Ecological fiscal reform and conservation Irene Ring UFZ, Department of Economics
Seminar on financial instruments for conservation Vilm, 29th July – 3rd August, 2007 Ecological fiscal reform – Concept and historical background
Ecological tax reform Concepts: late 1980s/early 1990s Increase taxes on energy resources, decrease tax on labour Implementation in Germany: 1999 – 2003 Ecological financial or fiscal reform Enlarged concept to cover various taxes and to reduce environmentally harmful subsidies Implementation in Germany: since 2003, various instruments
Useful source: BMU (2004) The ecological tax reform: introduction, continuation and further development into an ecological fiscal reform
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 2 Ecological fiscal reform – Enlarged understanding
Public income Public expenditure
Taxes Subsidies Charges Fiscal transfers Fees Payments for ecosystem services Negative Negative & externalities positive externalities
Ecological fiscal reform and conservation
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 3 Nature conservation in intergovernmental fiscal relations Objective: Consideration of ecological public functions in fiscal transfers between governmental levels
Modelling Free state of Status quo Saxony and International experiences perspectives Brazil Germany
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 4 Principles in fiscal federalism
Principle of Principle of fiscal decentralisation equivalence
Concerning the allocation function “Find a match between those who of the public sector: receive the benefits of a collective Suitable for less mobile environmental good and those who pay for it.” compartments: inland waters, nature (Olson 1969) conservation, land use
Consider spatial externalities, e.g. Internalisation through government existing for special priority areas grants, compensating for the external benefits of local costs
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 5 Spatial distribution of conservation benefits and costs
Benefits: Costs:
Goods and services of Regionally and sectorally national and global relevance unequal distribution
Payments for ecological services at the local level: Land users (e.g., agri-environmental programmes, conservation programmes) Local governments (Fiscal transfer system to the local level)
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 6 Fiscal transfer system in Germany
Taxes Public revenues Distribution to state and local levels
Governmental levels in the German federal system:
Federal State (Länder) Local
Fiscal transfers to the local level
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 7 Fiscal transfer systems to the local level
Substantial source of income for municipalities: 30% in West-Germany, 50% in East-Germany Fiscal compensation today: Urban agglomerations Rural and remote areas
Not considered: Ecological services involving spatial externalities: spillover benefits
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 8 Ecological fiscal transfers as conditional grants in Germany: Status quo (2006)
Areas Supported measures States (Länder) Soil Soil conservation BW, S-A Prospecting and remediation of BAY, BW, HE, S-A, THÜR contaminated sites, recultivation Water Water protection HE, SH, RP Water supply BAY, BW, HE, MV, RP, SAAR, SACH, THÜR Sewage disposal BAY, BRG, BW, HE, MV, RP, SAAR, SACH, THÜR Nature protection Nature conservation and HE, MV, S-A landscape preservation Recreation Spas, recreation and tourism MV, RP, SH Waste disposal Waste disposal plants BAY, HE, MV, RP, SAAR, THÜR Energy Energy saving measures HE BAY Bavaria MV Mecklenburg-Western Pomerania S-A Saxony-Anhalt BRG Brandenburg NRW North Rhine-Westphalia SACH Saxony BW Baden-Württemberg RP The Rhineland-Palatinate THÜR Thuringia HE VilmHes 2007se – Irene Ring: EcologicalSAAR fiscal reformSaarland and conservation SH Schleswig-Holstein Page 9 Status quo and perspectives
Status Quo Perspectives water supply + sewage disposal nature conservation waste disposal, remediation water protection soil protection
Dominance of end-of-the-pipe Resource conservation: long- and infrastructural functions term and precautionary tasks
From conditional to unconditional grants!
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 10 Ecological fiscal transfers – Experiences
Brazil has gained positive experiences with ecological fiscal transfers: ICMS-E *
Compensation for land-use restrictions Incentive to create and maintain protected areas
or commonly also called: Ecological value-added tax
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 11 States with ICMS-E legislation in Brazil (2005)
Ecological indicators
“Conservation Units”: officially registered protected areas for nature and biodiversity conservation
Watershed protection areas
Solid waste disposal
Sanitation systems and sewage disposal
Slashing and burning control
Soil protection
Local environmental policy
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 12 Paraná/Brazil: Incentives for biodiversity conservation and watershed protection
Motivation 1980s: stricter environmental legislation in Brazil for Municipalities with protected areas exerted pressure on introduction the state legislature and government agencies E.g., Piraquara: 90% of municipal territory protects a major watershed for the Curitiba metropolitan region, remaining 10% nature reserves
ICMS-E 5% of the total ICMS amount distributed to the local implementation level is based on ecological indicators in 1992 - 2,5% Conservation Units (CUs) – biodiversity conservation - 2,5% watershed protection areas
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 13 Indicator “Conservation Unit”
+ quality indicator Area CU i = ∑ protected area n × CWn n Management category n Conservation weight Ecological research station 1,0 Conservation Biological reserve 1,0 weights for Park 0,9 different Private natural heritage reserve 0,8 management categories in National, state or municipal forest 0,7 Paraná Indigenous area 0,5 Environmental protection area I 0,1 Area of relevant ecological interest 0,1 Special, local areas of tourist interests 0,1 Buffer zones 0,1
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 14 Ecological Index based on “Conservation Units”
MCF AreaCU 1 z EI = i = i × i SCF = ∑ MCFi SCFi Area M i SCF i=1
EIi Ecological Index of municipality i
MCFi Municipal Conservation Factor of municipality i SCF State Conservation Factor
Area CUi Total area of conservation units in municipality i
Area Mi Total area of municipality i
Mi Municipality i z Total number of municipalities in the state
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 15 States with ICMS-E legislation
TABELA 1 - ESTADOS BRASILEIROS QUE POSSUEM ICMS ECOLÓGICO IM PLEM ENTADO OU EM FASE DE IM PLEMENTAÇÃO, ANO DE APROVAÇÃO DA LEI, E PERCENTUAIS PARA O REPASSE DE RECURSO FINANCEIRO EM RELAÇÃO AS UNIDADES DE CONSERVAÇÃO E OUTROS CRITÉRIOS Unidades de Conservação, Terras O u tro s crité rio s ESTADO ANO Indígenas e outras am bientais Áreas Especialmente (% ) P ro te g id a s (% ) Paraná 1991 2,5 2,5 São Paulo 1993 0,5 - Minas Grais 1995 0,5 0,5 Rondônia 1996 5,0 - Amapá 1996 1,4 Rio Grande do Sul 1998 (1)7,0 - Mato Grosso 2001 5,0 2,0 Mato Grosso do Sul 2001 5,0 - Pernambuco 2001 1,0 5,0 Tocantins 2002 3,5 9,5 Acre 2003 5,0 - FONTE: Legislações Estaduais. Nota: A legislação do Rio Grande do Sul prevê que se m ultiplique por três a superfície territorial do município que contenha unidade de conservação.
Source: Loureiro 2005
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 16 Participation in ICMS-E programme
Voluntary participation: good information policy essential Prerequisite for approval of reserves: official registration Paraná: more than 50% of municipalities participate Minas Gerais: more than 30% of municipalities participate
Positive effects: Perception of existence of protected areas by municipalities changed Protected areas are not perceived as obstacles to development any more Some municipalities develop active interest in designating protected areas, even national parks
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 17 Paraná: Increase in conservation units
Protected areas Until 1991 Created after Total by 2000 Increase [ha] 1991 [ha] [ha] [%] public Federal 289.582 50.846 340.428 18 State 39.859 13.804 53.663 35 Municipal 1.429 2.740 4.169 192 private/mixed APA 306.693 905.631 1.212.324 295 RPPN 0 26.124 26.124 Other 0 53.607 53.607 Total 637.563 1.052.752 1.690.315 165
APAs (Environmental Protection Areas) can be designated at federal, state or municipal level. RPPNs (Private Natural Patrimony Reserves) can be designated at federal or state level.
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 18 Fiscal effects of ICMS-E on municipal budget
Paraná: 1994 – 2000 50 Mio. R$ annually 06/2001: São Paulo: 1994 – 1996 23 Mio. R$ annually R$ 1,00 = Minas Gerais: 1998 – 2000 15 Mio. R$ annually US$ 0,41 Paraná: Piraquara (100% water reserves + CUs): local income increased by 84% until 1995 São Jorge do Patrocínio (52% CUs): 71% of ICMS transfers based on CUs (2000) Minas Gerais: Marliéria (55% CUs): 68% of ICMS transfers based on CUs; Increase of transfers from R$ 36.648 (1995 before ICMS-E) to R$ 811.335 (1996 after implementation of ICMS-E) Rondônia: Municipalities with at least 25% protected areas within their territory benefit from ICMS-E
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 19 Transfer potential of Brazilian model to Germany
Consideration of conservation areas within the intergovernmental transfer system to the local level – possible scenarios:
Brazilian model: Alternatively: Set aside a definite budget in Consideration of conservation units advance and allocate according to as part of the additional approach share of conservation units within to allocate lump-sum transfers municipal territory (analogous to area, pupils, etc.)
Corresponding scenarios are calculated at UFZ for the Free State of Saxony
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 20 Nature conservation in the Saxon fiscal transfer system of 2002
Governmental structure of Saxony
State level: Saxony Intermediate administrative level - 3 Regierungsbezirke Chemnitz, Dresden, Leipzig 22 Districts 7 District-independent cities, such as the larger cities of Chemnitz, Leipzig, Dresden 530 Municipalities, each belonging to a district
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 21 Basic structure of Saxon fiscal transfer system (2003)
Scenario 1 Scenario 2
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 22 Protected areas in Saxony, Germany
Nature park Dübener Heide Natura 2000 site: Military training area Oberlausitz
Biosphere reserve Oberlausitzer Heide- und Teichlandschaft
National park Sächsische Schweiz
Nature park Erzgebirge-Vogtland GIS: J. Myšiak
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 23 Indicator “Conservation units”
Area CUi Conservation units (ha) Area CU i = ∑ protected area n × CWn of municipality i n
Management category n Conservation weight CW National park (NLP) 1 FFH-reserve, Habitats Directive (FFH) 0.9 Specially protected area, Birds Directive (SPA) 0.9 Nature reserves (NSG) 0.7 Biosphere reserves (BR) 0.6 Nature park (NP) 0.4 Landscape reserve (LSG) 0.3
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 24 Scenario 1: Nature conservation as part of general lump-sum grants
Conservation units (dimension: hectare) are transformed into equivalents of inhabitants that can then be multiplied with the basic amount of € available for each type of local jurisdiction Partial scenarios: e.g., 1 ha CU corresponds to one or several inhabitants, analogous to existing approaches that consider area for general lump-sum grants
- Scenario 1a: 1 CU = 1 inhabitant map - Scenario 1b: 1 CU = 2.36 inhabitants (average population density in Saxony in 2002)
both maps
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 25 Saxony 2002: Scenario 1a, 1 ha CU = 1 inhabitant
Relative change of lump-sum grants [%] Number of municipalities
300
250
200
150
100
50
0 -50 bis < - -55,1% -25 bis <0% 0 bis < 25% 25 bis <50% 50 bis <100% ≥ 100% 25% RB Chemnitz 1 1113642113 1 RB Dresden 0 0 98 66 21 16 19 RB Leipzig 1 0 61 18 15 4 4 Sachsen 2 1 272 148 57 33 24
Zwochau: - 55% Trossin: + 447%
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 26 KFA Saxony 2002 - Scenario 1a: RB Dresden Lump-sum grants considering conservation units
Relative change of lump-sum grants in RB Dresden [%] 1 ha Conservation Unit = 1 inhabitant
GIS: A. Kindler & H. Hartmann
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 27 Saxony 2002 - Scenario 1a + b: RB Dresden Lump-sum grants considering conservation units
Regierungsbezirk Dresden; Relative change of lump-sum grants [%]
Hoyerswerda
Gör- litz
Dresden Prozentuale Veränderung
- 100 bis < - 50 - 50 bis < - 25 - 25 bis < 0 0 bis < 25 25 bis < 50 km 50 bis < 100 0 10203040 100 bis < 200
200 bis < 950
Kommunaler Finanzausgleich Sachsen 2002 Regierungsbezirk Dresden Naturschutz im Nebenansatz 1 ha Naturschutzeinheit = 2,36 Einwohner 1 ha CU = 1 inhabitant 1 ha CU = 2.36 inhabitants Average population density in Saxony in 2002
GIS: A. Kindler & H. Hartmann
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 28 Saxony 2002 - Scenario 1a + b: RB Leipzig Lump-sum grants considering conservation units
Regierungsbezirk Leipzig, Relative change of lump-sum grants [%]
Relative maximum Saxony Trossin: + 447% (+ 1.5 Mio.€)
Relative minimum Saxony Zwochau: - 55% (- 38.000 €)
1 ha CU = 1 inhabitant 1 ha CU = 2.36 inhabitants
GIS: A. Kindler & H. Hartmann
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 29 Scenario 2: Unconditional conservation grants – Compensation of conservation burdens
Analogous to compensation of cultural (2002: 30 Mio. €) and road burdens (2002: 90 Mio. €) in Saxon transfer system Defined amount set aside for local ecological services Conservation units as basis for calculation
Conservation grants = Ecological Index EIi of municipality i, multiplied with available amount set aside for conservation
- Scenario 2a: 30 Mio. € map - Scenario 2b: 90 Mio. €
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 30 Scenario 2: Ecological Index
MCF AreaCU 1 z EI = i = i × i SCF = ∑ MCFi SCFi Area M i SCF i=1
EIi Ecological Index of municipality i
MCFi Municipal Conservation Factor of municipality i SCF State Conservation Factor
Mi Municipality i z Total number of municipalities in Saxony
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 31 KFA Saxony 2002 - Scenario 2a: RB Dresden 30 Mio. € set aside for conservation
Relative change of unconditional conservation grants and lump-sum grants in RB Dresden [%]
GIS: A. Kindler & H. Hartmann Compare scenario 1a
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 32 Ecological fiscal transfers: A realistic way to go?
Highest Environmental Expert Council (SRU): has asked for integration of ecological indicators into fiscal transfers for about 10 years Federal Environmental Ministry and Conservation Agency interested Existing studies: more complicated indicators, show no significant financial effect Scientific challenge: To justify intangible needs for allocation of transfers (economic and legal task, Federal/State Constitutions) Practical challenge: To gain political momentum and powerful advocates
Europe: Portugal! Since 1.1.2007 there is a new law that introduces Natura 2000 and other protected areas as indicator for fiscal transfers to municipalities (73 Mio. €/year).
Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation Page 33