Environmental issues series No 18 Environmental taxes: recent developments in tools for integration November 2000 Layout: Brandenborg a/s Legal notice The contents of this report do not necessarily reflect the official opinion of the European Commission or other European Communities institutions. Neither the European Environment Agency nor any person or company acting on behalf of the Agency is responsible for the use that may be made of the information contained in this report. A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server (http://europa.eu.int) ISBN: 92-9167-261-0 © EEA, Copenhagen, 2000 Reproduction is authorised provided the source is acknowledged Printed in Denmark Printed on recycled and chlorine-free bleached paper European Environment Agency Kongens Nytorv 6 DK-1050 Copenhagen K Denmark Tel: +45 33 36 71 00 Fax: +45 33 36 71 99 E-mail: [email protected] http://www.eea.eu.int Contents Preface......................................................................................... 5 Summary...................................................................................... 7 1. Recent developments in the use of green taxes........... 7 1.1. Increase in the use of environmental taxes......... 7 1.2. New areas for environmental taxation are emerging ....................................................... 8 1.3. Dynamic developments in large EU countries..... 8 1.4. Almost no progress at EU level........................... 8 1.5. Accession countries play a valuable role............. 8 2. Effectiveness of environmental taxes ............................ 8 2.1. Evidence of effectiveness is increasing ............... 8 2.2. Combined measures and policy packages may be helpful ..................................................... 9 2.3. Ecological tax reforms serve multiple objectives 9 3. Taxes and the integration of environment into sector policies......................................................... 10 3.1. Energy.................................................................. 10 3.2. Transport ............................................................. 10 3.3. Agriculture.......................................................... 10 4. Barriers to the introduction of environmental taxes can be overcome.................................................. 10 1. The case for environmental taxes........................................ 12 1.1. Integrating economic and environmental- protection requirements................................................ 12 1.2. Bringing externalities into prices; the polluters pays principle ......................................... 13 1.3. Incentives for pollution abatement at minimum cost.... 14 1.4. Dynamic incentives towards pollution- abatement technology................................................... 15 1.5. Raising revenue.............................................................. 16 1.6. The double dividend argument................................... 16 1.7. Changing the distribution of income and welfare......... 17 1.8. Exploiting multiple environmental gains ....................... 17 1.9. Broadening the range of instruments and mutual reinforcement ............................................. 17 2. Types of environmental tax ................................................. 19 2.1. Objectives...................................................................... 19 2.2. 8ields of operation......................................................... 20 2.3. Point of application........................................................ 20 2.4. Tax bases ....................................................................... 20 2.5. Development in types of taxes and charges ................. 21 3. Use of environmental taxes in Europe................................ 22 3.1. Introduction ................................................................... 22 3.2. General trends ............................................................... 23 3.2.1. Environmental tax revenue trends....................... 23 3.2.2. Emerging tax bases ............................................. 26 3.2.3. Value-added tax .................................................. 26 3.3. Main features of environmental taxes in Europe........... 27 3.3.1 Environmental taxation at EU level ..................... 28 3.3.2. Environmental taxes in central and eastern Europe .................................................... 29 3.3.3. Country overview................................................. 30 3.4. Environmental taxation in specific areas ....................... 39 3.4.1. Taxing aviation..................................................... 39 3.4.2. Taxes on (hazardous) chemicals .......................... 40 3.4.3. Taxes on chemicals used in agriculture............... 41 3.4.4. Waste taxes ......................................................... 42 3.4.5. Water taxes.......................................................... 42 3.4.6. Land taxes............................................................ 42 3.4.7. Tourism ................................................................ 42 4. Environmental effectiveness................................................ 43 4.1. Introduction ................................................................... 43 4.2. Evaluating effectiveness ................................................ 44 4.3. Evidence on environmental effectiveness ..................... 45 4.3.1. Energy.................................................................. 45 4.3.2. Transport ............................................................. 47 4.3.3. Pollution and resources ....................................... 48 4.4. Conclusions.................................................................... 49 5. Implementation: barriers and solutions .............................. 51 5.1. Barriers and solutions to wider use of environmental taxes....................................................... 51 5.1.1. Economic barriers ................................................ 51 5.1.2. Social barriers ...................................................... 52 5.1.3. 8iscal barriers....................................................... 52 5.1.4. Political barriers ................................................... 53 5.1.5. Careful planning .................................................. 53 5.2. Barriers and solutions to EU-wide minimum energy taxes................................................... 53 5.3. Barriers and solutions to environmental taxes in EU Member States ........................................... 54 5.4. Barriers to unilateral introduction.................................. 55 5.5. Solutions ........................................................................ 55 Annex I: Details of environmental taxes by country.............. 57 Annex II: Acronyms and abbreviations .................................... 78 Annex III: Tax rates for energy products in the EU, in euros.. 80 Annex IV: Opinions of some stakeholders on environmental taxation/ economic instruments ............................................... 81 Annex V: Overview of taxes and charges in 11 countries in central and eastern Europe............. 84 References................................................................................... 86 Preface 5 Preface In a recent Communication the European more efficient and equitable fiscal system. Commission recognises that environmental That allowed me to say, when presenting the taxes support environmental and economic results to the Environment Ministers in Paris, aims. This indicates a shared responsibility July 15th, 2000, that insufficient eco-taxation for environmental taxes, which develop from means unfair fiscality and impedes progress instruments for environmental protection to in sustainability in the market economy. instruments for sustainable development and a fair fiscal system. In Bringing our needs Environmental taxes are absent at the EU and responsibilities together Integrating level. Annex 2 of the Commission report on environmental issues with economic policy, the operation of the own resources system the Commission wrote: A coordinated 2inancing the European Union (October approach within the Community to implementing 1998) marks the proposed CO /energy tax as 2 the polluter pays principle whether by taxation or a serious candidate for a genuine EU other market-based instruments will help to resource, given however that a Council address issues which are commonly grouped under agreement could be reached on adoption of the heading of competitiveness, even if ( ) this is the tax. It is my strong belief that, adhering a misnomer, since macroeconomic competitiveness to the user pays principle, this tax is needed should be enhanced by moves towards better at Community level in order to establish a integration of environmental concerns. This fair and efficient price of energy in the statement reflects progress in thinking about Internal Market, and also, why not, to the role of environmental considerations in replenish some Community funds to finance sector policies, and the recognition of the programmes on renewable energy, energy potential synthesis of environmental and saving, reforestation, to counteract existing economic goals. unsustainable trends. This is the second time the European It is the EEAs task to provide timely and Environment Agency reports on targeted information. A report on developments in the use and impact of environmental