Download - Chapter 12: Saving the Planet
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Chapter 12: Saving the Planet
By: Chris Balkaran and Braden Hutchins
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Nudge: Brief Overview Nudge: Brief Overview Traditionally, governments have sought to limit the effects of emissions through command-and-control initiatives, such as establishing thresholds that certain types of emissions cannot exceed E.g. Acid Rain Agreements, California auto regulations
The costs involved sometimes are higher than anticipated (Regulation is expensive and cumbersome)
However, because we cannot monitor and reason with every polluter (including all of us!), we must expect some form of government intervention
Traditionally, governments have sought to limit the effects of emissions through command-and-control initiatives, such as establishing thresholds that certain types of emissions cannot exceed E.g. Acid Rain Agreements, California auto regulations
The costs involved sometimes are higher than anticipated (Regulation is expensive and cumbersome)
However, because we cannot monitor and reason with every polluter (including all of us!), we must expect some form of government intervention
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Nudge: Brief Overview Nudge: Brief Overview
Two main reasons for environmental degradation:Tragedy of the CommonsLittle (if any) feedback on environmentally damaging actions E.g. Thermal Inertia
Solutions:TaxationCap-And-Trade System
Two main reasons for environmental degradation:Tragedy of the CommonsLittle (if any) feedback on environmentally damaging actions E.g. Thermal Inertia
Solutions:TaxationCap-And-Trade System
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Nudge: Brief Overview Nudge: Brief Overview Tax:
Places a value on natural resources to take into account negative externalityE.g. Carbon
Pros:Easy to implement - acts like any other tax Consumers must take tax into account when making purchases
Cons:Taxes are unpopularDoes not limit actually emissions
Tax:Places a value on natural resources to take into account negative externalityE.g. Carbon
Pros:Easy to implement - acts like any other tax Consumers must take tax into account when making purchases
Cons:Taxes are unpopularDoes not limit actually emissions
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Nudge: Brief OverviewNudge: Brief Overview
Cap-and-TradeThe ‘rights’ to pollute within a given amount are bought/sold in a market
Pro:Actual limits to emissions setEasier for big industry to adjust to
Cons:Continual monitoring needed (more expensive)
Not feasible for individual consumersNeed a large enough market
Cap-and-TradeThe ‘rights’ to pollute within a given amount are bought/sold in a market
Pro:Actual limits to emissions setEasier for big industry to adjust to
Cons:Continual monitoring needed (more expensive)
Not feasible for individual consumersNeed a large enough market
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Nudge: Brief OverviewNudge: Brief Overview
Both a tax and ‘cap-and-trade’ provide incentives and allow for choices for taking into account negative externalities
These types of incentives allow for individuals and firms to see how polluting impacts their bottom line - it provides immediate feedback.
E.g. 50 liter gas tank filled up once a week50 liters x 7.23 cent Carbon Tax Per Liter x 52 weeks in a year
$3.62 per fill up$188.24 in carbon tax paid per year
Both a tax and ‘cap-and-trade’ provide incentives and allow for choices for taking into account negative externalities
These types of incentives allow for individuals and firms to see how polluting impacts their bottom line - it provides immediate feedback.
E.g. 50 liter gas tank filled up once a week50 liters x 7.23 cent Carbon Tax Per Liter x 52 weeks in a year
$3.62 per fill up$188.24 in carbon tax paid per year
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Article for AnalysisArticle for Analysis
Environmental Tax Reform: The European Experience
By J. Andrew Hoerner and Benoit Bosquet
Written For: The Center For A Sustainable Economy
February 2001
Environmental Tax Reform: The European Experience
By J. Andrew Hoerner and Benoit Bosquet
Written For: The Center For A Sustainable Economy
February 2001
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Summary of ArticleSummary of Article
Looks at Environmental Tax Reform (ETR)
ETR is when revenue from taxes on pollution or resource depletion is used to lower taxes on economic activities (e.g. labour) - also called revenue neutral
Looks at Environmental Tax Reform (ETR)
ETR is when revenue from taxes on pollution or resource depletion is used to lower taxes on economic activities (e.g. labour) - also called revenue neutral
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Summary of ArticleSummary of Article
In 2001, eight countries had implemented ETR
Denmark, Finland, Germany, Italy, Netherlands, Norway, Sweden, United Kingdom
Typically reduce the tax burden placed on labour by cutting income tax or social security contributions paid by employers
Most focused on greenhouse gas emissionsNot all environmental tax is revenue neutral
E.g. In the Netherlands green taxes constitute 9% of all tax revenue, only 0.5% is revenue neutral
In 2001, eight countries had implemented ETR
Denmark, Finland, Germany, Italy, Netherlands, Norway, Sweden, United Kingdom
Typically reduce the tax burden placed on labour by cutting income tax or social security contributions paid by employers
Most focused on greenhouse gas emissionsNot all environmental tax is revenue neutral
E.g. In the Netherlands green taxes constitute 9% of all tax revenue, only 0.5% is revenue neutral
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Policy ImplicationsPolicy ImplicationsMarket-based approach to environmental control
Allow greater flexibility in deciding where, when, how or to what extent to cut pollution emissions, thereby reducing cost to the economy and increasing personal freedom
If designed properly, national market-based systems allow reductions of total national pollution emissions with greater flexibility and lower cost than with less flexible and comprehensive approaches
Market-based approach to environmental control
Allow greater flexibility in deciding where, when, how or to what extent to cut pollution emissions, thereby reducing cost to the economy and increasing personal freedom
If designed properly, national market-based systems allow reductions of total national pollution emissions with greater flexibility and lower cost than with less flexible and comprehensive approaches
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Policy ImplicationsPolicy Implications
“When the revenues of environmental taxes are used to reduce other distorting taxes, the economic outcome is better than if those revenues are not so distributed, in terms of impacts on both employment and GDP”
E.g. 87% of 104 economic simulations predict that ETR will create employment.
“When the revenues of environmental taxes are used to reduce other distorting taxes, the economic outcome is better than if those revenues are not so distributed, in terms of impacts on both employment and GDP”
E.g. 87% of 104 economic simulations predict that ETR will create employment.
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Policy ImplicationsPolicy ImplicationsOf 100 simulations, 75% predicted a negligible impact on GDP.
Of 100 simulations, 75% predicted a negligible impact on GDP.
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Policy ImplicationsPolicy Implications
However, how money is redistributed makes a difference.
Social security contribution reduction:
86% chance of increased employment.65% of simulations showed GDP gains
Income tax reduction:35% chance of increased employment.25% of simulations showed GDP gains
However, how money is redistributed makes a difference.
Social security contribution reduction:
86% chance of increased employment.65% of simulations showed GDP gains
Income tax reduction:35% chance of increased employment.25% of simulations showed GDP gains
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Policy ImplicationsPolicy Implications All eight nations adopted measures to promote new clean energy technology when implementing carbon tax E.g. Tax incentives for energy efficient technologies and electrical plants
In all cases, the economic net benefit of a carbon tax along side the other measures was preferable
Policy packages that use a portion of the tax to finance energy efficient or renewable energy improvements are more likely to result in positive employment and GDP impacts, as well as more emissions reductions/savings
All eight nations adopted measures to promote new clean energy technology when implementing carbon tax E.g. Tax incentives for energy efficient technologies and electrical plants
In all cases, the economic net benefit of a carbon tax along side the other measures was preferable
Policy packages that use a portion of the tax to finance energy efficient or renewable energy improvements are more likely to result in positive employment and GDP impacts, as well as more emissions reductions/savings
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Case Study: DenmarkCase Study: Denmark
1992 - CO2 tax introduced: initially proposed at DKK 100/metric ton, but later reduced to DKK 50/metric ton
If companies undertook new environmentally-efficient technologies to heat office buildings for example, the Danish government would give a tax refund (an incentive)
1992 - CO2 tax introduced: initially proposed at DKK 100/metric ton, but later reduced to DKK 50/metric ton
If companies undertook new environmentally-efficient technologies to heat office buildings for example, the Danish government would give a tax refund (an incentive)
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Case Study: DenmarkCase Study: Denmark
Other ways tax revenues were ‘recycled’ into the economy:A large pool of funds was set aside to assist small companies and agriculture
Reduced employers’ contributions to social security
The Danish government also reduced income taxes, particularly those in the low-income tax bracket
Other ways tax revenues were ‘recycled’ into the economy:A large pool of funds was set aside to assist small companies and agriculture
Reduced employers’ contributions to social security
The Danish government also reduced income taxes, particularly those in the low-income tax bracket
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Case Study: DenmarkCase Study: Denmark
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SwedenSweden
In 1991, the first major shift in the tax base from traditional factors of pollution
New tax on carbon dioxide and sulpher dioxide
Reduced energy tax on fossil fuels
Income tax scaled back
In 1991, the first major shift in the tax base from traditional factors of pollution
New tax on carbon dioxide and sulpher dioxide
Reduced energy tax on fossil fuels
Income tax scaled back
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SwedenSweden In 1993, big industry complained that the tax hurt their comparative advantage in Europe
Carbon Tax reduced In 1997, political attitudes changed again - carbon tax raised
Now, the carbon tax is adjusted annually in line with inflation
In 2000, the scope of the carbon tax increased More fuels included (E.g. Diesel)
Money used to finance continuous education of the work force - goal to help shift economy from primary skills (e.g. resource extraction) to secondary or tertiary skills.
In 1993, big industry complained that the tax hurt their comparative advantage in Europe
Carbon Tax reduced In 1997, political attitudes changed again - carbon tax raised
Now, the carbon tax is adjusted annually in line with inflation
In 2000, the scope of the carbon tax increased More fuels included (E.g. Diesel)
Money used to finance continuous education of the work force - goal to help shift economy from primary skills (e.g. resource extraction) to secondary or tertiary skills.
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SwedenSweden
Money returned to individuals and firms through income tax reductions and cuts to social security contributions
Key Exemptions limit effectiveness:Energy productionSome agriculture
Money returned to individuals and firms through income tax reductions and cuts to social security contributions
Key Exemptions limit effectiveness:Energy productionSome agriculture
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BC Carbon TaxBC Carbon Tax
Applies to 70% of fossil fuels purchased or used.
22 types of fuel are covered.Currently 2.41 cents per liter (for gas)
Scheduled to rise annually until 2012 when the price reaches 7.24 cents per liter.
Personal and corporate income taxes scheduled to fall incrementally over the next five years.
Applies to 70% of fossil fuels purchased or used.
22 types of fuel are covered.Currently 2.41 cents per liter (for gas)
Scheduled to rise annually until 2012 when the price reaches 7.24 cents per liter.
Personal and corporate income taxes scheduled to fall incrementally over the next five years.
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BC Carbon TaxBC Carbon Tax Affected by world oil prices
E.g. $140 a barrel vs. $38 a barrel Certainty of price, uncertainty of emissions
Time frame to short Total revenue neutrality limits alternatives
Regressive or progressive? Exemptions
E.g. Exporting goods, inter-jurisdictional shipping and aircraft, aboriginals, visiting military and diplomats, aluminum and cement manufacturing
Affected by world oil prices E.g. $140 a barrel vs. $38 a barrel
Certainty of price, uncertainty of emissions
Time frame to short Total revenue neutrality limits alternatives
Regressive or progressive? Exemptions
E.g. Exporting goods, inter-jurisdictional shipping and aircraft, aboriginals, visiting military and diplomats, aluminum and cement manufacturing
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ConclusionsConclusions A carbon tax provides an incentive for individuals to take into account emissions when making purchases
If revenue neutral, can be used to encouraged employment
Will have negligible effect of GDP Hard for many big businesses to adapt to Does not provide actual limit on emissions But is cheaper to implement than a cap-and-trade
More importantly, it provides more freedom and flexibility that a command and control system
A carbon tax provides an incentive for individuals to take into account emissions when making purchases
If revenue neutral, can be used to encouraged employment
Will have negligible effect of GDP Hard for many big businesses to adapt to Does not provide actual limit on emissions But is cheaper to implement than a cap-and-trade
More importantly, it provides more freedom and flexibility that a command and control system