EFR and development

1. EFR and development • EFR is an economic instrument. By internalising environmental costs it helps • sustainable development and, • pollution reduction • As a result of fiscally neutral EFR • The economy will gain through greater resource use efficiency and the growth of green industries • Employment will grow because of lower labour taxation as well as new (green) industries

2. COMPETITIVENESS (1) • EFR leads to increased competitiveness for the reasons outlined in the previous slide • Ecotaxes may lead to some product and process substitution (usually within the same industry) • Only negative short-term impact is on heavy energy-users • I.e. fossil fuel electricity, cement and steel-making. The energy market liberalisation has led to falling prices; cement industry is switching to alternative fuels and steel industry is already supported

3. COMPETITIVENESS (2) • FISCAL NEUTRALITY = lower labour taxes • Ecotaxes are recycled towards reduced labour taxes • EU countries with the most advanced EFRs (S, DK, NL, DE) have respected this principle, facilitating acceptability of the reform and boosting employment

4. COMPETITIVENESS (3) • DOUBLE DIVIDEND • According to research 84% of all EU taxes are levied on human effort and only 8% are ecotaxes. The proposed 10% shift from the first to the second category will • reduce resource waste and pollution and, • reduce labour costs in the overwhelming majority of European business (services) (in Germany we had 1,9% reduction of social insurance contributions in the first phase only)

5. CONDITIONS FOR SMOOTH TRANSITION • Gradual introduction over 8 years • Mitigating measures for EFR impact on competitiveness • Transitional tax rebates for few industries against firm commitment to cut energy use and pollution • Regional aid and restructuring programmes • European harmonisation and • (if possible) International co-ordination

6. INCOME DISTRIBUTION • Measures to address potential social impacts created by the regressive effect of some indirect ecotaxes (especially on energy) • Changes in income tax brackets to compensate this (forexample regular “fine-tuning” of income distribution in NL) • Social contribution cuts concentrated on lower salaries and wages • A fair split of social contributions cuts between employers and employees. E.g. a 50/50 formula

7. INCOME DISTRIBUTION (2) • We call for an EFR comprising compensating social measures, such asincreases of some social benefits, tax exemptions, tax credits, or rebates for lower income brackets • which must be designed in a way that they maintain a strong incentive for energy saving and efficiency • The abolition of environmentally harmful subsidies may finance economic and social transition programmes

8. EFR and employment • EFR has net positive effects on employment due to the decrease of labour taxes and the push for innovation (new green jobs) • Germany: potential for 250 000 new jobs with EFR (DIW study) • Denmark: 28 000 new jobs thanks to the “greening” of the economy (C. Ege) • EC Report brings green jobs to 1 500 000 with 30 000 new jobs created for every €1 bn invested, boosting household income

9. Conclusions • EFR experiences in Europe have been good first steps, but too timid, with many exemptions, and no EU minimum harmonisation • Significant tax shifts and a good design are indispensable for an appreciable impact on the environment and employment • we call for an important tax shift (10% in total tax revenue) to deliver the double dividend

10. Conclusions (continued) • The EU is suffering from pollution, overuse of natural resources and unemployment • at the same time it is a leader in the environmental effort, and must honour its Kyoto commitments • EFR is the right instrument please join our campaign! { { {