carbon taxation new chapter few would today dispute that humans are a part of the global warming...
TRANSCRIPT
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Carbon Taxation
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NEW CHAPTER
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Few would today dispute that humans are a part of the global warming problem
- This is not the reason for the interest
Our issue is how we create maximum CO2 reductions with least pain
Generally the idea is to allow society to function, GDP and growth to be maintained yet progressively lower CO2 emissions
Environmental Taxes
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Environmental taxes are unique - why?
Taxes are not about stopping or curtailing behaviour
Taxes are revenue raisers - at least in developed economies
Only comparables are sin taxes – alcohol, tobacco and similar
Is Tax Right
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The optimal tax should be set so that :
Marginal environmental damage = Marginal economic benefit
(MED = MEB)
There fore MED = $50bn on car pollution may require another $1 / litre tax on fuel. But would create political problems
In addition while social welfare may increase by reducing CO2 emissions GDP may drop – currently or any other time not easy to accept by societies
The Tax Theory
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Optimisation may also be economically difficult if the Laffer Curve effect holds
This means the optimal rate could be where the tax take declines hence makes it even more difficult both economically and politically
In addition the optimal tax point is dynamic and may never be truly attainable
Tax Theory
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Tax policy inevitably lags
Politicians need to go through a parliamentary due process
Thus to track a difficult moving target has proved impractical
The European Approach
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The Reality on the Ground
07957 303 892
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The UK has a declining trend
Many other EU countries the same
Scandinavia always seen as a leading light but
Denmark DK only 6% of GDP is environmental taxes
The Reality on the Ground
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The Specifics
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Energy taxes are favourite
But no possible general trend
Cultural mind set and political expedience decides
The Specifics
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The Trend
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Quite a mix between EU states
Around 50% of member states have reduced their tax take from environmental taxes
Most interesting is that the net amount of take has also been reduced
Reduced for EU25, EU27, and EA 15
The Trend
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Energy Taxes - The Trend
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1999 was the peak for EU Environmental Taxes
But clearly many such taxes were there as revenue raising instruments rather than to save the planet
We do not see the Tax Shift we all talk about with the introduction of environmental taxes in the 1990s
The Trend
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What Are The Taxes
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Shown are the obvious taxes
The UK Government has said that it wishes to use the market to address environmental issues
The taxes are there to address what it considers to be areas of market failure
“Market failure” is an euphemism for higher than desirable CO2 output for an activity
These euphemisms however raise suspicions for Taxpayers
The Specifics
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There are also some very detailed tax measures
E.g. enhanced Capital Allowances for environmentally friendly building components.
Highly complex and technical
Relief can apply to a specified type of wall which could reduce energy use
Separate relief from Stamp Duty for zero emissions residential property
The Specifics
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Taxation of cars has also changed from 2010
Annual road tax for cars has risen more that 300% for the most polluting vehicles 255g/km CO2 from 2010
In addition for above average emissions vehicles 160g/km and above depreciation allowances will be reduced significantly from 20% to 10%
Also addition “showroom” tax on high CO2 output vehicles polluting vehicles as much £1,000 - 2010.
Big push to fund electric vehicle production and promotion of £100m and provide public electric charging points and £5,000 per car subsidy on new technology cars e.g. GM Volt
The Specifics
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Conversely high political sensitivity to consumer’s concerns
Recent rises due on fuel duties in 2008 and 2009 were stopped due to high oil prices but two rises in 2010
This is the issue with environmental taxes throughout Europe
Significant consumer resistance as lack of understanding what the tax is for
The Specifics
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One area which might be helpful for the future would be a greater see through (transparency) for environmental taxes – hypothecation
Hence taxpayers could see:
-that a tax on their cars was paying for a CO2 reducing initiative or
-the tax paid for more hospitals but overall tax levels were maintained as Income Tax levels were reduced – Tax Shift
Broadly environmental taxes acting as a substitution is probably acceptable to most European tax payers but not a way of augmenting them
Thus perhaps the implementation strategy needs to be considered
The Specifics
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UK was to introduce a scheme in 2012 where highest polluting businesses and public sector pay in to a fund
Fund distributed to least polluters
But now fund will be pocketed by Government
Nothing to dispel cynicism of environmental taxes
Carbon Reduction Commitment (CRC)
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A part of the EU strategy in this area involves what is called emissions trading
Broadly this is how it works
2008 EU member states allocated and sold emissions credits to CO2 emitters via an approved purchaser known in the UK as a “primary purchaser”
The UK is currently in phase 2 i.e. most emissions credits issued free but up to 7% auctioned
Auction for first time was on 19th November 2008
Emissions Trading
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Phase 2 from 2008 - 2012
2012 onwards around 100% of credits will be auctioned
There can then be additional buying and selling among holders of the credits thus creating a full market
Year by year the level of credits hence CO2 emissions will reduce therefore reducing EU emissions
Problem in down turn prices dropped through the floor
Emissions Trading
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Tax effects are meant to be benign
Full VAT (GST) recovery where appropriate
May also be out side the scope in certain cases therefore not creating partial exemption of itself
Companies my elect
But has been the subject of missing trader fraud very significant tax losses and created yet another fraud opportunity
Emissions Trading
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Direct tax perspective
Tax profits from sales
Deduct from profits costs
Therefore see-through and transparent
Emissions Trading
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The commission is also looking at tax in this area
They are in favour of market based instruments (MBIs) – as now happens in member states
But also looking to minimum tax levels for energy producing products i.e. gas, coal etc.
The commission will look much more to promoting the use of MBIs in the areas of transport, trying to extend these to shipping and aviation
The commission recognises that the distributional impacts i.e. less well off impacted more would need to be addressed perhaps through targeted measures
For instance UK offers free transport for pensioners
EU Level
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The global recession has probably delayed or deferred a greater switch to environmental taxes
But even with a new administration in the US there is no clear global consensus
The great hopes where the US might lead plans for CO2 emissions reductions have been disappointed
Environment taxes only seem to have fair weather friends clear disappointing to see a move to tax shift put on hold or reversed
The US mid-term elections if anything indicate an environmental backlash. Many of the now majority party in the House of Representatives question the science behind Global Warming
Should we look to Regulation rather than tax
The Future – Concluding Comments
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Tax theory