The political economy on environmentally related taxes

203 Pages·2006·3.76 MB·English

by  OECD

The Political Economy of Environmentally
Related Taxes
Environmentally related taxes are increasingly used in OECD countries, and ample and increasing
The Political
evidence of their environmental effectiveness is now available. However, there remains a high
potential for wider use of these environmental policy instruments, provided that they are well
designed and that their potential impact on international competitiveness and income distribution
Economy of
are properly addressed.
Based on experience in OECD countries, this book provides a comprehensive discussion of Environmentally
these issues and of recent research on the environmental and economic impacts of applying
environmentally related taxes. In particular, it looks at how to overcome obstacles to their
implementation. It also discusses the environmental and economic effects of combining such Related Taxes
taxes with other instruments for environmetal policy.
.
The full text of this book is available on line via these links:
http://www.sourceoecd.org/environment/9264025529
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www.oecd.org
ISBN 92-64-02552-9
-:HSTCQE=UWZZWX:
97 2006 08 1 P

The Political Economy
of Environmentally
Related Taxes
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:
Économie politique et taxes liées à l’environnement
© OECD 2006
No reproduction, copy, transmission or translation of this publication may be made without written permission. Applications should be sent to
OECD Publishing: [email protected] or by fax [phone]. Permission to photocopy a portion of this work should be addressed to the Centre
français d'exploitation du droit de copie, 20, rue des Grands-Augustins, 75006 Paris, France ([email protected]).
FOREWORD
Foreword
E
nvironmentally related taxes are increasingly used in OECD countries, and ample and increasing
evidence of their environmental effectiveness is now available. However, there remains a high
potential for a wider use of these environmental policy instruments, provided that they are well
designed and that their potential impact on international competitiveness and income distribution
are properly addressed. In particular, the environmental effectiveness and economic efficiency of
environmentally related taxes could be improved further if existing exemptions and other special
provisions were scaled back, and if the tax rates were better aligned with the magnitude of the
negative environmental impacts to be addressed. Based on experience in OECD countries, this book
gives a comprehensive discussion of these issues and of recent research on environmental and
economic impacts of applying environmentally related taxes – in particular how to overcome
obstacles to their implementation. It also discusses the environmental and economic effects of
combining such taxes with other instruments for environmental policy.
The book is based on a number of in-depth case studies prepared for the Joint Meetings of Tax
and Environment Experts under OECD’s Committee on Fiscal Affairs and Environment Policy
Committee. It has been prepared in close co-operation between Ana Cebreiro-Gómez, Chris Heady and
Erik Vassnes of OECD’s Centre for Tax Policy and Administration and Hope Ashiabor, Jean-Philippe
Barde, Nils Axel Braathen and Pascale Scapecchi of OECD’s Environment Directorate.
The book is published under the responsibility of the Secretary-General of the OECD.
Jeffrey Owens Lorents G.Lorentsen
Director, Director,
Centre for Tax Policy and Administration, OECD Environment Directorate
THE POLITICAL ECONOMY OF ENVIRONMENTALLY RELATED TAXES – ISBN 92-64-02552-9 – © OECD 2006 3

TABLE OF CONTENTS
Table of Contents
Executive Summary......................................................................................................................... 9
Chapter 1. Introduction, Background and Main Findings........................................................ 15
1.1. Introduction and background................................................................................................ 16
1.2. Current use of environmentally related taxes.................................................................... 16
1.3. Environmental effectiveness................................................................................................. 16
1.4. Sectoral competitiveness........................................................................................................ 17
1.5. Income distribution................................................................................................................. 20
1.6. Administrative costs............................................................................................................... 21
1.7. Political acceptance................................................................................................................. 21
1.8. Environmentally related taxes used in combination with other instruments............... 22
Notes .................................................................................................................................................. 23
Chapter 2. Current Use of Environmentally Related Taxes..................................................... 25
2.1. The taxes applied..................................................................................................................... 26
2.2. The revenues raised though environmentally related taxes............................................ 28
2.3. Some important environmentally related tax-bases......................................................... 31
2.4. Tax exemptions, refund mechanisms, rate reductions, etc.............................................. 42
Notes .................................................................................................................................................. 46
Chapter 3. Environmental Effectiveness .................................................................................... 49
3.1. Own-price elasticities of demand......................................................................................... 50
3.2. Cross-price elasticities............................................................................................................ 56
3.3. Examples of available estimates of changes in demand................................................... 56
Notes .................................................................................................................................................. 63
Chapter 4. The Sectoral Competitiveness Issue – Theoretical Studies.................................. 67
4.1. Introduction.............................................................................................................................. 68
4.2. Theoretical case studies......................................................................................................... 74
4.3. Political economy lessons from the theoretical case studies............................................ 84
Notes .................................................................................................................................................. 85
Chapter 5. The Sectoral Competitiveness Issue – Border Tax Adjustments........................ 89
5.1. Introduction and background............................................................................................... 90
5.2. Border Tax Adjustments: their historical and contemporary context............................. 92
5.3. The GATT regulatory framework governing BTAs.............................................................. 93
5.4. Border Tax Adjustments on final products.......................................................................... 95
5.5. BTAs on inputs not physically incorporated into products............................................... 98
5.6. The applicability of BTAs to carbon/energy taxes related to processes.......................... 105
Notes .................................................................................................................................................. 106
Chapter 6. The Sectoral Competitiveness Issue – Expost Studies.......................................... 107
6.1. The industrial energy consumption tax in France............................................................. 109
6.2. The United Kingdom climate change levy........................................................................... 111
6.3. The MINAS accounting system in the Netherlands........................................................... 115
6.4. The Swiss heavy goods vehicle road use fee....................................................................... 119
THE POLITICAL ECONOMY OF ENVIRONMENTALLY RELATED TAXES – ISBN 92-64-02552-9 – © OECD 2006 5
TABLE OF CONTENTS
6.5. The Irish plastic bag tax.......................................................................................................... 121
6.6. The Norwegian aviation fuel tax........................................................................................... 124
6.7. Measures used in practice to limit negative impacts on competitiveness..................... 126
6.8. Political economy lessons from the expost case studies................................................... 128
Notes .................................................................................................................................................. 130
Chapter 7. Impacts on Income Distribution................................................................................ 133
7.1. Background and empirical findings...................................................................................... 134
7.2. Ways to address the income distributional impacts.......................................................... 136
7.3. Some considerations regarding different compensational measures............................. 136
7.4. Categories of households with special need for compensation....................................... 137
7.5. Addressing distributional effects in practice – some country examples......................... 139
7.6. How to secure that distributional concerns are addressed in practice?......................... 142
7.7. Conclusions.............................................................................................................................. 142
Notes .................................................................................................................................................. 144
Chapter 8. Administrative Costs................................................................................................... 145
Notes .................................................................................................................................................. 149
Chapter 9. Enhancing Public Acceptance.................................................................................... 151
Notes .................................................................................................................................................. 154
Chapter 10. Environmentally Related Taxes Used in Instrument Mixes................................ 157
10.1. Introduction.............................................................................................................................. 158
10.2. Taxes used in combination with regulatory instruments................................................. 158
10.3. Taxes used in combination with tradable permits systems............................................. 159
10.4. Taxes used in combination with labelling systems............................................................ 164
10.5. Taxes used in combination with negotiated agreements.................................................. 165
10.6. Taxes used in combination with subsidies.......................................................................... 171
10.7. General findings on impacts of combining taxes with other instruments..................... 174
Notes .................................................................................................................................................. 175
Technical Annex: Estimation of Price Elasticities............................................................................ 179
References.......................................................................................................................................... 187
Boxes
2.1. Defining environmentally related taxes .............................................................................. 26
2.2. “Optimal” tax rates on motor fuel ........................................................................................ 33
2.3. Taxes on fuels when crude oil prices are high ................................................................... 35
2.4. The tax on the first registration of passenger vehicles in Norway ................................. 37
2.5. “Optimal” tax rates on the landfilling of household waste .............................................. 39
7.1. Examples of non-adoption of environmental measures due to income
distribution concerns ............................................................................................................. 139
7.2. Examples of institutional arrangements to account for distributional concerns ......... 142
7.3. Examples of guidance on policy appraisal addressing distributional issues ................. 143
8.1. The plastic bag levy in Ireland .............................................................................................. 146
10.1. Defining subsidies .................................................................................................................. 173
Tables
2.1. Environmentally related taxes in OECD countries not levied on energy
or transport 1.1.05.................................................................................................................... 27
2.2. Private costs and environmental costs of incineration and landfilling
in the Netherlands................................................................................................................... 40
2.3. Taxes, fees and charges levied on batteries in OECD member countries....................... 42
2.4. Exemptions in environmentally related taxes by sector and type
of tax-bases affected............................................................................................................... 44
6 THE POLITICAL ECONOMY OF ENVIRONMENTALLY RELATED TAXES – ISBN 92-64-02552-9 – © OECD 2006
TABLE OF CONTENTS
3.1. Selected estimates of own-price elasticities of petrol........................................................ 51
3.2. Selected estimates of own-price elasticities of residential electricity............................. 51
3.3. More estimates of own-price elasticities of residential electricity................................... 52
3.4. Own-price elasticities of modes of transport...................................................................... 52
3.5. Elasticities of various measures of transport demand with respect to fuel
price per litre............................................................................................................................ 53
3.6. Elasticities of various measures of transport demand with respect to fuel
price per litre............................................................................................................................ 54
3.7. Elasticities of various measures of demand with respect to car purchase costs........... 54
3.8. Empirical estimates of the effect of unit pricing for waste collection............................. 55
3.9. Price elasticities of different variable waste collection systems in the Netherlands.... 55
3.10. Estimates of own-price elasticities of pesticides................................................................ 56
4.1. Summary of simulation results of a carbon tax levied on the steel sector..................... 78
4.2. Summary of simulation results of a carbon price levied on the cement sector............. 81
6.1. Translation of climate change levy tax rates to a pure carbon tax.................................. 113
7.1. Selected studies on income distribution impacts of environmentally related taxes.... 135
7.2. Distributive impacts of the German ecological tax reform............................................... 140
7.3. Impact of the RET-PIT switch in the Netherlands.............................................................. 141
10.1. Permit prices and penalties for selected tradable permit systems.................................. 163
10.2. Levels of CO – and energy taxes in Denmark..................................................................... 167
2
Figures
2.1. Revenues from environmentally related taxes in per cent of GDP.................................. 28
2.2. Revenues from environmentally related taxes in per cent of total tax revenue............ 29
2.3. Revenues from environmentally related taxes per capita................................................. 30
2.4. Revenues raised on different tax-bases............................................................................... 30
2.5. Revenues raised through waste related taxes..................................................................... 31
2.6. Tax rates on petrol and diesel in OECD member countries.............................................. 32
2.7. Differentiation in tax rates for petrol and diesel according to the sulphur content .... 36
2.8. Tax revenues raised on different motor fuels in the United Kingdom ........................... 36
2.9. Tax rates on landfilling of municipal waste........................................................................ 39
2.10. Special provisions for energy-intensive firms in the ecological tax reform
in Germany............................................................................................................................... 46
2.11. Energy use and energy taxes paid......................................................................................... 46
3.1. Sales of, and taxes on, petrol and diesel in OECD Europe................................................. 57
3.2. Sales of, and taxes on, petrol and diesel in selected countries......................................... 58
3.3. Net payers and receivers in the relation to the refunded NO charge in Sweden ........ 60
x
3.4. Total and specific NO emissions from energy-producing ............................................... 60
x
3.5. Share of vehicles fulfilling the Euro 3and Euro 4norms................................................... 61
3.6. Sales of aggregates, real construction output and real GDP in the United Kingdom.... 62
3.7. Landfilling of active waste and the standard tax rate of the Landfill Tax...................... 63
4.1. Tax incidence of levying a CO -tax in the steel industry.................................................. 77
2
4.2. Production in 2010 compared to BaU.................................................................................... 82
4.3. Emissions in2010 compared to BaU..................................................................................... 83
6.1. Tax base reduction coefficient of proposed carbon-energy tax........................................ 110
6.2. Total net nitrogen input on agricultural land and mean nitrogen surplus..................... 115
10.1. The welfare costs of abatement cost uncertainty under permits and taxes.................. 160
Organigram
4.1. Different environmental policy instruments in terms of competitiveness
impacts ..................................................................................................................................... 73
THE POLITICAL ECONOMY OF ENVIRONMENTALLY RELATED TAXES – ISBN 92-64-02552-9 – © OECD 2006 7