New tax scheme: 'Environmental fiscal reform'

PR from Basque research:

Environmental fiscal reform would improve the environment and reduce the informal economy

The effect that the introduction of environmental fiscal reform would have on an economic system has been the focus of study since the 1990s. However, studies of this type have until now failed to take the informal economy into consideration; this is an activity which in the case of Spain, for example, could account for as much as 20-25% of GDP. The group of researchers of the UPV/EHU and the BC3 have addressed this subject and have concluded that environmental fiscal reform could help to cut the damage caused by the informal economy on the public system apart from the environmental benefit it would bring in its wake. The journal Energy Economics has published the online version of the work and will shortly be issuing a print version.

As different environmental problems have been emerging, many pieces of academic work have been produced to study the possibility of incorporating environmental fiscal reform and the effect this would have on the economy. Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems, like CO2 emissions, and cutting other kinds of taxes. “Environmental taxes manage to get consumers and companies to pay for the damage sustained by society as a result of pollution. What is more, they can be very effective in some cases because they can succeed in bringing about changes in our habits or behaviour and thus lower pollution,” explained Mikel Gonzalez-Eguino, one of the researchers responsible for this study.

The raising of taxes by public bodies through the tax system usually finds itself undermined by the so-called informal economy, in other words, the economic activity that does not pay any tax, and which is “a significant, growing proportion in terms of GDP in many developed economies,” pointed out González-Eguino. In Spain and in other countries in the south of Europe it is reckoned to have a volume equivalent to 20-25% of GDP.

In the fiscal reform being proposed by this group of experts, the income produced by “green taxes” would be used to cut the taxes on labour to the same extent, since “in this work we didn’t want to get involved in the argument about what the optimum size of the public sector should be,” as González-Eguino carefully explained. With the reform we are just guaranteeing that the necessary money would be collected to maintain the existing public services but a greater burden would be placed on pollution and a lesser one on labour.”

The researchers used economic models to simulate how a reform of this nature would affect the wider Spanish economy. “We used a methodology known as computable general equilibrium which allows us to take all the economic sectors into consideration and in that way to analyse policies that affect the economy structurally. What is new is that we have included the informal economy, which previously conducted studies had not taken into consideration.”

The tax system would emerge strengthened

In the simulations made the researchers observed a greater benefit for the public system than they had expected. “When an environmental tax is introduced, the groups that do informal work start to pay taxes by the indirect channel of consumption. If tax on labour is reduced at the same time, a reduction in the inefficiency of the tax system and an effective cut in fiscal pressure are achieved. In other words, it produces an increase in economic activity, a cut in unemployment and a cut in the informal economy.”

As regards the possibility that the proposal made by this study could become reality, González-Eguino stressed that “this study reinforces the idea that environmental fiscal reform could be highly beneficial and would allow us to put figures on one of the recommendations that several international bodies have been making to us for a long time.” However, he does not ignore the limitations they have come across in the course of the study: “For example, the associated rise in energy prices could be counteracted by the increase in real wages, but for inactive people, pensioners and unemployed people especially, this effect would not exist. The possible regressive effects of these reforms on the more vulnerable groups, in particular, would have to be analysed, and mechanisms that would correct these effects, should any arise, would need to be included.”

###

Markandya, A., González-Eguino, M., Escapa. 2013. (Forthcoming). From shadow to Green: linking environmental fiscal reforms and the informal economy. Energy Economics. 35.2.

http://www.sciencedirect.com/science/article/pii/S0140988313002090

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Patvann

Fascist fascist, we all fall down…

e.c. cowan

“Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems, like CO2 emissions, and cutting other kinds of taxes.”
Since when has a government – ANY GOVERNMENT – actually cut a tax? All this will do it pile this tax on top of all the others!
Anybody who falls for this is a bloody IDIOT!!!!

Mike M

Revolt against these destroyers of freedom, expose them, throw them out of government, tar and feather them, harass them and force them to crawl BACK under whatever rock they slithered out from.

Rob Dawg

Newspeak: “informal economy.”
Oldspeak: “beyond the submission to a centralized command and control authority.”

jorgekafkazar

Yes, the Spanish government will doubtlessly exchange heil fives all around if this passes.
It’s all about control, always has been.

What a crock…

Pat.Swords

Indeed the ‘Polluter Pays Principle’, which was formally adopted through the Maastricht Treaty in 1992, sets the aim that external costs should increasingly become internalised. Therefore, if mandatory targets related to renewable energy were to be implemented to reduce the external costs associated with the use of energy, what are the relevant external costs and additional internal costs incurred in avoiding them? Clearly the report below, which the EU Commission was required to complete by the end of 2005, under the first Directive on renewables (Directive 2001/77/EC ), was extremely important in this regard.
• “Consider the progress made in reflecting the external costs of electricity produced from non-renewable energy sources and the impact of public support granted to electricity production”.
Unfortunately this report was never completed even though there was a legal obligation to do so. The external costs of non-renewable energy sources, in particular those related to the greenhouse gas emissions, were never assessed. Instead the EU Commission progressed ‘head first’ into an even bigger renewable energy programme, in a manner which was even more negligent, as it by-passed the necessary measures related to proper assessment.
So to summarise, the environmental impact of the non-renewable generation of electricity, which was deemed so critical to be replaced with renewable sources, was simply never assessed. Despite this huge cost was to be ensued, both financial and environmental, in the roll out of massive renewable energy programmes. So what was used to justify this cost?
If one considers the documentation prepared in the build-up to the 20% renewable energy target, one of the main documents which formed the basis for the target was the EU Commission’s “Renewable Energy Road Map Renewable Energies in the 21st Century: building a more sustainable future”, COM (2006) 848 final . This stated that:
• “Greenhouse gas emissions, including CO2 emissions, from renewable energy sources are either low or zero. Increasing the share of renewables in the EU fuel mix will therefore result in significantly lower greenhouse gas emissions”.
Indeed, COM (2006) 848 Final claimed that the additional renewable energy deployment needed to achieve the 20% target would reduce annual CO2 emissions in a range of 600-900 million tonnes (Mt) in 2020.
The source of this claim was the PRIMES computer model used by the Commission, a computer model which has caused a lot of controversy, as it remains the private property of the National Technical University of Athens. While assumptions are published, independent parties cannot replicate the results. In the EU Commission’s consultation on the “Energy Roadmap for 2050” , it is reported that a few organisations from diverse sectors criticised the PRIMES model regarding its transparency. Note: Only a few organisations would have the technical skills to evaluate the function of such a model. Furthermore, the Final Report of the Advisory Group on the Energy Roadmap 2050 was clear :
• “Recommendation Fifteen: The PRIMES model should be made publicly available so that its results can be replicated by interested parties and to the extent that the PRIMES model is used to support the Roadmap, the assumptions and technology costs should be made explicit”.
With regard to the claim of 600-900 Mt of greenhouse gas reductions in 2020, which is the justification for the 20% renewable energy target, no allowance was made in the PRIMES model for the increased inefficiencies, which are occurring on the grid, with resulting higher fuel consumption and emissions, as more and more intermittent renewable energy is placed on the grid . In this context it has to be pointed out that in 2004, Eirgrid produced an engineering report on the impact of wind energy and its intermittency on the economics of operation of conventional plant. This concluded that:
• “The adverse effect of wind on thermal plant increases as the wind energy penetration rises. Plant operates less efficiently and with increasing volatility”.
The report highlighted not only the practical limitations, but also the very high cost associated with wind energy given other far more cost effective alternatives available for carbon abatement. It was ignored.
While one cannot replicate the PRIMES computer output, the assumptions used by the EU in ignoring the induced inefficiencies on the generating station, as more variable renewable energy is added, are clearly false. Furthermore, it is important to point out that the PRIMES model did not define what was to be built in each Member States, where it was to be built, how it would operate, etc.
Unfortunately, worse was to follow. If we consider again COM (2006) 848 Final, the Renewable Energy Road Map, it is stated in Section 4.1 on the Impact of greenhouse gas emissions and other environmental impacts:
• “The additional renewable energy deployment needed to achieve the 20% target will reduce annual CO2 emissions in a range of 600-900 Mt in 2020. Considering a CO2 – price of €25 per tonne, the additional total CO2 benefit can be calculated at a range of €150 – €200 billion. Actual CO2 prices will depend on the future international climate regime”.
So where did this cost, benefit analysis come from, this being essentially the sole benefit to justify the 20% programme? It has to made clear that this is not a cost, benefit analysis, it is a political statement; the €25 per tonne was based on the expected trading price for carbon dioxide. What dictates that price? It is dictated by the number of allowances, which are available in the EU Emissions Trading Scheme. How is the number of allowances determined? This is determined by a political decision. In reality in 2013, such carbon prices have been trading in the range €3 to €5 per tonne. Simply put, that there is a CO2 benefit related to the 20% renewable energy by 2020 target, which can be calculated at a range of €150 – €200 billion, is a false statement, based on not a single verifiable scientific fact.

John Phillips

Viva la bitcoin. To hell with the government controlled formal economy.

Part of the paper is an old argument: Any total tax take can be raised by many different compositions of taxes. As the damage done by a tax is roughly equal to the square of its level, it makes sense to reduce high taxes (income in Europe, profits in the US) and increase low taxes (environment).
The informal economy is a new twist. In countries like Spain, informality is mainly to avoid paying income. A lower income tax would thus reduce informality; and this means that tax rates in the formal economy can fall while keeping total tax take constant.
The logic is impeccable. Its implementation in practice is a different matter.

cwon14

The “settled science” of expanding government revenue to keep up with expanding statism.

Stephen Richards

The logic is impeccable. Its implementation in practice is a different matter
What you mean like the logic of communism, marxism, leninism, fascism, socialism. All great logics but implemented by thugs, crocks and thieves.

dp

Solves the problem of too many choices and too many freedoms. Win, win – what’s not to like?
/sarc

Mark Bofill

I guess informal economy a euphemism for the black market?
Anyway:

In other words, it produces an increase in economic activity, a cut in unemployment and a cut in the informal economy.

I’ve always suspected (and have become more and more confident of this over the years) that anybody over the mental age of 14 who buys this idea that a tax is going to increase economic activity and cut unemployment is deliberately being dishonest with themselves. It’s sort of like convincing yourself that you can throw yourself at the ground, miss, and thereby discover the secret of unassisted human flying; it’s obviously incorrect.

Mark Bofill

Of course, I missed the fig leaf If tax on labour is reduced at the same time, sorry about that.

@Mark
Indeed. The “informal economy” is the technical term for the colloquial “black economy”, that is, all those activities that are neither licensed nor taxed.

john robertson

Oldspeak,
Newspeak,
Kleptospeak.
I had no idea,sarc, that I was so destructive to society.
As govt taxes behaviour it wishes to discourage, my behaviour must be particularly odious.
Income is obviously a crime against society as is the hard work put into producing that income.
I see the error of my ways, I promise to stop any productive activity.

Mark Bofill

RichardTol,

As the damage done by a tax is roughly equal to the square of its level, it makes sense to reduce high taxes (income in Europe, profits in the US) and increase low taxes (environment).

Yeah. I missed the reduce high taxes part on my first scan. /blush

R. de Haan

That’s 100% UN Agenda 21, currently rolled out in Europe.
I call it treason from within.
All it will lead to is the next slaughterhouse if we don’t stop it.

F. Ross

“…
Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems,
…”
[+emphasis]
Sing Johnny-one-note.

Mark Bofill

Yikes RichardTol is on this thread I’ll sit down and shut up now. :>

Merovign

“Everything within the state, nothing outside the state, nothing against the state.” – Benito Mussolini
War is coming. Either the old-fashioned kind, or the “new” state-vs-people variety.
The *only* way to achieve these goals is a totalitarian police state. And if your goal requires that, it’s time for a new goal.

R. de Haan

Here we see the creation of a tax system that will decide who is productive in a sustainable manner and who is not.
Those who are not or no longer productive will be forced to participate a sustainable program that will reduce their Carbon Footprint to ZERO.
I regard a tax system like that as a declaration of war against humanity.
It’ them or us now so make up your mind.

When anyone refers to the informal economy, I believe this is a way of talking about the private wealth in a country. While GDP is an important guage of economic activity and stability, it is not the most important indicator of wealth. In Five Myths About China, Dean Cheng and Derek Scissors, Ph.D write:
“One year of production is not “the economy.” A much superior notion of “the economy” is the stock of national wealth—all the assets we have accumulated over time. The stock of American private wealth in 2012 was about $70 trillion. Using the same methods as with American wealth, the stock of Chinese wealth is $20-25 trillion, through government ownership of assets and control of prices make that a very rough estimate. The absolute size of the gap between the U.S. and China may approach $50 trillion. It would take decades to erase.
Or never. The other part of China passing the U.S. is extrapolation. China’s economic performance from 1945-1978 meant very little to its economic performance from 1979-2012. And 1979-2012 is likely to mean very little to 2013-2046.”
The language in the proposed environmental fiscal reform is talking about punishing all activity which can be considered as harming the environment, and so I do not think it precludes the idea that this is a tax on all wealth, any assets in existence and any transaction.
I also think it is possible that the increasing debts in western nations is being justified by comparing the debt – not to the GDP, but that the governments are raising their debt levels in respect to private wealth. One of the most important expressions of private wealth are our private retirement accounts.

Bloke down the pub

As the tax would be levied on energy, one of the most essential needs of life, the people who can’t afford it will be the ones who suffer the most. Regressive taxation will always hit the weakest hardest, even if it does have the advantage of being difficult to avoid.

It’s time to scrape ’em off. Anything that even hints at Green should go. I think R. de Haan is right, they are declaring war on humanity and we all just stand back and watch them get on with it.

Doug Proctor

1. Unless specifically allocated and tracked by an authority that has enforcement and penalty powers, no Green tax can ever be expected to produced Green results. Non-allocated taxes go into general revenue, and without allocation, cannot be assessed in light of what has been achieved, if any results can actually be identified as coming from the tax at all.
2. Balanced, not just positive budgets, are not in the global mindset. Germany is lambasted by all nations for its current positive budgets. So introducing a tax that reduces another tax is not part of a plan that any (other than Germany) is in favour of. We are living in a world where manipulation of money supply is more important that the quality of the money supply. We are living in a world where the redistribution of money is more important than the making of it or even the holding on of it: tax reduction, even for the “masses”, is not in governmental interests, whether “communist” or “capitalist”.
We are witnessing a shuffling of the deck chairs on the Titanic.

Titan28

Almost pure idiocy. Central command decides who is right or wrong, who is moral or immoral, and who is central command? The clowns who populate the UNIPCC, the twenty something fools who gave us the ACA, and all the other politically connected hyper sensitive greenish types. I wouldn’t even mind that they get their way. They took away my light bulbs, my car got lighter, my shower velocity went away, annoyances, but I guess I can live with them. Problem is that people who advocate schemes like this are ALWAYS wrong. It never works out the way they plan. Moreover, I’m starting to think economists are a bunch of crackpots.

albertalad

It’s the EU – they’re flat broke, borrowing from Germany, their windmill craze dumped tens of thousands on the unemployment lines, and the EU still doesn’t get the message – you’re flat broke! Period! You can’t raise taxes in any form when you have no employment. People need a job to be taxed in the first place. Guys – you have run out of other people’s money!

R. de Haan

Zeke says:
December 27, 2013 at 12:05 pm
“When anyone refers to the informal economy, I believe this is a way of talking about the private wealth in a country”.
No it isn’t. It is the underground economy, the money made with illegal activities and all work.performed without paying taxes. Black money. In this case the informal economy (ending the informal economy) is used as an argument to get this legislation introduced.
Of course the entire plan is utter junk as it will put every citizen in place comparable with the position of the ice breaker currently stuck in the ice of the South Pole.
No way to go.
This tax proposal is a dead end street.

Tom in Florida

“In the fiscal reform being proposed by this group of experts”
Should we really be listening to a group of economic experts from a country whose economy is, (how do I say this without starting a riot), producing less than desirable outcomes.
” Environmental fiscal reform is one of the possible channels for addressing environmental problems and basically consists of levying taxes on the activities associated with environmental problems, like CO2 emissions, and cutting other kinds of taxes. ”
In a dream world.

Richard M

In one sense an environmental tax could be useful. Think about taxing imports from polluting countries like China and India. However, whenever a tax is imposed by opinion, it eventually becomes biased. In the long run they all become corrupted.

Manfred

Yet another glowing triumph from the social modelers! And it was once laughably understood that ‘green’ taxes would supplant taxation from other sources.
What seems clear is that no matter hard progressive academic and policy devising socialists try, no matter what unholy constraints they impose on human freedom, no matter how hard they endeavour to cripple and stymie personal ingenuity, human nature does not respond well to the pressure cooker social and economic control. The ‘informal’ or shadow economy, black market or underground economy, remains the life blood for very many and always will, even if the banksters are successful in their achievement of a cashless society.
The alternative ‘real’ economy (as opposed to the controlled construct) is a vital inconvenience.
F Schneider (2008) http://www.eap-journal.com/archive/v38_i1_8.pdf
‘a government may not have a great interest to reduce the shadow economy
due to the facts that:
(i) tax losses my be moderate, as at least 2/3 of the income earned in the shadow economy
is immediately spent in the official economy,
(ii) income earned in the shadow economy increases the standard of living of at least
1/3 of the working population, and
(iii) between 40 and 50% of the shadow economy activities have a complementary
character, which means that additional value added is created, and this increases the
official GDP.
(iv) people who work in the shadow economy have less time for other things like going
to demonstrations, etc’

ossqss
SAMURAI

I love the irony of the EPA using Spainish economic models to try and show the efficacy of insane plant-food taxes….
Spain has a 25% unemployment rate, it’s national debt exceeds its GDP, their gigantic wind/solar projects have devastated their competitiveness and helped destroy their industrial sector.
Implementing CO2 taxes will increase energy prices which will have a domino effect by increasing prices on everything, which will cut exports, increase our trade deficit, increase unemployment, decrease tax revenues, increase deficits, devalue the US$, etc.,
Statists will destroy the world economy with their foolishness.

chris y

The proposal relies on this assumption- “A lower income tax would thus reduce informality”
In the real world, I think this assumption is BS.
The informal economy would thrive even if income taxes were reduced to zero, because the informal economy exists for many other reasons- to avoid licenses, avoid liability, avoid permits, avoid use of currency, swap services, avoid property taxes, use discarded materials, avoid a plethora of government fees, tariffs and fines, hide assets, bypass IP, etc, etc.
If energy taxes skyrocket, then I predict the informal economy will actually grow as energy resources are added to the list of goods and services that are bartered and traded with or without the use of currency.

bullocky

‘ …….COULD account for as much as 20-25% of GDP’. There’s that word again.
And the cost to implement this ‘environmental fiscal reform’?
And the reactionary adjustment of the ‘informal economy’?
A fair and equitable ‘across the board’ tax burden should be the general aim, I think most would agree. However, the dynamics of (real) productivity may indicate that any latent tax resource should be applied elsewhere. Or that the optimum overall level of tax has already been reached.
Stop Press: There’s no bottomless pit and there’s no free lunch!

bit chilly

albertalad,i agree with your sentiment,one small point i would highlight is the amount of jobs destroyed by the EUSSR now runs into the millions,not tens of thousands.
its a very funny article though,the notion that ONLY 25% of the spanish economy is in the black market is laughable,40% would be closer to the mark.not many of the other european nations have aircraft engineers for instance,being paid cash in hand in the major international airports.
italy is probably running the 20-25% figure,and if the uk government keeps up its endlessly increasing tax regime ,it will not be long before it is the same here.

Chad Wozniak

Whenever I hear of a new tax or tax scheme, I have to ask: Where do these people think they have any right to the fruits of my labor, for purposes which always wind up as personal and beneficial to them?

JJ

Richard Tol (@RichardTol) says:
The logic is impeccable.

Hardly. The ‘logic’ also contains this bit:
“What is more, they can be very effective in some cases because they can succeed in bringing about changes in our habits or behaviour and thus lower pollution,” explained Mikel Gonzalez-Eguino, …”
So you cut taxes on labour, and raise taxes on “pollution”. Hey presto! Constant tax revenue.
But you expect that taxing “pollution” will change behavior, in order to avoid the tax. Revenues from the “pollution” tax decline. Oops! Gotta make up the shortfall! Time to raise taxes on labor, back to where they were before. Or, preferably, higher than they were before. You don’t engineer an opportunity to raise taxes, without RAISING taxes.
Basically, it is a scheme to raise taxes on everyone and capture a larger portion of the economy for the public sector over the long term, while social engineering over the mid term, and appearing to cut taxes for “the good people” over the short term to lower the initiation threshhold. Typical BS liberal ratchet mechanism.

john robertson

The informal economy??
Trade between people who know and trust each other will grow as the attempted extortion, regulation and imposition by government grows.
Why would any sane individual pay 3 times as much for an inferior product, merely to avoid government threat of sanction?

TRM

I sense a real “ID Ten T” moment here (ID10T). I always have to wonder how many superfund sites could have been cleaned up and fully reclaimed for the amount wasted on the Solyndra and other frauds spawned by this bogus “CO2 is bad” nonsense. Once they declared CO2 a pollutant I knew all sanity had been abandoned.

The fiat Achilles heel of the whole scheme is the difficulty of deciding what is a pollutant and to what extent it should be internalized ie taxed. That’s where bureaucratic tyranny rears its ugly head.

Correction:”fiat” was supposed to have been erased.

SAMURAI says (December 27, 2013 at 1:05 pm):
“Spain has a 25% unemployment rate…” Well, 25 percent of unemployment is an official number, probably half of them are precisely on the informal economy, and you must take into account unfortunately we’ve about 8% of structural unemployment.
“…it’s national debt exceeds its GDP…”, actually not yet, and not the worst between west countries.
“their gigantic wind/solar projects have devastated their competitiveness and helped destroy their industrial sector.” Not exactly, the Spanish industry was destroyed during the 80s and 90s of last century. However, the energy problem is indeed critical in Spain with an accumulated deficit over electricity price of about 50 billion dollars, most of it coming from subsidized photovoltaic plants.
Just for the record. Otherwise I totally agree: statists policies, in any subjet but very specially on Energy, may lead to the bankruptcy of a country… or of many at a time.
Cheers!

Louis

A tapeworm can help you lose weight, which might induce some to argue that parasites are good for you. But once you lose your excess weight, the tapeworm does not stop growing or go away. Government, once it goes beyond its main purpose of protecting the public, is similar to a tapeworm. It survives on what it takes from you and uses what it takes to regulate and limit your activities. It never shrinks but only grows larger. It never reduces its consumption once its goals are achieved but always finds new excuses to increase its consumption. Giving government power to tax imaginary pollutants like CO2 is like swallowing a tapeworm to cure anorexia.

Ted Swart

It might make sense if CAGW was not regarded as “settled science”. Unless and unitl this is no longer the case the whole idea is a crock. .

Manfred

Louis says: December 27, 2013 at 2:03 pm
The bureacracies and ‘Government’ become irretrievably addicted to their own self importance, relevance and the seemingly endless money spigot. They fail to notice that they are fast becoming saprophytes.

Gail Combs

e.c. cowan says: @ December 27, 2013 at 10:49 am
… Since when has a government – ANY GOVERNMENT – actually cut a tax? All this will do it pile this tax on top of all the others!
Anybody who falls for this is a bloody IDIOT!!!!
>>>>>>>>>>>>>>>>>>>>>
Took the words right out of my mouth.
Consider: While the USA had its government shutdown this fall, the IMF had their annual meeting by bringing the date forward.
The recommendation: A one time 10% tax on all wealth held by private citizens (Your saving, house cars…) this would reduce US debate back to the level it was in 2008 before the bank bailouts and Obummer. link

Rbravery

Can someone please remind just how vibrant the Spanish economy is at the moment…?