Status and trends of use of Status and trends of use of fiscal instruments for fiscal instruments for Sustainable Development at Sustainable Development at the EU levelthe EU level

John Hontelez John Hontelez

Secretary GeneralSecretary General

European Environmental Bureau (EEB)European Environmental Bureau (EEB)

Seminar on Ecological Tax Reform; Tallinn, Estonia. Seminar on Ecological Tax Reform; Tallinn, Estonia.

April 11, 2006.April 11, 2006.

Structure of PresentationStructure of Presentation EEB and Market Based InstrumentsEEB and Market Based Instruments Major intervention: Emission TradingMajor intervention: Emission Trading Poor intervention: Environmental Taxes on Poor intervention: Environmental Taxes on

Energy ProductsEnergy Products Failure: CO2/Energy Tax Failure: CO2/Energy Tax Potential: Public Procurement, Transport, Potential: Public Procurement, Transport,

LiabilityLiability Coming?: Aviation, Green PaperComing?: Aviation, Green Paper On waiting list: SubsidiesOn waiting list: Subsidies ““Make the Market Work For the Environment”Make the Market Work For the Environment”

EEB AND MARKET EEB AND MARKET INSTRUMENTSINSTRUMENTS

Market Instruments essential tools for environmental Market Instruments essential tools for environmental policies and sustainable developmentpolicies and sustainable development

Working Group on Environmental Fiscal Reform Since Working Group on Environmental Fiscal Reform Since 2001: Campaign for 10% Fiscal Reform in 20 years: 2001: Campaign for 10% Fiscal Reform in 20 years: shifting taxation burden away from labour to resource shifting taxation burden away from labour to resource use and pollution, and subsidy reformuse and pollution, and subsidy reform

Coalition with European Trade Unions Confederation Coalition with European Trade Unions Confederation and Platform of European Social NGOsand Platform of European Social NGOs

Pressure upon Commission and Governments.Pressure upon Commission and Governments. Limited success, but inclusion in “Lisbon thinking”.Limited success, but inclusion in “Lisbon thinking”.

Major: Major: EU Emissions Trading EU Emissions Trading Scheme (I)Scheme (I)

Operational since January 2005: pilot Operational since January 2005: pilot phasephase

11stst supranational ET scheme in the world supranational ET scheme in the world 11stst EU wide economic instrument EU wide economic instrument

PurposePurpose: : emission reductions at lowest cost (to help MS emission reductions at lowest cost (to help MS

achieve Kyoto targets);achieve Kyoto targets); encourage innovation – price signals to invest in encourage innovation – price signals to invest in

cleaner technologies and decarbonisationcleaner technologies and decarbonisation..

Major:Major: EU Emissions Trading EU Emissions Trading Scheme (II)Scheme (II)

CoversCovers CO2 emissions from about 11.000 CO2 emissions from about 11.000 installations, including all large installations installations, including all large installations producing power and heat, oil refineries, cokes producing power and heat, oil refineries, cokes ovens, ferrous metals production, cement, glass ovens, ferrous metals production, cement, glass tiles, bricks and porcelain, pulp, paper and boardtiles, bricks and porcelain, pulp, paper and board

Structure:Structure: ‘cap-and-trade’ system; allowances ‘cap-and-trade’ system; allowances are ‘grandfathered’; ‘banking’ and borrowing; are ‘grandfathered’; ‘banking’ and borrowing; monitoring by ‘national competent authority’.monitoring by ‘national competent authority’.

Phase II: 2008-2012- first Kyoto commitment Phase II: 2008-2012- first Kyoto commitment periodperiod

EU Emissions Trading EU Emissions Trading Scheme – environmental Scheme – environmental benefits?benefits?

Incentives:Incentives: EU ETS does not provide enough EU ETS does not provide enough incentives for long term investments for industryincentives for long term investments for industry

Targets:Targets: reductions only vis-à-vis Business As Usual reductions only vis-à-vis Business As Usual projections for the future, may lead to increases even - projections for the future, may lead to increases even - threaten Kyoto targetsthreaten Kyoto targets

Rules:Rules: little use of auctioning little use of auctioning Domestic actionDomestic action: worrying trend to rely on JI/CDM for : worrying trend to rely on JI/CDM for

Kyoto compliance – is supplementarity respected?Kyoto compliance – is supplementarity respected? TransparencyTransparency: insufficient, and no independent : insufficient, and no independent

assessment of data for projections/allocationsassessment of data for projections/allocations

No environmental benefits so far – No environmental benefits so far –

Future improvements are necessary!Future improvements are necessary!

The way forward: ETSThe way forward: ETS

TargetsTargets• Reductions over current levels required. MS have to use Reductions over current levels required. MS have to use

EU ETS for Kyoto compliance and work towards EU ETS for Kyoto compliance and work towards Greenhouse Gas emissions reduction of 30% for the EU Greenhouse Gas emissions reduction of 30% for the EU by 2020.by 2020.

• Lack of Kyoto constraint no excuLack of Kyoto constraint no excuse for over-allocations.se for over-allocations.RulesRules

• Focus more on auctioning (10% auctioning allowance in Focus more on auctioning (10% auctioning allowance in 2nd phase)2nd phase)

• Product-specific benchmarks (not fuel/process specific!)Product-specific benchmarks (not fuel/process specific!)• Full transparency of methodologies applied, the data Full transparency of methodologies applied, the data

used, as well as the process - needs wide public used, as well as the process - needs wide public participationparticipation

Poor: Poor: Energy Products Tax Energy Products Tax Directive Directive

Entered into force January 2004, after 6 years of Entered into force January 2004, after 6 years of negotiations!negotiations!

Targets the consumer – aiming to reduce use Targets the consumer – aiming to reduce use of mineral oils, natural gas, electricity and coal.of mineral oils, natural gas, electricity and coal.

Sets minimum environmental tax rates for fuels Sets minimum environmental tax rates for fuels for all MS.for all MS.

Resistance from Member States combined with Resistance from Member States combined with unanimity requirement resulted into: unanimity requirement resulted into: low low minimum tax rates; too many exemptionsminimum tax rates; too many exemptions

Review only possible after 10 years!Review only possible after 10 years!

Failure: Failure: CO2/Energy TaxCO2/Energy Tax

Proposed in 1990 by Commission, ahead Proposed in 1990 by Commission, ahead of Rio Conference in 1992of Rio Conference in 1992

Aimed for a progressive CO2/Energy Tax Aimed for a progressive CO2/Energy Tax on fossil fuels starting at 3 Euro/barrel in on fossil fuels starting at 3 Euro/barrel in 1993 to 10 Euro/barrel in 20001993 to 10 Euro/barrel in 2000

Strong resistance by Member StatesStrong resistance by Member States Burried officially a few years agoBurried officially a few years ago

Potential: Potential:

Public Procurement (I)Public Procurement (I)

Public procurement accounts for 16% of EU GDPPublic procurement accounts for 16% of EU GDP Potential tool for creating huge markets for Potential tool for creating huge markets for

environmentally friendly products and services.environmentally friendly products and services.

In 2004: Two Directives revising rules on public In 2004: Two Directives revising rules on public expenditure: a general one (2004/18/EC) and Utilities expenditure: a general one (2004/18/EC) and Utilities Directive (2004/17/EC)Directive (2004/17/EC)

Implementation into national legislation by 31 Jan 2006Implementation into national legislation by 31 Jan 2006 Allows, but not stimulates, green public procurementAllows, but not stimulates, green public procurement

Potential: Potential:

Public Procurement (II)Public Procurement (II)

Only 7 MS practice green public procurement Only 7 MS practice green public procurement (EC Report)(EC Report)

Some have green public procurement targets for Some have green public procurement targets for vehicles incorporating environmental concerns:vehicles incorporating environmental concerns: Belgium – 50% of new purchase or lease vehicles to Belgium – 50% of new purchase or lease vehicles to

have CO2 emissions less than 145g/km for diesel have CO2 emissions less than 145g/km for diesel and 160g/km for petrol carsand 160g/km for petrol cars

France: all passenger and light commercial vehicles France: all passenger and light commercial vehicles for central authorities, CO2 emission less than for central authorities, CO2 emission less than 140g/km140g/km

Potential: Potential:

Public Procurement (III)Public Procurement (III)

Seen as tool for Sustainable Development:Seen as tool for Sustainable Development:

2006 Spring European Council Conclusions: 2006 Spring European Council Conclusions: “…“…exploration of specific actions (…) more sustainable exploration of specific actions (…) more sustainable consumption and production patterns at EU and global consumption and production patterns at EU and global level (…) and fostering green public procurement…”level (…) and fostering green public procurement…”

can boost the sales of environmentally friendly can boost the sales of environmentally friendly technologies, eco-efficiency (energy, other goods and technologies, eco-efficiency (energy, other goods and services); respect for labour standards and working services); respect for labour standards and working conditions (domestically and globally); accessibility; boost conditions (domestically and globally); accessibility; boost EU’s competitiveness globally, etcEU’s competitiveness globally, etc

BUT: no common practice yet.BUT: no common practice yet.

Potential: Potential:

Public Procurement (IV)Public Procurement (IV)

Why? Possible reasons:Why? Possible reasons: ‘‘soft’ tool, voluntary – local public authorities not obliged to implement it; soft’ tool, voluntary – local public authorities not obliged to implement it;

lack of information and a range of other reasons, but legal basis exists to lack of information and a range of other reasons, but legal basis exists to allow for progressive behaviour by local authoritiesallow for progressive behaviour by local authorities

‘‘indirect’ market stimulus: a tool that can stimulate the market, but its indirect’ market stimulus: a tool that can stimulate the market, but its stimulus is dependent on political leadership and will at national and local stimulus is dependent on political leadership and will at national and local government levels; need for combined efforts to see real changes in government levels; need for combined efforts to see real changes in market signalsmarket signals

Conclusions (i):Conclusions (i): action! action!

As in the 2006 Spring Council Conclusions: As in the 2006 Spring Council Conclusions: “strong “strong promotion and diffusion of eco-innovations and promotion and diffusion of eco-innovations and environmental technologies, inter alia through the environmental technologies, inter alia through the Environmental Technology Action Plan and considering Environmental Technology Action Plan and considering setting performance targets”. setting performance targets”.

The way forward:The way forward:Public Procurement Public Procurement

The EU to launch a major public procurement The EU to launch a major public procurement campaign to boost the use of energy efficient products campaign to boost the use of energy efficient products and services. and services.

Use of the proposals developed by the coalition of the Use of the proposals developed by the coalition of the EEB, ETUC and the Social Platform – in "Investing for EEB, ETUC and the Social Platform – in "Investing for a Sustainable Future" (November 2003), focussing on a Sustainable Future" (November 2003), focussing on the housing and transport sectors.the housing and transport sectors.

Aim at a 100% green public procurement by 2010 at all Aim at a 100% green public procurement by 2010 at all levels of government [is also official objective Dutch levels of government [is also official objective Dutch politics now]politics now]

Potential: Potential: Road transport Road transport interventions (I)interventions (I) Commission and European Council in 2001, Goteborg: Commission and European Council in 2001, Goteborg:

bby 2005 prices for transport, including air, y 2005 prices for transport, including air, "reflect their "reflect their costs to society“ Not achieved, but some steps:costs to society“ Not achieved, but some steps:

EurovignetteEurovignette: Directive on the charging of heavy goods : Directive on the charging of heavy goods vehicles for the use of certain infrastructures; adopted by vehicles for the use of certain infrastructures; adopted by Transport Council on March 27, 2006. Transport Council on March 27, 2006. Member States to apply charging systems on TEN-T or Member States to apply charging systems on TEN-T or any parallel or other roads; can include all vehicles any parallel or other roads; can include all vehicles above 3.5 ton, after 2012 obligatory; can differentiate above 3.5 ton, after 2012 obligatory; can differentiate according to category of vehicle; infrastructure in according to category of vehicle; infrastructure in sensitive mountainous areas, can include mark-up; can sensitive mountainous areas, can include mark-up; can go further and introduce additional charging systemsgo further and introduce additional charging systems

Conclusion: have to wait and seeConclusion: have to wait and see

PotentialPotential: : Road transport Road transport interventions (II)interventions (II)

Proposal for Proposal for Passenger CarsPassenger Cars (2005), including: (2005), including: abolition of car registration taxes in 5/10 years;abolition of car registration taxes in 5/10 years; refunding mechanism while abolition is pending;refunding mechanism while abolition is pending; a CO2 element in tax basea CO2 element in tax base

UK 1UK 1stst EU country to introduce CO2 passenger car taxation in 2001; also EU country to introduce CO2 passenger car taxation in 2001; also introduced CO2 differentiated tax for company cars, resulting in smaller introduced CO2 differentiated tax for company cars, resulting in smaller company cars. company cars.

ObstaclesObstacles: taxation requires unanimity; most countries do not want to give up : taxation requires unanimity; most countries do not want to give up registration taxesregistration taxes

Conclusions:Conclusions: Keep registration taxKeep registration tax Use strongly progressive rate of CO2-based tax and introduce it for Use strongly progressive rate of CO2-based tax and introduce it for

company cars as wellcompany cars as well Align taxation with labelling so consumers are awareAlign taxation with labelling so consumers are aware

Potential:Potential:

Environmental liabilityEnvironmental liability

One of 6One of 6thth EAP’s ‘strategic approaches’ EAP’s ‘strategic approaches’ Directive 2004/35/EC: combines compensation Directive 2004/35/EC: combines compensation

payments and requirements for primary and payments and requirements for primary and complementary remediation measurescomplementary remediation measures

But: no insurance obligationBut: no insurance obligation Transposition deadline: 30 April 2007Transposition deadline: 30 April 2007 Conclusion: bring insurance obligation into the Conclusion: bring insurance obligation into the

national legislation!national legislation!

Coming? Coming? Aviation (I)Aviation (I)

• Aviation sector historical privileges - no taxation of fuel and Aviation sector historical privileges - no taxation of fuel and international ticketsinternational tickets

• Exemption from Kyoto Protocol emissions reductionsExemption from Kyoto Protocol emissions reductions

Main options considered:Main options considered: Fuel taxation – opposed by politicians Fuel taxation – opposed by politicians Emission charges – opposed by industry Emission charges – opposed by industry Emissions tradingEmissions trading

Environmentally and economically efficient (taps cheapest reduction Environmentally and economically efficient (taps cheapest reduction potentials, environmental outcome certain)potentials, environmental outcome certain)

No explicit references in Chicago convention, bilateral air service No explicit references in Chicago convention, bilateral air service agreements etc. (less legal constraints)agreements etc. (less legal constraints)

Considered preferable by airlines and strongly supported by airportsConsidered preferable by airlines and strongly supported by airports

Coming? Coming? Aviation (II)Aviation (II)

Aviation WG under the ECCP started Aviation WG under the ECCP started working in late Autumn 2005working in late Autumn 2005

Report from WG by 30 April 2006Report from WG by 30 April 2006 Report by EC on review of ETS by 30 Report by EC on review of ETS by 30

June 2006 June 2006 Legislative proposal end of 2006Legislative proposal end of 2006

The Way Forward:The Way Forward:AviationAviation

• End privileged treatment End privileged treatment through other policies and link through other policies and link aviation to ETS, aim for harmonised rules and central aviation to ETS, aim for harmonised rules and central administration administration

• Equal efforts:Equal efforts: aviation must contribute to at least similar aviation must contribute to at least similar reductions compared to other sectors (EU target -8% reductions compared to other sectors (EU target -8% from 1990 levels)from 1990 levels)

• All impacts addressed:All impacts addressed: distinct measures package for all distinct measures package for all impacts - integrate more than CO2 in ETS impacts - integrate more than CO2 in ETS

• Maximum scope:Maximum scope: widest geographical coverage (all widest geographical coverage (all flights departing and landing in the EU)flights departing and landing in the EU)

• Full internalisationFull internalisation of climate impacts: every ton of CO2 of climate impacts: every ton of CO2 must get a price tag - auctioning to disseminate must get a price tag - auctioning to disseminate allowancesallowances

Coming? Coming? Green Paper on Green Paper on market based market based instrumentsinstruments

Delayed due to internal problems in CommissionDelayed due to internal problems in Commission Aimed as guide to MS on the use of Market Based InstrumentsAimed as guide to MS on the use of Market Based Instruments Partly overdue: EU ETS for example already on steam.Partly overdue: EU ETS for example already on steam. Now expected for April 2006Now expected for April 2006 Commission might propose a new approach to avoid unanimity Commission might propose a new approach to avoid unanimity

requirement: Article 96 of EC Treaty allows the Commission to requirement: Article 96 of EC Treaty allows the Commission to take action in order to prevent distortion of the common market take action in order to prevent distortion of the common market due to national actions. This could also work negatively against due to national actions. This could also work negatively against progressive countries!progressive countries!

Commission might als propose use of “enhanced co-operation”Commission might als propose use of “enhanced co-operation” Possibly: proposal for revision of the Energy Tax Directive; Possibly: proposal for revision of the Energy Tax Directive; cover many areas, ranging from energy and transport to waste cover many areas, ranging from energy and transport to waste

and biodiversity protectionand biodiversity protection

Waiting list:Waiting list: reform of reform of environmentally perverse environmentally perverse subsidies (I)subsidies (I)

No shortage of good intentions. No shortage of good intentions. 2001 Goteborg Conclusions2001 Goteborg Conclusions 2002 6EAP: called for ‘encouraging reforms of subsidies harmful to 2002 6EAP: called for ‘encouraging reforms of subsidies harmful to

the environment’the environment’ 2003 European Council requested ECOFIN Council to make 2003 European Council requested ECOFIN Council to make

progress on tackling harmful subsidiesprogress on tackling harmful subsidies 2006 Spring European Council conclusions: “2006 Spring European Council conclusions: “Council endorsed Council endorsed

(…) further exploration of appropriate incentives and disincentives, (…) further exploration of appropriate incentives and disincentives, and the reform of subsidies that have considerable negative and the reform of subsidies that have considerable negative effects on the environment and are incompatible with sustainable effects on the environment and are incompatible with sustainable development, with a view of gradually eliminating them.”development, with a view of gradually eliminating them.”

BUT: still waiting….BUT: still waiting….

Waiting list:Waiting list: reform of reform of environmentally perverse environmentally perverse subsidies (II)subsidies (II)

Some attemptsSome attempts Reforms of the Common Agriculture Policy Reforms of the Common Agriculture Policy

(CAP) and Common Fisheries Policy (CFP)(CAP) and Common Fisheries Policy (CFP) Review of environment state aid guidelines: Review of environment state aid guidelines:

analysis of public consultation is currently analysis of public consultation is currently underway, results expected April 2006; not underway, results expected April 2006; not much NGO involvementmuch NGO involvement

ConclusionConclusion: lack of political will at EU and MS : lack of political will at EU and MS is main obstacleis main obstacle

The way forward:The way forward:Subsidy reformSubsidy reform

1.1. Phase out energy tax reductions and exemptions by 2010Phase out energy tax reductions and exemptions by 20102.2. End all state aid for coal mining no later than 2010End all state aid for coal mining no later than 20103.3. Stop all kinds of preferential regulation for nuclear energyStop all kinds of preferential regulation for nuclear energy4.4. Phase-out and reform Environmentally Hazardous Subsidies Phase-out and reform Environmentally Hazardous Subsidies

(EHS) as part of implementing the EU Sustainable (EHS) as part of implementing the EU Sustainable Development StrategyDevelopment Strategy

5.5. Increase general pressure on Member States (MS) and Increase general pressure on Member States (MS) and establish link between Euro Stability Criteria and EHS removal establish link between Euro Stability Criteria and EHS removal

6.6. Publish inventories of EHS in MS and develop them into a Publish inventories of EHS in MS and develop them into a comprehensive action plan to phase-out and redesign these comprehensive action plan to phase-out and redesign these subsidiessubsidies

7.7. Start nationwide and EU-wide public discussion on EHS with Start nationwide and EU-wide public discussion on EHS with the involvement of NGOs.the involvement of NGOs.

EEB publication December 2004 EEB publication December 2004

The way forward:The way forward:Breaking the unanimity Breaking the unanimity deadlock for tax reform (I)deadlock for tax reform (I)

Start an initiative to promote environmental Start an initiative to promote environmental taxation reforms in all Member States, taxation reforms in all Member States, around a common objective of a 10% tax-around a common objective of a 10% tax-base shift away from labour to base shift away from labour to environmental pressures, within a period of environmental pressures, within a period of 5 years. As a detailed legal instrument 5 years. As a detailed legal instrument might be difficult to achieve (the unanimity might be difficult to achieve (the unanimity requirement), the alternative of requirement), the alternative of Open Open Method of CoordinationMethod of Coordination should be should be agreed.agreed.

The way forward:The way forward:Breaking the unanimity Breaking the unanimity deadlock for tax reform (II)deadlock for tax reform (II)

Or: Or: Enhanced Cooperation:Enhanced Cooperation:Use opportunities such as provided by a new Use opportunities such as provided by a new

Finnish environmental policy initiative – work Finnish environmental policy initiative – work together with ‘frontrunners’ and create a together with ‘frontrunners’ and create a common agreement and roadmap of how to common agreement and roadmap of how to advance EFR within those MS; need a clear advance EFR within those MS; need a clear deadline and objectives (internalisation of deadline and objectives (internalisation of external costs; social benefits – tax shift from external costs; social benefits – tax shift from labour to resource use, etc) and ways to attract labour to resource use, etc) and ways to attract other MSother MS

FURTHER READINGFURTHER READING

WWW.EEB.ORGWWW.EEB.ORG