Green taxes: experts debate the way forward

Just prior to publication of two major consultation papers on the use of economic instruments, Environment Minister Michael Meacher, environmentalist Jonathan Porritt, economist Tim Denne, European Environment Agency chairman Derek Osborne and waste industry strategist Peter Jones met on the panel of ET'98 exhibition's 'TalkBack' to discuss the subject of green taxation: would it live up to its billing as a miracle cure for our environmental ills? IEM reports.

Michael Meacher, Derek Osborne, Peter Jones, Tim Benne and Jonathan Porritt 'talk back' on green taxes at ET'98

Michael Meacher, Derek Osborne, Peter Jones, Tim Benne and Jonathan Porritt 'talk back' on green taxes at ET'98

"The reasons why we should look at green taxes are absolutely clear," said Environment Minister Michael Meacher. "We want sustainable development, but we have to be clear how we achieve it."

Michael Meacher, Derek Osborne, Peter Jones, Tim Benne and Jonathan Porritt 'talk back' on green taxes at ET'98


Meacher's remarks, at the start of last month's ET'98 TalkBack panel discussion, set the scene for a stimulating 90 minute session which revealed a high degree of concensus among the five panellists about the need for economic instruments in UK environmental strategy.

The debate, chaired by former Radio 4 'Today' presenter John Hobday, gave an illuminating insight into the best way forward for green taxation, from its design and application to the role of specific instruments like a carbon tax.

Internalise costs

On the role of green taxes, all the panellists were agreed.

As a means of forcing organisations to internalise the real costs of their environmental impacts, they were an unavoidable part of any environmental policy, said Jonathan Porritt: "Because we have a market economy, prices must give the right signals."

A self-proclaimed 'fan' of green taxes, ERM's Tim Denne pointed to their role in achieving environmental objectives at least cost. "We've been seeing huge improvements in the environment, but they are getting more and more expensive. Taxes provide the incentive to produce least cost measures for improvement," he said.

Biffa's Peter Jones warned that environmental taxes were not like normal taxes whose role was to "raise cash and redistribute wealth." "Environmental taxes won't do this," he said, "but they are a good way to change behaviour."

For Derek Osborne, European Environment Agency chairman, the key issue was not about increasing the 'tax take' but switching taxes from 'goods' to 'bads.' He believed green taxes could be usefully extended to include sulphur, aggregates, carbon, pesticides and fertilisers.

The central issue for debate, however, was how to create green taxes which send out the right signals when they currently only account for 3% of UK GDP.

Admitting that more could and should be done, Meacher said, "A good environmental tax is one that will make the polluter pay, give time for adjustment and provide incentives for innovation.

"They must be viewed as part of package of measures including regulation, voluntary action and tradable permits."

Transparency

Transparency over time was another important requirement said Porritt. "Business needs to know when a tax is going to weigh on them so they can make the right investment decisions."

A recurring theme of the debate was the need to use money raised by eco-taxes for environmental improvement.

"Green taxes must be recycled and there must be no exemptions," said Porritt. "It is psychologically important for their acceptance."

Meacher agreed, but said that "hypothecation," or recycling tax back to industry, was a relatively new idea in the UK, and it would need time to develop.

One suggestion from Osborne was for the Government to look at producing guidance to focus some of the landfill tax money on development of brownfield sites. But Jones pointed out that obstacles in the planning system would have to be addressed before that would be feasible. He said that planners were presently preventing Biffa from trying to move away from traditional landfill to developing what he called "end of life resource management centres" where activities such as soil washing and bioremediation through to recycling could take place.

While the panel were enthusiastic about the potential for green taxes, it became clear that political and institutional resistance was still a real issue which had to be addressed.

Meacher's statement that "Green taxes must not undermine competitiveness and harm sections of the community," exposed some of the yawning gulf between designing a good green tax and implementing it effectively.

Practicalities

Making the distinction between what was technically and politically acceptable, Tim Denne said: "I design taxes which are beautiful and then Ministers fiddle with them." He gave the example of an energy tax from which energy intensive industries were made exempt.

Porritt attacked the Treasury for being "hopelessly inadequately resourced and intellectually opposed" to green taxes. Osborne joined in, calling the Government's rejection of VAT on fuel a "failure of nerve," adding, "ordinary households have got to play their part too."

On the need to protect competitiveness, Osborne said it was a mistake that the European Commission's proposal for a carbon tax was "shot down in flames." He said "the issue must be moved forward across Europe."

Mixed messages

It was important not to mix objectives when designing taxes, said Jones: "If you want to tax carbon then tax it, but address specific sectors of the community afterwards." He urged the Government to integrate the process of creating taxes and "march as one army on the subsidiary effects."

Porritt agreed: "We are right to be careful about the regressive impacts of economic instruments but not to use them as an excuse for doing nothing.

"It is well within the power of this government or any other government to design out these problems."

On the subject of an energy tax, one member of the audience asked what the panel thought of the benefits of a tax on electricity versus carbon. Porritt was adamant that the metric is carbon and said "it is much better to gear around that now.

"It would be a fundamental mistake to rule out the domestic sector regarding the carbon tax. Business had done far better than the domestic or transport sectors.

"The problem is not how much energy we use but whether the energy is sustainable " we must drive the carbon fraction out of energy."

Meacher would not be drawn on the potential for a UK carbon tax given the Government's review, but agreed with Porritt that the metric was carbon.

He disagreed with him about industrial energy usage, however. "There is still enormous inefficiency in energy usage," he said, "and while there should be a shift from fossil fuels to renewables, we can only get 25% of electricity generation from renewables by 2010. At the end of the day, energy efficiency must be improved."

Checklist for success

The European Environment Agency report* on environmental taxes in 1996 gave an overview of the main issues involved in environmental taxes, with a particular focus on their environmental effectiveness and on the political barriers to their implementation.

This is its checklist for the successful implementation of environmental taxes:

Studies in advance investigating the potential effects of the tax/policy package, in particular the calculation of the abatement costs in each sector, equity implications; and the benefits and costs of improving eco-efficiency.

Early and greater involvement of tax/fiscal authorities;

Extensive consultations with stakeholders and the public;

Early announcement of environmental taxes;

Their introduction within a policy package of complementary measures:

Gradual imposition of the tax;

Recycling of revenues to:

- tax payers, e.g. for environmental measures, via rebates or investment incentives, provision of

information and training;

-related sectors (e.g. some revenues of a waste tax going to the waste sector);

- reduce other taxes such as taxes on labour.

Increasing incentive effect, via:

gradually increasing the real price signal over long periods;

- gradually reducing exemptions;

Evaluation measures designed into the tax system.

The report can be downloaded from the EEA website: http://www.eea.eu.int


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