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