New initiatives needed to redress green tax decrease

New initiatives needed to redress green tax decrease

Decreasing share of environmental taxes in the EU signals need for Environmental Fiscal Reform and carbon price floor.

In a report published on April 22 [1], Eurostat announced that environmental taxes in the EU amounted to €343.6bn in 2014, compared with €282.0bn in 2004. However, the share of environmental taxes in total revenues from taxes and social contributions has decreased over this 10-year period, from 6.8% in 2004 to 6.3% in 2014.

As reported by ENDS, revenue generated by green taxes in the EU remained unchanged from 2009 to 2014, accounting for 6.3% despite a rise in real terms of more than €60bn [2].

At the national level, the countries with the highest green tax income were Slovenia (10.6%), Croatia (10.5%) and Greece (10.2%), while the lowest proportions were found in Belgium and France, both at 4.3%, and Germany, Luxembourg and Sweden, all of which achieved 5.2%. However, both France and Belgium have increased diesel taxes in 2016, with France also raising its carbon tax to €22 per tonne in 2016, and outlining plans for 56€ in 2020 and 100€ in 2030.

The share of environmental taxes in total revenues from taxes and social contributions is an indicator of the flagship initiative for a resource-efficient Europe under the Europe 2020 strategy. The objective is at least a 10% share for the EU by 2020, which seems unlikely to be reached in consideration of the recent trends across Member States.

Labour taxes continue to account for 50% or more of the total tax revenue in some Member States, partially explaining the low percentage of environmental taxes despite their increase in monetary terms.

Modest revenue from the EU Emissions Trading Scheme (ETS), which Eurostat treated as tax receipts in national accounts [3], is another reason for the low revenue. The permit allocation system has long failed to give a price signal on climate emissions and is now failing further still, with prices currently standing at €6.64 per tonne of CO2 emitted. This is partially due to an oversupply of emissions permits among energy intensive industries, which account for almost 50% of the EU’s greenhouse gas emissions [4], a high proportion of which have since been found illegal [5].

Furthermore, energy intensive industries can also still count on free pollution permits and state-sponsored allowances.

The UK’s carbon price floor is a good example of a system that serves to counteract the failure of the ETS to help shift investment. Standing at around €25 per tonne, the scheme was introduced in 2013 to set a minimum price and encourage manufacturers to switch to greener fuels.

There is now a real need for a wider adoption of the UK’s carbon price floor, starting with France and Germany. There are some encouraging signs, including the recent announcement by French President Francois Hollande that France is preparing to introduce a floor price for carbon emissions, even if the rest of Europe does not follow [6].

Previously, in March, French officials circulated an informal proposal to other Member States outlining the possibility of implementing a corridor for EU allowance prices in order to set a minimum price on power plant emissions [7].

Reaching an adequate level of taxation, which would entail both increasing taxes and ending fossil fuel subsidies, is necessary to gradually phase out fossil fuels. The World Bank noted that there is growing global momentum to put a price on carbon pollution, with nearly half of the national pledges submitted in the run-up to the Paris COP21 climate conference referencing carbon pricing. Given its historic responsibilities [8] and the current need to shift taxes away from labour and on to pollution and non-renewables, Europe needs to do more, and quicker.


  • Belgium’s tax shift, now underway, is expected to cut labour taxes by €7.2bn by 2018. The single largest change is €2.7bn of additional tax with environmental and health benefits (e.g. higher diesel taxes, a sugary drink tax). France has also plans to bridge the gap with diesel taxes by 2017
  • Italy, Spain and Portugal have also made progress. Italy will publish the first comprehensive report on its environmental harmful subsidies this July. In Spain progress may need to await another election but both its socialist party and Ciudadanos agreed in February that taxation must shift from labour and on to pollution and non-renewables. Portugal’s recent reform focused on transport fuels, building on wider tax package which was enacted in in 2016
  • Member States  are  considered  to  have  potential scope  to  increase  the  least  distortionary  taxes  in  order  to  finance  a  reduction  in  labour  tax  if  their  consumption   taxes,   recurrent   property   taxes   or  environmental taxes are relatively low compared to the EU average [European Commission]
  • In the EU, an emissions trading system (the EU ETS) was established, which covers the EU Member States and the EEA-EFTA states Iceland, Liechtenstein and Norway. Launched in 2005, the EU ETS is now in its third phase, running from 2013 to 2020. The EU ETS is a cap and trade scheme that includes more than 11 000 power stations and industrial plants as well as airlines and covers approximately 45% of the EU’s greenhouse gas emissions. The scheme allows buying limited amounts of international credits from emission-saving projects around the world. A substantial part of all emissions permits is still freely allocated. The EU ETS covers emissions of carbon dioxide (CO2) from power plants, a wide range of energy-intensive industry sectors and commercial airlines. Nitrous oxide emissions from the production of certain acids and emissions of perfluorocarbons from aluminium production are also included [European Commission]
  • Government revenues from the auctioning of emissions permits are treated as tax receipts in the national accounts. The most important such scheme is the EU Emissions Trading Scheme (EU ETS) related to emissions of greenhouse gases. The revenues from such schemes as shown in the national accounts should also be included in this category [Statistical guide for environmental taxes, p.12]










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