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Environmental Taxation

Environmental Taxation. Ben Etheridge and Andrew Leicester Institute for Fiscal Studies. Motivation. Environment close to top of political agenda Stern Review painted bleak picture of economic costs of climate change Though many critics

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Environmental Taxation

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  1. Environmental Taxation Ben Etheridge and Andrew Leicester Institute for Fiscal Studies

  2. Motivation • Environment close to top of political agenda • Stern Review painted bleak picture of economic costs of climate change • Though many critics • Domestic and international targets for emissions reduction • Domestic target looks extremely difficult to hit • Possible wholesale reform of green tax system • Carbon tax, road pricing • Growth of global emissions trading

  3. A note of caution • Revenue not a direct measure of Government’s “green credentials” • High revenue could be ‘too high’ • Falling revenues could represent tax base erosion • Though not a key factor yet • Environmental policies not all revenue-raising • ‘Greening’ existing taxes • Trends should be seen as indicative

  4. Latest revenues, 2005 Source: ONS Environmental Accounts, Autumn 2006

  5. Historic receipts Sources: ONS Environmental Accounts, Autumn 2006; Authors’ calculations

  6. Rate increase needed to raise £1bn Sources: HM Treasury Tax Ready Reckoner; Authors’ calculations

  7. Rate increase needed to raise £1bn Sources: HM Treasury Tax Ready Reckoner; Authors’ calculations

  8. Revenue raising – some issues • Fuel Duty • Overwhelmingly largest green tax • Decline in revenues/GDP began when fuel duty escalator abandoned (1999 PBR) • Returning duty to real-terms peak from April 2000 would raise £4bn per year • No indication that above-inflation rises to come – will be hard to raise revenue/GDP share using existing instruments • Big increases may have distributional concerns: some of the very poorest may be hit hardest • Not clear that duty “regressive” over rest of the distribution

  9. Revenue raising – some issues • Air Passenger Duty • Unclear distributional effects – some low income people affected badly but are they “poor”? • Reforms to air taxes sensible but difficult – threats of international action under Chicago Convention • EU Emissions Trading • “Aircraft Tax” proposed by Liberal Democrats

  10. Revenue raising – some issues • Climate Change Levy • Reform into a business ‘carbon tax’ proposed by Conservatives • Extension of energy taxes to domestic sector conflicts with fuel poverty objectives and has distributional implications • Landfill Tax • Rates set to rise towards £35/tonne in medium-term • PBR suggested higher target rate or faster acceleration towards it • Rates now far higher than estimates of external costs of landfill • Tax used to hit EU Landfill Directive – too severe a target?

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