Continuing the Work on Ecological Financial Reform by Lisa Paus, Ingrid Nestle, Oliver Krischer, and Harald Schwalbe
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23.05.2012 Continuing the work on ecological financial reform by Lisa Paus, Ingrid Nestle, Oliver Krischer, and Harald Schwalbe Introduction The idea behind green ecological financial reform is simple: prices must tell the ecological truth. Those who produce and consume on an environmentally friendly basis should pay less than those who pollute the environment and climate. At present we are a long way away from this. 100 grams of organic lettuce cost more than the same quantity of pork schnitzel, travelling through Germany by train is more expensive than by air, and at the filling station one litre of diesel is cheaper than one litre of petrol although diesel releases more CO 2 on combustion. Plainly, there is something wrong here. If in our day-to-day lives we constantly encounter prices which do not reflect the impact on the environment and climate, it will be very difficult to overcome the enormous challenges that confront us. If we are to have any hope of limiting man-made global warming to 2 degrees, our society will have to be virtually carbon-free by 2050. Our goal therefore is to cut climate gas emissions by 95 per cent by 2050 in comparison with the 1990 level. All the other parties represented in the Bundestag also recognise in principle the tremendous need for action and are calling for a cut of at least 80% by 2050. The European emissions trading system will not be enough on its own to meet this challenge. In the first place important emission sectors such as transport (with the exception of aviation), the heating fuel market and agriculture are, for good reason, not or not yet included in the system. Secondly, the goal of the European emissions trading system, which is to cut emissions by 21 per cent by 2020 over the 2005 figure, is not nearly ambitious enough to achieve the necessary short-term and long-term climate goals. Emissions trading therefore urgently needs to be combined with additional measures. Regulatory law and economic instruments such as the Renewable Energy Sources Act and ecological financial reform have a central role to play here. In this context ecological tax reform is one of the most successful policy instruments. It makes it possible in Germany to cut energy consumption and greenhouse gases. The Federal Republic of Germany’s Second National Energy Efficiency Action Plan rates ecological tax reform as the second most effective energy-saving instrument. The only measures that have a greater effect in terms of energy saving are specific measures in the buildings sector.1 We all have experience of throwing away electronic appliances or items of clothing after just a few years or wasting materials such as wood or chemicals. As well as focusing on how we use energy resources such as coal, gas and oil, we also need to radically rethink how we use non-energy resources such as water, metals, building materials and fertilisers. The aim must be to avoid waste and establish a complete recycling system, to use our resources more efficiently and find recycling and substitution possibilities. 1 See Bundestag printed paper 17/6927 1 Ecological financial reform helps to meet these challenges. It ensures that producers and consumers make their decisions according to prices which factor in the cost of damage to the environment and climate. Hence it also creates the conditions for the ecological modernisation of society. Companies which conduct their business sustainably will have advantages over those which produce without regard to the impact of their actions on environment and climate. In this paper we want to flesh out the details of ecological financial reform and describe the direction in which we believe it can be further developed. It is not envisaged that all the possibilities will be realised immediately or simultaneously. We will outline how ecological financial reform, together with other measures, can also help to tackle the distribution crisis in this country. We want to design it in such a way that it helps people with low incomes in particular to behave in an environmentally friendly and climate-friendly way. Ecological financial reform is anchored in the Green New Deal, our programme for the social and ecological restructuring of our society. In addition to the area of energy generation, which up to now has been the main focus of climate policy, the areas of transport, housing, agriculture and the more efficient use of energy and other resources in industry are central to the creation of a sustainable economy. On the basis of these four areas, we will explain how ecological financial reform can best be used as an instrument of the Green New Deal. The double dividend for the environment and climate The great advantage of ecological financial reform is that the introduction of taxes and fees on the consumption of goods which are harmful to the environment and climate produces a double ecological dividend. Firstly, environmentally-friendly behaviour is rewarded because it is cheaper; damaging behaviour is reduced because it is more expensive. This pre-empts the cost of measures applied retrospectively to save the environment and climate. Taxing petrol means that people leave their cars at home more and cycle or use public transport more. They are also more likely to opt for a fuel-efficient vehicle. This saves the climate and cuts the cost of adapting to climate change, for example, the cost of building sea defences to respond to rising sea levels. Secondly, income from fees and taxes levied on damaging behaviour that still exists can be used to pay for environmental and climate protection projects, for example to fund public transport. This cuts greenhouse gases for a second time and here, too, costs resulting from climate change are avoided. Reflecting the true cost of resource consumption A further advantage of ecological financial reform is that it ensures that true costs are reflected. Those who consume resources today are not obliged to pay for the resulting damage to the environment or climate. Instead, the public at large pays the price for private resource consumption. This creates costs, for example for the treatment of lung disease caused by air pollution or for the tackling of climate change. These costs in particular negate the principle that each individual should pay for the costs that they themselves have caused. Taxes and fees on resource consumption can at least in part go towards ensuring that these social costs are reflected in the price of the resource, so that they are paid not by the public as a whole but by those who cause them. Ecological financial reform is based on the "polluter pays" principle. 2 Fit for our economy: ecological financial reform for more efficiency and innovation Our world faces the challenge of supplying ever more people with ever scarcer resources. The only way to meet this challenge is to decouple prosperity from resource consumption. Ecological financial reform supports this much needed efficiency revolution. Levying taxes and fees on resource consumption sends a clear signal to industry: the times of cheap resource consumption are over, even against the backdrop of highly volatile prices of resources such as oil or metal on the stock exchanges temporarily reaching low levels. Steeply fluctuating commodity prices can prevent companies investing in innovations or changing their purchasing habits to resource-efficient products. Taxes and fees on resource consumption dampen fluctuations in the commodity prices which companies have to pay, thus increasing investment certainty. Taxes and fees incentivise businesses to engage in innovation, as studies by the EU and OECD prove,2 encouraging them to look for new ways to make savings in their own production, for example in the consumption of water, energy or chemicals. They also encourage the production of resource-efficient products such as low-energy light bulbs or fuel-efficient cars. This makes our whole economy less vulnerable to price shocks on the world markets for resources such as oil or metal. One thing is also clear in this context: it does not help the environment or climate and neither does it save resources if resource consumption is simply relocated to other countries and we then import the products. Our proposals take this factor into account. Against the background of the growth debate it has become clear that efficiency increases are not enough on their own to totally decouple prosperity from resource consumption. What use is it if cars and televisions are better value and more efficient in terms of consumption but more and bigger models are being sold, using just as much energy and resources as before? Targeted taxes and fees, correctly applied, can help to avoid these rebound effects. Adapted to technical developments, they can prevent efficiency gains being eaten up by more consumption and ensure that the incentive remains to develop better and better products. Extending thinking on ecological financial reform The introduction of eco-taxes on electricity and motor and heating fuels during the time of the red- green government marked the beginning of a systematic ecological financial reform which has successfully helped to cut environmental pollution. The stepwise increase in fuel fees, for example, has actually led to people buying more fuel-efficient cars, driving in a more fuel-efficient manner and making more use of alternative means of transport to cars. This has demonstrably reduced emissions in the transport sector. 3 A large part of the fees on electricity and motor fuels was used to reduce pension insurance contributions and hence cut labour costs. In the public debate, however, the principle of changing direction towards an ecological-social tax system in line with this ecological financial reform took a back seat.