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ISBN 92-64-00868-3
43 2005 16 1 P
DAC Guidelines and Reference Series
Environmental
Fiscal Reform
for Poverty Reduction
A DAC Reference Document
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
The OECD is a unique forum where the governments of 30 democracies work together to
address the economic, social and environmental challenges of globalisation. The OECD is also at
the forefront of efforts to understand and to help governments respond to new developments and
concerns, such as corporate governance, the information economy and the challenges of an
ageing population. The Organisation provides a setting where governments can compare policy
experiences, seek answers to common problems, identify good practice and work to co-ordinate
domestic and international policies.
The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea,
Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic,
Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Commission of
the European Communities takes part in the work of the OECD.
OECD Publishing disseminates widely the results of the Organisation’s statistics gathering and
research on economic, social and environmental issues, as well as the conventions, guidelines and
standards agreed by its members.
This work is published on the responsibility of the Secretary-General of the OECD. The
opinions expressed and arguments employed herein do not necessarily reflect the official
views of the Organisation or of the governments of its member countries.
Also available in French under the title:
Lignes directrices et ouvrages de référence du CAD
LA RÉFORME FISCALE ÉCOLOGIQUE AXÉE SUR LA RÉDUCTION DE LA PAUVRETÉ
© OECD 2005
No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications should be sent to
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environment_fiscal_GB 30/05/05 22:08 Page 3
FOREWORD
Foreword
I
t is an unfortunate fact that fiscal and environmental experts seldom communicate with one another.
They each have very different concerns,formal training and sets of jargon.You could even say that they
speak a different language.But so much is to be gained if we could create incentives for them to work
more together. Examples abound of thoughtfully designed fiscal measures (so-called market-based
instruments) that,when effectively implemented,can raise revenue while helping to further environmental
goals.This paper tells of many examples,and offers much new material highlighting the potential poverty
reduction benefits –surely an added incentive to work together.
If joint reform of fiscal and environmental measures –or “environmental fiscal reform”(EFR)–
can protect the environment,as well as raise revenue and free up resources –which can be allocated
to poverty reduction efforts– why don’t we see much more of it? For a start,designing effective EFR
requires a sound understanding of environmental and fiscal policy,as well as how each is regulated in
practice.This requires co-operation between fiscal and environmental experts,as well as colleagues in
development.But designing a sound proposal for EFR is only half the story.Experience shows that it
is also necessary to work across –and often to negotiate– hard political,social and institutional barriers
if proposals are to be effectively implemented.
The OECD has proven to be well-placed in mobilising fiscal,environmental,and development experts
to help us identify approaches to EFR that will work well in most developing countries.The experts
have paid particular attention to the “political economy”of EFR.This includes identifying likely “winners”
and “losers”from proposed reforms,how coalitions for change can be developed and nurtured,and how
best to deal with those likely to oppose progress.The role of donors in supporting the process of EFR is
also highlighted.
Preparing this document has been a challenge because it is rooted,not in tidy textbook solutions,
but in “real world”experiences.I think it has been well worth the effort.I hope you will agree.More
importantly,I hope that the analysis and recommendations contained in the document will be of use,
whether you are a policy maker, a representative of a civil society group or the private sector in
developing country partners.Sustainable development is about achieving integrated win-wins between
environmental,economic and social objectives –but too often it has to handle trade-offs where such
possibilities elude us.With real application of the guidance in this paper,I suspect we will see many
more win-win cases emerge in the not too distant future.
Steve Bass
Chair,ENVIRONET
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In order to achieve its aims the OECD has set up a number of specialised committees.
One of these is the Development Assistance Committee,whose members have agreed
to secure an expansion of aggregate volume of resources made available to developing
countries and to improve their effectiveness.To this end,members periodically review
together both the amount and the nature of their contributions to aid programmes,bilateral
and multilateral,and consult each other on all other relevant aspects of their development
assistance policies.
The members of the Development Assistance Committee are Australia,Austria,Belgium,
Canada,Denmark,Finland,France,Germany,Greece,Ireland,Italy,Japan,Luxembourg,
the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the
United Kingdom,the United States and the Commission of the European Communities.
4 ENVIRONMENTAL FISCAL REFORM FOR POVERTY REDUCTION – ISBN 92-64-008683 – © OECD 2005
ACKNOWLEDGEMENTS
Acknowledgements
T
his document is the result of work undertaken by the OECD/DAC Network on Development Co-operation
and Environment (ENVIRONET).
The document was prepared by a team led by the United Kingdom (Mr.Paul Steele and Mr.Richard
Boyd) and Germany (Mr.Stephan Paulus,Mr.Harald Lossack and Mr.Jan-Peter Schemmel),supported
by the Netherlands (Mr.Piet Klop),Sweden (Mr.Thomas Sterner,Göteborg University),UNEP (Ms Anja
von Moltke),UNDP (Ms Linda Ghanime),the International Monetary Fund (Mr.Jim Prust),and the World
Bank (Mr.Jan Bojö).Experts from China (Mr.Zhong Ma,Renmin University of China),India (Ms.Divya
Datt,Tata Energy Research Institute; Mr.Subhash Garg,Ministry of Finance and Company Affairs;
Mr.K.K.Narang,Ministry of Environment and Forests) and South Africa (Mr.Cecil Morden,National
Treasury) provided valuable input.The OECD directorates responsible for Environment (Mr.Nils Axel
Braathen),Agriculture and Fisheries (Mr.Carl-Christian Schmidt and Mr.Bertrand Le Gallic),Fiscal
Affairs (Mr.Chris Heady) and Trade (Mr.Ron Steenblik),the International Energy Agency (Ms.Kristi
Varangu) and several other donor agencies have also participated actively throughout the whole process.
Messrs.Remy Paris and Georg Caspary of the OECD Secretariat provided substantive and managerial
assistance to the expert group, while Maria Consolati provided invaluable secretarial assistance.
Mr.Steve Bass,as Chair of ENVIRONET,provided guidance and advice throughout the exercise.
Four workshops were crucial in the development of this document:
● Scoping Workshop on Environmental Fiscal Reform (held on 30-31January2003 in Paris,and
hosted by the OECD).
● Fiscal Reform for Fisheries: To Promote Growth,Poverty Eradication and Sustainable Development
(held on 13-15October2003 in Rome,and hosted by the Food and Agriculture Organization of
the UN-FAO).
● Reforming Forest Fiscal Systems to Promote Poverty Reduction and Sustainable Development
(held on 19-21October2003 in Washington,DC,USA).This workshop was sponsored by the
World Bank,the UK Department for International Development (DFID),PROFOR and the German
Agency for Technical Co-operation (GTZ).
● Environmental Fiscal Reform for Sustainable Development and Poverty Reduction (held on
24-25November2003 in Berlin,and hosted by BMZ/GTZ).
The efforts and contributions of the sponsors and hosts of these workshops are gratefully
acknowledged.
ENVIRONMENTAL FISCAL REFORM FOR POVERTY REDUCTION – ISBN 92-64-008683 – © OECD 2005 5
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TABLE OF CONTENTS
Table of Contents
Executive Summary...................................................................................................................... 11
What is environmental fiscal reform?.................................................................................... 12
How can it contribute to poverty reduction and development?......................................... 12
What are the objectives of this document?........................................................................... 12
Who is this document for?....................................................................................................... 13
Which EFR approaches apply to developing countries?...................................................... 13
What key principles should EFR design follow?................................................................... 14
EFR implementation: the “political economy”dimension................................................... 15
How can donors contribute?.................................................................................................... 16
Busy Readers’ Guide to this Publication................................................................................... 19
PartI
The Political Economy of Environmental Fiscal Reforms (EFR):
Overview of Key Issues
Chapter1. Environmental Fiscal Reforms and Poverty Reduction........................................ 23
What is EFR?............................................................................................................................... 24
How can EFR contribute to poverty reduction?..................................................................... 24
How does EFR fit in the current international development context?.............................. 24
Governance,transparency and public participation............................................................ 25
EFR in developing countries: lessons from past experience and future prospects.......... 25
Experience in OECD countries and economies in transition.............................................. 26
EFR: Potential benefits and tradeoffs...................................................................................... 27
Formulating EFR: key issues to consider................................................................................ 28
Chapter2. The Instruments of EFR............................................................................................ 31
Taxes on natural resource extraction..................................................................................... 32
Product subsidies and taxes.................................................................................................... 32
Taxes on polluting emissions.................................................................................................. 34
User charges/fees...................................................................................................................... 34
“Comprehensive EFR”............................................................................................................... 35
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TABLE OF CONTENTS
Chapter3. Designing Reforms – The Politics of Making Trade-offs.
From Policy Formulation to Actual Implementation............................................ 37
Balancing objectives: a political process................................................................................ 38
Contextual factors for reform.................................................................................................. 38
Identifying winners and losers: the transmission channels of reform............................. 40
Perspectives and interests of key stakeholders.................................................................... 41
Allocating revenue from EFR.................................................................................................... 43
The EFR policy cycle and the role of various stakeholders ................................................. 45
Chapter4. Conclusions and Recommendations for Donors.................................................. 49
Basic facts about EFR................................................................................................................. 50
Key challenges of EFR design and implementation............................................................. 51
The EFR policy cycle and donors’ roles.................................................................................. 51
General principles to guide donors’ actions.......................................................................... 54
PartII
Environmental Fiscal Reforms:
Political Challenges and Opportunities in Selected Sectors
Chapter5. EFR in the Commercial-scale Forestry Sector........................................................ 59
Key features of the sector: overview....................................................................................... 60
Policies and instruments.......................................................................................................... 61
Perspectives and interests of affected stakeholders............................................................ 63
Managing the reform process: key steps................................................................................ 65
Chapter6. EFR in the Commercial Fisheries Sector................................................................ 67
Key features of the sector: overview....................................................................................... 68
Policies and instruments.......................................................................................................... 69
Perspectives and interests of main stakeholders................................................................. 71
Managing the reform process: key steps................................................................................ 72
Chapter7. EFR in the Fossil Fuel Sector..................................................................................... 75
Key features of the sector: overview....................................................................................... 76
Policies and instruments.......................................................................................................... 77
Interests and perspectives of key stakeholders.................................................................... 79
Designing and managing the reform...................................................................................... 80
Chapter8. EFR in the Electricity Sector...................................................................................... 83
Key features of the sector: overview....................................................................................... 84
Policies and instruments.......................................................................................................... 84
Interests and perspectives of affected stakeholders............................................................ 86
Managing the reform process.................................................................................................. 87
Chapter9. Drinking Water............................................................................................................ 89
Key issues in the sector............................................................................................................ 90
Financing water provision........................................................................................................ 90
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TABLE OF CONTENTS
Policies and instruments.......................................................................................................... 91
Perspectives and interest of key affected stakeholders....................................................... 92
Fostering the reform process: some key steps...................................................................... 94
Chapter10. Fiscal Measures for Industrial Pollution Control................................................ 97
Key issues in the sector............................................................................................................ 98
Policies and instruments.......................................................................................................... 99
Interests and perspectives of key stakeholders.................................................................. 100
Managing the reform process: key elements...................................................................... 102
References..................................................................................................................................... 105
List of tables
1. Poverty impacts of selected EFR instruments................................................................... 16
1.1. The multiple benefits of EFR............................................................................................... 28
List of figures
3.1. Stylised representation of the stages of the EFR.............................................................. 45
7.1. Taxation of oil products as % of retail price (example: Kenya)....................................... 78
List of boxes
1.1. EFR in OECD countries......................................................................................................... 26
2.1. “Ecological Tax Reform”in Germany................................................................................. 35
5.1. Some guiding principles for forest policy......................................................................... 66
6.1. Improved fishery management and increased rent capture –
the case of Namibia............................................................................................................. 70
6.2. Hard bargaining for fishing agreements: experience in west Africa............................ 73
7.1. Fuel subsidies in Indonesia and in the Islamic Republic of Iran................................... 77
7.2. The impact on the poor of LPG subsidies......................................................................... 79
7.3. The difficulties provoked by fuel price hikes in Indonesia and Thailand.................... 81
8.1. EFR in the power sector: experience from Ghana,Argentina and South Africa......... 88
9.1. Which water systems can countries afford? Matching plans
and resources....................................................................................................................... 92
9.2. Assessing the affordability of water tariffs...................................................................... 95
9.3. Breaking the vicious cycle in Guinea/Conakri................................................................. 95
10.1. Environmental standards in importing countries help
improve the Indian leather industry............................................................................... 101
10.2. Pollution levies in China and Central and Eastern European countries (CEES)........ 103
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