IMPLEMENTING
ENVIRONMENTALLY RELATED
TAXES
Outstanding issues
Jean-Philippe Barde and Nils Axel Braathen
OECD, Environment Directorate
OECD
Setting the scene
(Reminder)
• An increasing use of environmentally
related taxes in all OECD countries.
• Comprehensive green tax reforms in a
number of EU countries.
• Revenue of environmentally related taxes:
– 2 - 3 % of GDP
– 7 % of total tax revenue
– 90 % of revenue comes from transport-related
taxes (fuels and vehicles).
OECD
Tax revenue raised on different
environmentally related tax-bases
Motor
vehicles
Heating- and
process fuels
Other
Transport
fuels
Electricity
Waste
Other
OECD
GREENING TAX SYSTEMS:
policy options
• Remove and/or restructure existing
environmentally harmful tax provisions
• Restructure existing taxes (e.g. energy
taxes)
• Introduce new taxes
• Piecemeal vs. comprehensive tax reform
OECD
Two outstanding
implementation issues:
• Distributional impacts
• Impacts on sectoral competitiveness
OECD
Distributional impacts
• Direct: related to the structure of
household expenditure (in particular,
expenditures on energy and transport)
• Indirect: due to taxation of production
inputs (price effect on consumers goods)
• Final incidence: impacts on the
remuneration of production factors
(lower wages or lower return on capital).
OECD
Little available evidence:
• Probable regressivity of energy-related
taxes (simulations in Sweden, UK), water
(Denmark).
• Higher taxes (e.g. at the level required to
achieve Kyoto targets) could induce more
significant regressivity.
OECD
Policy options
• MITIGATION: tax breaks for specific
segments of the population (e.g. heating
fuels). Will defeat the purpose of the tax.
Administrative complexities.
• COMPENSATION: e.g. lump sum
payments to households. Examples:
energy saving subsidies to households,
tax refund (Switzerland).
OECD
Policy options (cont)
• TAX SHIFT: reduction in other taxes like
income taxes (but may be regressive as
poorest households pay the least taxes).
 More analysis is needed: current
OECD work
OECD
Competitiveness: issues
• Applies to: company, sector, country.
• Environmental taxes are more “visible”
• In case of emission taxes: payment on
residual emissions (hence additional cost).
• But, at country level, taxes are a transfer.
• Economically efficient taxes should
minimise overall cost, thus increase
competitiveness.
• Threat of relocation of industries.
OECD
Competitiveness: issues (cont)
• Competitiveness impact depend on market
structure (e.g. whether taxes affect prices or
profits)
• Do taxes replace or supplement existing
regulations (usually a supplement)?
• Is the tax reform revenue neutral?
• What tax shift (labour or capital)?
• Who benefits from environmental
improvements?
OECD
Competitiveness: evidence and
practice
Literature reviews indicate NO evidence of
significant impact.
BUT, this is largely due to numerous mitigation
measures, such as:
– Reduced tax rates for products, sectors, inputs
– Tax exemptions for specific activities: More than
1000 recorded in OECD tax database (but not all
exemptions are for competitiveness purpose)
– Tax refunds / recycling
OECD
Competitiveness: policy options
(cont)
A prisoner's dilemma situation?
The recent OECD report concludes that:
“Countries…could consider possible concerted
policy options and changes, decided and
implemented at the national level, but within a
framework which provides a multilateral
dialogue.”
One priority area would be a concerted reduction
of existing tax exemptions.
OECD
Current OECD work
Analyse “second best” unilateral
options to alleviate the competitiveness
impact such as:
• Better integration of environmental taxes
in comprehensive tax reforms (providing
efficiency gains).
• Early warning and progressive tax
increase
OECD
• Gradual phasing out of exemptions.
• Replace full exemptions by severaltier tax rates to maintain incentives to
reduce emissions.
• Channel back revenue to the taxed
sectors, while maintaining incentives
at the margin.
OECD
 Analyse Competitiveness impact of
energy taxation on presently
exempted sectors (steel industry).
 Promote a multilateral dialogue.
OECD