Tax environment

Whether it be a tax on plastic bags or an increased levy on petrol for cars, consumer spending that damages the environment can be discouraged by taxing the goods and services on offer to raise the price. Such taxes have proved effective in OECD countries, but there are fears that higher costs to producers will reduce international competitiveness and have a possible regressive impact on domestic income distribution because poorer households will pay a higher proportion of their income than rich ones.
These tricky questions were on the agenda when tax and environment experts, non-government organisations and the public gathered in Berlin on 27 June for a conference on environmental fiscal reform organised by the OECD and the German government. “In a market economy, prices and taxes are the quintessential steering signal,” Germany’s federal environment minister, Jürgen Trittin, said in his opening address. “We will only achieve a self-perpetuating dynamic process moving in the right direction if the taxes and subsidies system and if prices reflect ecological realities and ecological common sense.”The German government’s efforts to encourage people to switch to train travel for longer journeys, for instance, will not work if flying is cheaper. Winning consumers over is a challenge: Susan Scott, of the Economic and Social Research Institute of Dublin, noted that when Ireland introduced the plastic bag tax, brochures were distributed in supermarkets pointing out that consumers could easily avoid paying the tax by using other re-usable bags.Mr Trittin argued that far from harming competitiveness, environmental fiscal reform leads to international competitive advantages and distributes costs more fairly between large and small consumers of natural resources. According to the minister, Germany produces a third of the world’s wind-generated electricity and is Europe’s leader in solar power, partly due to massive incentives to switch to ecological energy sources. The aim is not to produce endless subsidies, though, but to reach mass production and so lower prices, Mr Trittin said. A discussion paper prepared for the meeting, based on the OECD’s report Environmentally Related Taxes in OECD countries: Issues and Strategies, suggested solutions, such as meeting competitiveness concerns by ensuring that environmentally-related taxes were partly or entirely channelled back to the affected firms.© OECD Observer No. 233, August 2002

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