Wednesday, January 27, 2010

Paul Ekins and Environmental Tax Reform

  • Environmental Tax Reform (ETR), as cleverly described by Prof. Paul Ekins, is the shifting of taxation from ‘goods’ such as income and profits to ‘bads’ like resource use and pollution.

    In a presentation earlier this month sponsored by the Empire Club and Sustainable Prosperity, Prof. Ekins discussed the role of ETR in the transition to a low carbon economy. As Director of the UK Green Fiscal Commission and Professor of Energy and Environment Policy at Kings College London, he is renowned as an expert on public policy and ETR.

    According to Green Fiscal Commission website, ‘There is now general agreement among policy analysts that a significant programme of green fiscal reform (in which environmental taxes are increased, and other taxes are reduced in a fiscally neutral way) could play a considerable role in contributing to the cost-effective solution of environmental problems, and in particular climate change.’

    Prof. Ekins discussed the findings of the Green Fiscal Commission which concluded that
    •Environmental taxes work –they reduce environmental impacts
    •Environmental taxes are efficient –they improve the environment at least cost
    •Environmental taxes can raise stable revenues
    •ETR will stimulate resource efficient innovation
    •The public can be won round to Green Fiscal Reform

    This last point was met with consternation by the audience given Canada’s experience with green tax policies. In the GFC’s final report some attention is paid to this challenge, and although it is addressed to the UK, the analysis seems applicable to Canada.

    ‘It is regrettable that green fiscal reform emerges from the above analysis as a necessary condition for significant carbon reduction, because governments, including the UK Government, find green taxes politically problematic. At least four interacting, or mutually reinforcing, factors make this so in the UK context.
    Because people do not regard green taxes as a legitimate source of revenues…
    And people tend to think green taxes are extra taxes rather than replacements for other taxes…
    And they are thought to affect business competitiveness negatively…
    And they are seen as unfair…
    BUT, despite these negative perceptions, in fact green fiscal reform should lead to widespread economic, environmental and welfare benefits.

    The Green Fiscal Commission report looked at six countries which have implemented ETR, and concluded that outcomes have been broadly positive in both environmental and economic terms.

    Prof. Ekins stated that in order to move ahead in Canada “we need a carbon price” and that “carbon pricing is not only country specific, it’s also jurisdiction specific.” And as the report concludes “The key issue now for climate policy is whether governments will price carbon so that high-carbon investments become economically unviable, and low-carbon investments become businesses’ first choice and the foundation for competitiveness in the future. While such a policy may be challenging for energy-intensive sectors in the short term, these challenges can be addressed.”

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