EEA report shows benefits of environmental tax reform
Mon 09 January 2012
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The European Environment Agency (EEA) says that environmental tax reform (ETR) could simultaneously reduce income tax, increase innovation and cut pollution by introducing well-targeted environmental taxes and recycling the revenues back into the economy.
The EEA report defines ETR as 'reform of the national tax system where there is a shift of the burden of taxes, for example on labour, to environmentally damaging activities, such as resource use or pollution'.
Four possible types of effects were identified as a result of ETR:
- Making various goods or activities more expensive
- Direct or indirect distribution of the extra revenue
- Job creation and eco-innovation could result from the process
- Environmental benefits, such as reduction in pollution
Analysis of a modelling excercise of policies in Germany and the Netherlands showed that ETR and other environmental policy instruments have broadly positive effects with tax on energy and other resources creating revenues which can be used to cut social security payments and income taxes. The model indicated that this fiscal reform would result in financial benefits for most socio-economic groups as long these are appropriately distributed across society. Any negative effects of increased costs could be negated through targeted benefit transfers.
The report found that increasing tax on pollution and other environmentally-damaging activities, governments can also use the extra funds to provide incentives for innovation, such as developing renewable energy.
The EEA emphasized that reducing social security payments, thereby decreasing labour costs, boosts employment. Indeed, the model suggests that increasing the price of emitting one tonne of carbon dioxide to EUR68 (USD86) by 2020 could serve to create 152,000 additional jobs in Germany alone.
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