Encyclopedia
ENCYCLOPEDIA
Here your can find a small reference of topics concerning Ecological Fiscal Reform
- Ecological Tax Reform
- Emissions Trading
- Environmental Fiscal Reform
- External Effects
- Subsidies
Ecological Tax Reform (ETR):
What is ecological tax reform?
Basically, the principle of ecological tax reform is as follows: energy and environmentally harmful transport are taxed and thus rendered more expensive, while revenues raised are used to make labour cheaper. In this way, the tax helps protect the environment and new jobs are created at the same time, as the cost of labour decreases.
Everyone can benefit from:
• a healthy climate instead of a climate catastrophe
• the protection of scarce resources
• decreased dependence on oil
• competition in environmental technology
• more jobs
Thus, revenues from ecological tax reform are entirely recycled to citizens. Ecotaxes should increase in a series of gradual but continuous steps. Thus, energy users are able to adapt over time.
Petrol-saving vehicles, switching from cars to public transport, better building insulation, saving of electricity and improved energy efficiency in production are all positive effects of the ecological tax reform.
The German ecological tax reform in detail:
In order to introduce the ecological tax reform, two laws have been changed and two more have been passed:
• the mineral oil tax law and the mineral oil tax regulation law have been changed.
• the electricity tax law and the electricity tax regulation law are new.
How high are ecotaxes?
The ecological tax reform allows for the continuous increase in ecotaxes.
Below is an overview of the level of ecotaxes in Germany.
Increases, revenues, pensions contributions
|
Tax until 1998 |
Increases in ecotaxes |
|||||
|
. |
. |
01.04.1999 |
01.01.2000 |
01.01.2001 |
01.01.2002 |
01.01.2003 |
|
Petrol (normal- and super) |
50.1 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
|
Diesel |
31.7 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
3.07 Cent/l |
|
Fuel oil |
4.09 Cent/l |
2.05 Cent/l |
- |
- |
- |
- |
|
Natural gas |
0.18 Cent/kWh |
0.18 Cent/kWh |
- |
- |
- |
- |
|
Electricity |
- |
1.02 Cent/kWh |
0.26 Cent/kWh |
0.26 Cent/kWh |
0.26 Cent/kWh |
0.26 Cent/kWh |
|
Ecotax revenues |
- |
4.3 Mrd. Euro |
8.8 Mrd. Euro |
11.8 Mrd. Euro |
14.6 Mrd. Euro* |
18.8 Mrd. Euro* |
|
annuity insurance contribution |
20.3 |
19.5 |
19.3 |
19.1 |
19.1 |
19.5 |
*Prognosis: the exact level is not known yet.
Note: Without ecotaxes, pensions contributions would be 21.2 % in 2003, thus 1.7 % above its actual percentage.
What are the exceptions to the ecotaxes?
Ecotaxes allow for a range of exceptions in the fields of transport, the economy, mineral oil taxation and energy production:
• In relation to transport, the mineral oil tax increase of 1.5 cents per year will be reduced. This is the case for omnibuses, trains and taxis. Here the reduced tax rate for vehicles driven by natural gas and liquid gas will continue until 2009. The electricity tax rate will be reduced by 50% for the track railway transport and trams.
• In energy production, self-production and contracting, up to 2 MW will be exempted from electricity taxes. In addition, there is a mineral oil tax exemption for CHP-facilities provided that they have a monthly rate of utilisation of at least 70%. A mineral oil tax exemption for 10 years will be given to CCP-facilities that are built between 1 January 2000 and 31 March 2003 and have an electrical efficiency factor of at least 57.5%.
• In terms of the economy, there is a reduced tax rate for electricity, fuel oil, and gas in the amount of 20% for the following areas:
- Fish-farming
- Places of work for the disabled
Net equalisation of load only for industry:
Compensation is paid to companies whose costs constitute more than 1.2 times the amount returned to them in the form of social insurance contributions as a result of the ecotaxes. A basic rate of 500 Euros for electricity, gas, and fuel oil applies to all companies (maximum charge as a result of the basic rate: 1000 Euros).
• The following are exempt from mineral oil tax:
- CHP-facilities with a monthly rate of utilisation of at least 70%.
- CCP-facilities with an electrical rate of utilisation of at least 57.5% (for 10 years, for facilities that were built between 1 January 2000 and 31 March 2003).
Abolished exceptions for industry:
On 14 November 2002 the German "Bundestag" (Lower House) decided on an increase in the ecotax rate for industry, which made a clear profit as a result of its tax privileges. In detail, the new regulations are as follows:
• Industry, as well as agriculture and forestry, no longer pay only 20% but rather 60% of the full ecotax rate. The net equalisation of tax (so-called “Spitzenausgleich”) will be calculated so that a moderate, but ecologically reasonable, marginal tax charge for high energy consumption remains.
• The tax reduction for night storage heating is no longer 50%, but 40%. This relief expires altogether on 31 December 2006.
• Increase in tax rates:
* The rate of the mineral oil tax for natural gas which is used as a heating element is no longer €3.476 per megawatt hour, but €5.50.
* The rate for liquid gas is now €60.60 per 1000kg instead of €38.34.
* Heavy fuel oil is taxed with €25 per 1000kg instead of with €17.89 as it used to be before.
• No CHP- and mineral oil-driven CCP-facilities are affected by this reorganisation of the tax rates.
• Extension of the temporary tax privilege for mineral oils used for the heating of greenhouses and closed cultural areas until 31 December 2004.
• Extension of the temporary tax privilege for natural gas, which is used as fuel in motorcars until 31 December 2020.
Ecotax laws:
In the framework of the ecological tax reform:
• the mineral oil tax law and the
• mineral oil tax regulation
have been changed and the
• electricity tax law and the
• electricity tax regulation
have been created.
The consolidated law and regulation texts entirely reflect the law.
Note: Only the laws and regulations published in the Federal Law Gazette are legally binding.
Source: Federal Ministry of Finance.
The three-litre car
Cars launched onto the market in the 21st century - requiring 8.0 litres for 100 kilometres – are no more fuel efficient than cars in the 1980s. The imagination of the car producers seems to be restricted to the installation of the air conditioning and GPS navigation systems. Or are car buyers, more interested in horsepower under the bonnet than a considerate relationship with the crude oil that is running out, at fault?
Everyone who buys a car tomorrow will receive an important signal from the ecotax today: an economical model will pay off in the long term.
The fact that rising petrol prices result relatively quickly in switching to alternatives became apparent in the year 2000. During this year, petrol prices rose by 10 cents per litre (including 0.3 cents eco-tax). While fuel consumption had been constantly rising in the preceding years, in that year fuel consumption dropped by 2.4%. So that these savings do not only have a one-time effect, petrol prices also have to rise in the long run.
So-called “3-litre cars” already exist today. For example, the “Audi A2” has a special 1.2 litre engine and consumes less than 3 litres/100km and also the “VW Lupo”, which consumes 2.99 litres/100km at the most. And better still: in 2003, Volkswagen were awarded the popular environmental award, which is annually given by ARBÖ (the Automobile and Cyclist Association of Austria) for the first 1-litre-car in the world suitable for transportation and road traffic. Already in 1998, Volkswagen received this award for their 3-litre “VW Lupo”, which is now on offer in series. Thereby, “ARBÖ” (autocar and cyclist association Austria) recognizes Volkswagen’s commitment to realize the aim that low-consumption vehicles do not remain a fiction but become a reality.
The 1-litre-car gave proof of its suitability for daily use in April 2003. On the way from Wolfsburg to the 42nd general meeting in Hamburg, the former Chairman of the Board of Volkswagen, Dr. Ferdinand Piëch, drove - despite adverse weather conditions - the 1-litre-car with a record-breaking average consumption of 0.89 litres per 100 kilometres, and attained a speed of 120km/h! However, it is only a research model.
8 hints for 30% less fuel consumption
• Consumption is at the highest level for short distance rides: up to 25 l/100km!
• Warming up a car engine is unnecessary. It is better to drive off right from the start.
• Driving in a low gear saves the most fuel. Starting in the first gear, drive one car length only, then change into second. Before 2000 rotations are realized, change gear again.
• Drive in the city traffic in fifth or fourth gear at 50 kph, with the traffic flow.
• It is also worthwhile turning off the engine for short stops of 20 seconds or more.
• Avoid driving at high speed. At the rate of 160 kph, the car consumes approximately 45% more than at the rate of 120 kph.
• Increasing tyre pressure by 0.2 bar - in contrast to what is typically indicated in the instruction manual - is optimal in terms of safety, driving comfort and fuel consumption.
• Synthetic fibre light oil saves 5% in fuel.
Further information:
The ecotax is not a punitive tax.
Is the ecotax unfair because an ecological tax is imposed on energy consumption and motorised traffic? After all, each household uses a certain amount of electricity and heat energy. Mobility as well is one of our basic needs. However, the ecological tax reform is not about punishment and extra taxation. Taxes and charges, which are necessary in any case, are rearranged away from heavily taxing labour and towards charging environmentally damaging behaviour.
Prices must tell the ecological truth
This slogan goes back to the economic theory of external costs. If damage results from the production or use of a product, which is not paid by the waste producer but by third parties, one speaks of external costs. Road traffic, for instance, causes external costs to the tune of 80 milliard Euros annually (this is four times the ecotax revenue of 2003). Other examples are accident costs, damage to buildings and costs for noise protection measures. If external costs are included in the petrol price by means of ecotaxes, the polluter-pays-principle will be realised, and thus justice will be done.
Facing climate change
The ecotax is not an end in itself, but an instrument to stop the alarming destruction of the environment. You do not need to like it but you do have to understand it.
The overconsumption of fossil fuels and the associated emission of environmentally harmful greenhouse gases is a menacing burden for our future. Carbon dioxide (CO2) inevitably results from the burning of coal, crude oil and natural gas – and at present, it cannot be filtered from the waste gases produced. As a result, it is inevitably released into the atmosphere, where it and other greenhouse gases accumulate, resulting in the greenhouse effect: energy-rich rays from the sun reach the earth’s surface, but the radiation of the earth’s heat away and into space is partially hindered. For this reason the climate is becoming warmer.
The consequences for human beings, the natural world, and the environment we share may grow to alarming proportions: In many regions of the world, longer periods of droughts will result. The number of hurricanes and floods will increase. Sea levels will rise and threaten many coastal regions and insular states. In Germany, people living on the North Sea and the Elbe will have to face storm tides more frequently. In the Alps, the snow line will shift to a height of over 1500 metres. In many regions, plants have been imported which cannot be cultivated any more.
Overall, climate change is a stressor which has never before existed for our ecosystems. Many plants and animal species, which normally have centuries and millennia to adapt to new temperatures, will not be able to resist this pressure and will die out.
Ecotaxes will prevent the climate catastrophe!
This assertion might be exaggerated, because in order for the reduction of greenhouse gases to occur, other political measures are also necessary. However, Friends of the Earth Germany is convinced that comprehensive energy and traffic taxes are the most efficient and effective instruments for the reduction of greenhouse gases.
What is the reason? Carbon dioxide is emitted as a result of millions of different combustion processes from coal, crude oil products, and natural gas. It would not be feasible for legislators to replace these processes with more energy-saving measures on top of compulsory technological improvements alone. For each type of energy use – from the petrol engine to heavy goods vehicles, different factories and heating installations – governments would have to make technical energy saving regulations for both the producers and users. For this reason, the ecotax is the more intelligent option: if all energy consumers calculate with a higher energy price, then they will invest in efficient technologies and find out where environmental protection can be achieved in the most cheapest way.
EMISSIONS TRADING
Definition:
Emissions Trading is one of the three climate policy instruments set out in the Kyoto Protocol (see Kyoto mechanisms below). Basically, its aim is to encourage companies to reduce pollution by providing incentives to switch to more environmentally friendly facilities. In order to reduce polluting emissions, such as carbon dioxide (CO2), companies must obtain permits or credits (Emission Allowances) for the emission of pollutants. These permits or credits set an emission limit and are traded on the market. If a company exceeds the emission limit, it is obliged to buy more emission credits from other companies. Conversely, if a company stays below its designated limit and thus holds surplus permits, it may sell them to others. By selling surplus emission credits, a company may make a profit.
What are the Kyoto Mechanisms?
The term Kyoto Mechanisms refers to three instruments provided for in the Kyoto Protocol, namely Joint Implementation (Article 6), the Clean Development Mechanism (Article 12) and Emissions Trading (Article 17).
What does the concept of Joint Implementation (JI) mean?
Joint Implementation means that industrialised countries may implement emissions reduction projects in other industrialised countries. By financing projects that reduce greenhouse gas emissions in other countries, the investing country will receive so-called emission reduction units, that is, emissions credits. Thereby this mechanism assists industrialised nations in meeting their national emissions targets. The recipient nation will, in turn, gain new technology.
What is the Clean Development Mechanism (CDM)?
The Clean Development Mechanism also allows industrialised countries – in addition to the Joint Implementation mechanism – to invest in emission-reducing projects in developing countries. These projects, however, must meet certain criteria. Most notably, they must reduce emissions more than would have been the case had there been no project implemented (additionality criterion) and they must assist developing countries in promoting sustainable development (sustainable development criterion). For financing such projects, industrialised countries will receive emissions credits. Developing countries will gain foreign investment and benefit from the fact that projects must meet sustainable development goals.
What does "Cap and Trade" mean?
Cap and Trade is a system which creates incentives for companies to reduce their emissions. A cap is determined, which clearly designates the level of emissions allowed. In order to achieve the emissions target, permits to emit a certain amount of pollutants are distributed. Trade refers to the fact that companies trade with these permits; companies that do not use all of them can sell them to others (see definition emissions trading).
What is the Pool-Model?
All emissions permits of a certain sector of the economy will be supervised by a trustee in a pool. The trustee’s task is to ensure that this sector of the economy’s emissions does not exceed its emissions credits. Emissions permits that are not used can be sold to other sectors.
ECOLOGICAL FISCAL REFORM
What does ecological fiscal reform mean?
Many tax and subsidy-policy measures indirectly promote environmentally damaging activities and thereby undermine sustainable development. In order to avoid this, more taxes on environmentally damaging goods – by means of ecological fiscal reform – need be introduced, while counterproductive subsidies and tax privileges need to be reduced. In the course of ecological fiscal reform, public revenues, as well as expenditure, have to be arranged according to environmentally sound considerations.
Ecological fiscal reform is closely related to ecological tax reform, because it also contributes to the reduction of labour costs and the protection of the environment.
What does ecological fiscal reform consist of?
Ecological fiscal reform encompasses many different and complex subject areas. Essentially it consists of the reform of existing taxes in the interest of the environment, the introduction of environment-oriented contributions and charges, subsidy policies that support sustainable development, and the sustainable and environmentally sound design of state fiscal activities, particularly as regards public monies and state investment.
What does the restructuring of the tax system to protect the environment mean in practice?
Existing taxes will be reformed in such a way that they have a steering effect towards ecologically sound processes. This may include the reform of energy taxation (see ecotax), as well as changes in the taxation of land use. In the former case of the ecotax, the steering effect promotes more considerate resource use and energy-saving consumer behaviour, while land use taxation prevents excessive land take.
What does the reduction of counterproductive subsidies mean?
Aims that are no longer compatible with the desired sustainable and ecologically beneficial development will be abolished in the course of an environmental finance reform. These subsidies can be abolished without substitution provided that they do not have to be replaced for social or economic compatibility reasons by another form of assistance. By abolishing such subsidies the often associated high fiscal and economic costs will be reduced.
What does the ecologically beneficial organisation of state fiscal activities mean?
For instance, it means that public facilities pay attention to the environmental compatibility of the provision of goods and services. In this way, the State can live up to its function as a role model. Another example is investment in the ecologically beneficial optimisation of the operation of public facilities. Thus, cost-savings for the purpose of the environmental finance reform are possible.
What role does governmental investment policy play in ecological fiscal reform?
In order to promote sustainable development the function of the state is to decide on investments in such a way that long-term environmental effects are taken into account. That way, immense consequential costs due to environmentally harmful investments can be avoided.
EXTERNAL EFFECTS
Externalities:
What are externalities?
Externalities are cost or benefit consequences which are not regulated through the market but directly influence costs and benefits of third parties. It is important to distinguish between positive and negative externalities (external benefits, external costs).
Further explanations:
Externalities are consequences that result from people’s behaviour. These consequences not only affect the waste producer, but also other individuals. However, people who suffer damage from other people’s activities and so have to bear the brunt of these external costs are not compensated. Externalities are not reflected in the price of a service or a product, and result in incorrect allocation within the market, because market mechanisms within the economy are based on cost-transparency.
One economic strategy to address the problem of externalities is monetisation, that is, the calculation of external costs and benefits and their incorporation within prices. In other words, monetarising externalities means assigning financial values to consequences. For instance, one can quantify damages on buildings due to sulphur dioxide from traffic and express them in terms of costs. Through the calculation of external costs and benefits, externalities will be made transparent. In addition, comparability will be established: The petrol-driven car causes damage to the facades of buildings, the biodiesel-car results in increased nitrogen levels in the soil. Which one of these effects is more serious? According to economic theory, the one which causes more (internal and external) costs is the more serious effect.
The question of which externalities should be monetarised and how to evaluate the financial burdens attached to a damaged facade in comparison to a excessively fertilised soil have been addressed on many occasions by economic theorists and the solutions produced have both advantages and disadvantages meriting serious discussion.
SUBSIDIES
Reduction of subsidies in general:
In any discussion of subsidies in the context of ecological fiscal reform, it is important to distinguish between two types of subsidies: the more obvious, visible subsidies and hidden, invisible subsidies. In this regard renewable energies play an important role, although the increase of the energy taxes on other resources is most important.
What does the increase in energy taxes mean for the cut back of subsidies?
In order to ensure a sustainable energy supply, an increase in energy taxes is unavoidable. However, this is only the case for environmentally harmful energy generation methods, which are counterproductive for sustainable development. For instance, by taxing fossil energies more heavily, the incentive to switch to renewable energies will be made stronger.
Visible subsidies:
A so-called money transfer, that is, if a public entity grants money to private entities (households or companies), can also be designated as financial aid. This is one example of a visible subsidy. Another type of visible subsidy are tax privileges.
Hidden subsidies:
Hidden subsidies include regulations with a subsidising nature, as well as external costs. For instance, in 1998 the coal industry and the industry of renewable energies received almost the same percentage of financial aid. However, the coal industry was "subsidised" with far more regulations and generated far more external costs. Such subsidies modify the ranking of state-aided energy sources.
