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Danish experiences and recommendations for the implementation of Green Budget reforms and for the use of Green taxes. Søren Dyck-Madsen The Danish Ecological Council. Distribution of the Danish Tax Revenue in 2000 in billion DKK.

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Søren Dyck-Madsen The Danish Ecological Council

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Danish experiences and recommendations for the implementation of Green Budget reforms and for the use of Green taxes

Søren Dyck-Madsen

The Danish Ecological Council

Distribution of the Danish Tax Revenue in 2000 in billion DKK

Revenues from environmentally related taxes in per cent of GDP

Danish Green Taxes in % af GDP

Some examples of Danish Green taxes

  • Tax on Organic Chlorinated Solvents

  • Tax on Growth Promoters (Antibiotics) accompanied by a voluntary agreement with Agriculture

  • Danish Energy Taxes

  • Danish Transport Taxes

Annual Consumption of Taxed Organic Solvents

Tax on Growth Promoters / Antibiotics

Danish CO2 Emissions

Energy use in Transport

Cars per 1000 Inhabitants in 1995

Number of Danish Vehicles

Driven Kilometers

Experiences and Recommendations

  • Green taxes are very useful targeting environmental problems and recommended by EU-Commission, the OECD and many others

  • But it is hard to create public understanding and acceptance for green taxes in the public and in industry

Information and Public Acceptance

  • Environmental tax reforms do have two sides:

  • Taxes on environmental harmful products, behaviour, land-use and non-renewable resources

  • Revenue returning from the green taxes to lower taxes on labour, secure the social fair economic distribution, secure industrial competitiveness, subsidising environmental actions like improving energy efficiency and others

It’s good to remember

  • Prepare the public for the environmental tax by:

  • Highlight the environmental problems that you want to address very well ahead of the budget negotiations

  • Maybe make a survey that underlines the environmental problems

  • Inform the public about the environmental problems in order to get public acceptance of the taxes as an effective instrument to mitigate the problems


  • Some green taxes do create revenues even though the tax itself are meant to reduce the tax base

  • Other green taxes are meant to be reduced to zero as the tax fulfils it’s own purpose and eliminates the use of the product

How to Spend the Revenues

  • Earmarking of revenue for environmental purposes

  • Revenue in the State Budget to finance overall State expenditures. Expenses for environmental purposes are decided in the State Budget

  • A mixture of the two – which can be very convenient in practical politics

Returning of Revenues should fulfil several goals

  • Social impacts should be neutral or slightly positive

  • Industrial effects on competitiveness should be neutral or at least not so heavy that they forces the companies to close down or move abroad

  • Should be revenue neutral – or a very well targeted way of raising revenue needed instead of increasing other taxes such as income taxes

Green taxes can be introduced without harming industrial competitiveness

1: Finland

2: USA

3: Sweden

4: Denmark

5: Taiwan

6: Singapore

7: Switzerland

8: Iceland

9: Norway

10: Australia

Ranking of world growth competitiveness according to a 2003 report by the World Economics Forum

Revenues can stabilise green politics

  • Revenues are not the normal goal for green tax reforms

  • But do consider creating revenues anyway since revenues tend to be rather stable while governments change

  • But argue always with the benefits for the environment, for the national economy and for the employment

Recommendations for the returning of revenues from the PETRAS project

  • Appoint an independent body to ensure that revenues from green taxation are used as promised if huge mistrust in governments exists.

  • Highlight the tax reduction on people’s payroll slips.

  • Give a lump sum – maybe as a yearly green check – to everybody.

  • Introduce a free basic consumption for households – taxing overuse additionally hard.

  • Do take care in terminology

A real Danish tax shift

Public acceptance is the key problem for an Environmental Fiscal Reform – Summary:

  • Inform about the environmental problems the EFR is going to target

  • Make the use/returning of the revenue very clear

  • Neutralise regressive effects in income distribution

  • Neutralise effects on industrial competitiveness

  • Consider to use parts of the revenue for additional environmental purposes in order to ”give people something for the money” - But do remember that revenues from green taxes can be used for hospitals too

Broad political coalitions in order to avoid misuse of green taxes

  • Because of the difficulties for the public to understand the construction of a green tax reform it is advisable to seek a broad coalition behind the green taxes in order to make the reform more stable and predictable for both households and especially for industry.

  • A broad coalition also minimises the risk that one or more parties do misuse the visible parts of the green tax reform against the present government in an election campaign – as we saw in the latest Danish elections.

Lowering of VAT on certain products and sectors

  • Lowering of VAT for certain sectors can be part of an overall green budget reform, but must be considered very carefully.

  • Differentiation in VAT is for sectors. This makes it an expensive instrument for environmental purposes, but a good instrument for unemployment reasons.

  • Remember that revenues lost by reducing VAT will lead to the increasing of other taxes.

  • Therefore it often is better to think in subsidies, that can be applied much more precise for environmental reasons, and because of that are much “cheaper” for the State Budget.

Coordination of energy and carbon taxes with emissions trading system

  • The introduction of a EU wide internal emissions trading system will require a review and maybe reconstruction of some green taxes on energy, fossil fuels and carbon.

  • The connection between the two kinds of regulatory instruments for environmental purposes is not clear

  • More elaboration is needed – but for sure most e.g. most energy taxation – like taxes on household use of electricity can stay unchanged if desired.

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