Green taxation not more taxation.

Norman Baker MP, Liberal Democrat Shadow Environment spokesman, argues that intelligent environmental taxation, targeted at polluting activities will not raise tax levels but encourage good environmental practice by providing incentives for green living.

The phrase ‘green taxation’ has traditionally led people to assume draining more money from hard-up people to top up Treasury coffers. That’s hardly surprising given that with successive Governments this has sadly been the reality with tax raising measures cloaked in a green veil to distract attention. The Liberal Democrat green vision acknowledges the role for taxation in changing behaviour, and using it to encourage good environmental practice. But this is not, and cannot be, about taxing more. Instead it has to be about taxing differently, and intelligently.

Changes in taxes for environmental reasons must not however simply become devices for raising more general revenue for the Treasury. Revenue from green taxes and charges must be recycled into offsetting tax cuts or, where appropriate, be hypothecated into investments in environmental measures. A good example of such an approach is congestion charging, where the revenue is used to improve public transport.


Environmental taxation or charges must be targeted precisely in order to most effectively align with the costs of environmentally damaging activities. For example, the Liberal Democrats’ have long argued for the introduction of a Carbon Tax, which would mean that people pay proportionate to the damage caused by emissions. The Government’s decision to opt instead for the flawed Climate Change Levy meant that it could never as accurately reflect the level of pollution from each energy option, often leading to perverse incentives to pollute more, not less.

A Carbon Tax would work alongside the EU Emission Trading Scheme, supported by the Liberal Democrats, in which electricity generators and large industrial energy users will either buy or sell allowances depending on how they manage their emissions and will introduce further incentives for reductions for Carbon. We support trading schemes of this nature.

As well as energy use, there are three other main areas where we need to pursue economic incentives much more vigorously: land use, and transport and land transport, particularly in relation to roads and car use.


In terms of land use the Lib Dems would equalise VAT on housing repairs and new build on a revenue neutral basis. This would remove the current perverse incentive for new build over renovation. We would also allow local authorities to levy the business rate on non-domestic property on the basis of the developed value of the site in its optimum permitted use, as opposed to the current basis which starts from the actual present use of the land. This is an environmental measure as it gives the landowner the incentive to clean up potentially valuable but currently derelict or otherwise underused sites, maximising use of a scarce resource (land).

To reduce the incentives to develop greenfield land ahead of existing brownfield/derelict sites, Liberal Democrats have supported a greenfield development levy, where the developer of a site makes a payment proportional to the increase of the value of any site when planning approval is given. This would be set and raised by the local planning authority but with a share going to the region.


The distortion of the aviation market is another major problem at present, the result of a failure to include the cost of damage to the environment in the price of an air ticket or on the goods carried by air freight.

Between 1990 and 2002, greenhouse gas emissions from the air transport industry rose from 20.2 million tonnes to 37.5 million tonnes, an increase of just over 85 per cent. A recent report from the Royal Commission on Environmental Pollution raised major concerns about the growing impact on the environment and climate change caused by the expansion of the aviation industry estimating that the share of UK greenhouse gas emissions from aviation would reach 35% in 2030 and 70% in 2050. In a consultation paper published last year the Treasury and the Department for Transport put the “national cost” of global warming caused by air travel at £1.4bn a year, rising to £4.8bn by 2030. Yet whilst other forms of transport pay fuel taxes to reflect their environmental costs and to encourage less environmentally damaging technologies, aviation fuel remains untaxed.

A package of measures is clearly needed to reduce emissions and manage demand. As an immediate first step the Liberal Democrats believe that we would replace the Airport Departure Tax with a fairer system, placing a duty to be paid by airlines for each commercial aircraft – passenger and freight (which currently pay nothing under the current system) – taking off from a British airport. The present system is simply a money-making scheme for the Treasury. Looking ahead Britain should ensure that the aviation sector is incorporated into the European emissions trading scheme. This would see the overall capping of emissions from aviation. Airlines would buy rights to emissions and therefore those operating the most fuel efficient craft will have an advantage. A market in emissions would open up. Each year, the overall total of emissions would be reduced.

International aviation is excluded from Kyoto Protocol emission limits even though the sector is making a rapidly growing contribution to the global production of greenhouse gases. The result is that progress in reducing emissions from those sectors of the economy covered by Kyoto is increasingly offset by rises in emissions from aviation. Such a situation is unreasonable on other sectors of the economy. Why should aviation be environmentally subsidised in this way by other industries? We therefore conclude that when international negotiations take place to update Kyoto, aviation must be factored in.


The environmental effects from road transport in terms of congestion (which, according to latest estimates costs our economy around £15bn each year), pollution and greenhouse gas emissions are massive. Greenhouse gas emissions from UK households’ private vehicles rose from 59.2 million tonnes in 1990 to 62.8 million tonnes in 2002, a 6% increase. Total greenhouse gas emissions from all forms of road transport rose to 125.3 million tonnes in 2002, an increase of 13 per cent since 1990. Emissions from road transport now constitute 18 per cent of all greenhouse gas emissions compared with 14 per cent in 1990.

To begin to tackle these effects the Liberal Democrats advocate that Vehicle Excise Duty (VED) needs to be much more sharply progressive based on model-type carbon emissions, with a shift to higher charges on the most polluting vehicles. In addition, the Liberal Democrats have long supported the introduction of congestion charging and workplace parking charges where local authorities have taken the decision locally to introduce it. The Liberal Democrats also believe that a national, distance-based, road-user charging scheme is now a question of when rather than if.


Sadly, the Government’s approach has meant that environmental measures taken by the Treasury have been badly targeted and there is no real medium or long-term strategy for our taxes. So, for example, nobody knows what the level of Climate Change Levy or fuel duty will be in five or ten years time, a timescale over which businesses are best able to invest in more energy efficient machinery and buildings. A greener Treasury would set out its thinking for years ahead, not on the current piecemeal budget to budget approach we get from Gordon Brown.

Unless action is taken soon by the Chancellor, Gordon Brown, then British businesses and taxpayers will increasingly feel the financial cost of Government inaction on the environment. The Government must realise that ignoring the environment is not a tax-neutral option. Saving the environment will save billions of pounds each year. Put simply, Brown must get more ‘green’.

By Norman Baker MP, Shadow Environment Secretary for the Liberal Democrats.

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