Despite a “massive” body of research showing green taxation makes sense from an environmental and economic perspective, few countries are actually taking the step forward, says Hans Bruyninckx.
Hans Bruyninckx is executive director of the European Environmental Agency, based in Copenhagen. He spoke to EURACTIV’s publisher and editor, Frédéric Simon, on the sidelines of the T2gE conference in Bratislava.
The EEA has issued a new report today (6 September) on green taxation. What are the main findings of this report?
This report broadly confirms the previous ones in that we don’t really see a breakthrough in environmental taxes in Europe. This means that the environmental tax reform which is well documented, including on its negative impacts for society in terms of wasteful energy and resource use, is not really happening. So we don’t reap the societal goods in terms of labour for example.
So there is no big breakthrough. But we see that some countries are pushing this more than others but overall it’s not happening.
There is a tax shift happening in Belgium for example…
There is not a green tax shift happening in Belgium for the moment, that’s one example.
The main innovation in this report is that we looked at taxation in a more systemic perspective. If you want green taxes, what about the role of this in your tax base? And the tax base depends of course on your economy, but it also depends on the ageing of your society and the dependency ratio between those who work and those who don’t. It also depends on consumption.
So when you move to green taxes, you have to take account of the effects it will have elsewhere. Because your tax revenues could dry out. If people move away from polluting cars, you lose tax revenue from polluting cars. If people move to sustainable energy, you lose tax revenue from non-sustainable energies.
So we plead very strongly for two things: on the one hand a more systemic understanding of tax systems in an evolving society and secondly we also plead for a better understanding of how the whole group of financial instruments, including subsidies and other financial instruments, fit together.
Looking at the cost of the transition, have you looked also at the social costs involved? The steel industry is often mentioned in this context as the big losers of the move towards green taxation.
One of the concerns with environmental tax reform is of course that you have social distributional effects so you need to do this in an intelligent way. If you’re going to tax on domestic use of energy for example, you need to understand that there are people who maybe cannot afford it. So you can work through your social housing companies to pick up the costs of installing renewables or insulating houses for instance. You can also work with tax break levels. And this is all part of what we call a systemic approach to a tax reform.
Are there any countries in the European Union leading on this?
There are a number of countries that are emphasising the broadening of their tax base as an instrument of greening the economy. That doesn’t always mean that they are further advanced but in the conceptualisation, they are. Portugal for instance was very hard hit by the economic and financial crisis. And they have really conceptuatlised a green growth strategy out of the crisis, which includes a green tax reform. And the flip side of that is a subsidy system that really breaks with the past.
Is it easier to make such kinds of reforms when things are going really bad, like in Portugal? It seems reforms are more difficult to pass when your economy is doing relatively well…
I don’t necessarily agree with that. Because if your economy is on more in a steady base, probably you have a bit more time to reflect carefully and have that more fundamental longer term perspective and do it in a more comprehensive way.
So I don’t think there is one good way to do it. By the way, it’s also one of the recommendations that the EU makes under its semester evaluation of European economies. It’s one of the recommendations that the OECD is making time and again.
So it’s not new. There is some trepidation in coming forward with green taxation but the knowledge base in support of it is actually massive.
Taxation is a national competence and a matter of competition between EU member states. We saw it recently with the Apple case, which highlighted the very favourable terms given by Ireland to big multinational companies, against the spirit of EU state aid rules. So the environment doesn’t seem to be a convincing argument, countries are still very much competing with each other instead of coordinating reforms.
It’s not abnormal that countries try to provide economic opportunities for their own businesses and citizens. But the competition over investment and jobs is rather complex, it has to do with infrastructure, it has to do with education, it has to do with tax systems, it has to do with red tape, with location, etc. So to single out just tax, I think would ignore the complexity of this whole competitiveness ecosystem.
If you look at the global competitiveness index, low taxes doesn’t necessarily equal competitiveness or economic performance just as location doesn’t necessarily mean economic performance. Just look at the smaller high tax countries in Scandinavia.
So we’re looking at a more complex landscape rather than just tax. Now, from a policy perspective, what I think is clear is that if one moves to greener taxes, this needs to be part of an overall tax pressure. If you do it on top of existing taxes, of course it becomes more difficult to bear and a more difficult story to sell, especially in countries that already have high tax levels.
Norway seems to be leading the way in many areas of environmental taxation and subsidies for the green economy, such as electric cars. Is this an example to follow in Europe?
We just did a report on electric vehicles, and we looked at the Norwegian case quite in detail. And again, it’s all about taking a systemic approach. It’s about infrastructure, taxes and subsidies, it’s about legal dimensions, it’s about collaborating with the public and the private sector.
So, again, this is not a one-off isolated intervention, otherwise you cannot come up to 30% electric vehicles being sold in a country. So I do think Norway is clearly a country that is trying to take the lead on some elements of this transition. The recent decision to stop selling cars with combustion engines in a rather short time period – in just 10-15 years – that’s a rather bold decision.
Also, the fact that they put a lot of emphasis on the greening of buildings and infrastructure in cities is a very strong push forward. At the same time, they know their economy and wealth has been based to a significant extent on the gas and oil industry.