Environmental Fiscal Reform (EFR)
EFR and development
 EFR is an economic instrument. By
internalising environmental costs it helps
sustainable development and,
pollution reduction
 As a result of fiscally neutral EFR
The economy will gain through greater resource
use efficiency and the growth of green industries
Employment will grow because of lower labour
taxation as well as new (green) industries
Environmental Fiscal Reform (EFR)
COMPETITIVENESS (1)
 EFR leads to increased competitiveness for
the reasons outlined in the previous slide
 Ecotaxes may lead to some product and
process substitution (usually within the same
industry)
 Only negative short-term impact is on heavy
energy-users
I.e. fossil fuel electricity, cement and steel-making.
The energy market liberalisation has led to falling
prices; cement industry is switching to alternative
fuels and steel industry is already supported
Environmental Fiscal Reform (EFR)
COMPETITIVENESS (2)
 FISCAL NEUTRALITY = lower labour taxes
Ecotaxes are recycled towards reduced labour
taxes
EU countries with the most advanced EFRs (S,
DK, NL, DE) have respected this principle,
facilitating acceptability of the reform and
boosting employment
Environmental Fiscal Reform (EFR)
COMPETITIVENESS (3)
 DOUBLE DIVIDEND
 According to research 84% of all EU taxes are
levied on human effort and only 8% are
ecotaxes. The proposed 10% shift from the
first to the second category will
a. reduce resource waste and pollution and,
b. reduce labour costs in the overwhelming
majority of European business (services)
(in Germany we had 1,9% reduction of social
insurance contributions in the first phase only)
Environmental Fiscal Reform (EFR)
CONDITIONS FOR SMOOTH TRANSITION
Gradual introduction over 8 years
Mitigating measures for EFR impact on
competitiveness
Transitional tax rebates for few industries against
firm commitment to cut energy use and pollution
Regional aid and restructuring programmes
European harmonisation and
(if possible) International co-ordination
Environmental Fiscal Reform (EFR)
INCOME DISTRIBUTION
 Measures to address potential social impacts
created by the regressive effect of some indirect
ecotaxes (especially on energy)
Changes in income tax brackets to compensate
this (for example regular “fine-tuning” of income
distribution in NL)
Social contribution cuts concentrated on lower
salaries and wages
A fair split of social contributions cuts between
employers and employees. E.g. a 50/50 formula
Environmental Fiscal Reform (EFR)
INCOME DISTRIBUTION (2)
 We call for an EFR comprising compensating
social measures, such as increases of some
social benefits, tax exemptions, tax credits, or
rebates for lower income brackets
 which must be designed in a way that they maintain a
strong incentive for energy saving and efficiency
 The abolition of environmentally harmful
subsidies may finance economic and social
transition programmes
Environmental Fiscal Reform (EFR)
EFR and employment
 EFR has net positive effects on employment
due to the decrease of labour taxes and the
push for innovation (new green jobs)
 Germany: potential for 250 000 new jobs with
EFR (DIW study)
 Denmark: 28 000 new jobs thanks to the
“greening” of the economy (C. Ege)
 EC Report brings green jobs to 1 500 000 with
30 000 new jobs created for every € 1 bn
invested, boosting household income
Environmental Fiscal Reform (EFR)
Conclusions
 EFR experiences in Europe have been good
first steps, but too timid, with many
exemptions, and no EU minimum
harmonisation
 Significant tax shifts and a good design are
indispensable for an appreciable impact on the
environment and employment
 we call for an important tax shift (10% in total
tax revenue) to deliver the double dividend
Environmental Fiscal Reform (EFR)
Conclusions (continued)
 The EU is suffering from pollution, overuse of
natural resources and unemployment
 at the same time it is a leader in the
environmental effort, and must honour its
Kyoto commitments
 EFR is the right instrument
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