Dividends from energy and environmental taxes

1. Dividendsfromenergy and environmentaltaxes Giorgio Brosio DepartmentofEconomics and Statistics UniversityofTorino

2. Contents Energy use and income levels. Environment consumption and income levels (Kuznets's curve). Opportunities and needs for better (fiscal) use of energy to promote substainable growth. How to combine energy and environmental gains through taxation: suggested tax options.

3. Energy and incomelevel Medium income countries include manyimportant producers of oil, gas and minerals. Need for producing countries to keep consumption down (at levels not distant from those of non-producing countries). All countries, however, face a common problem: preserve environment, save energy and/or use it fiscally to reduce distortions or to create opportunities.

4. Mainproducersofnaturalresourcesamong (54) upper-middle incomecountries • South Africa • Chile • Libya • Colombia • Mexico • Namibia • Uruguay • Venezuela • RussianFederation • Angola • Argentina • Ecuador • Algeria • Gabon • Iran • Peru • Kazakhstan • Brazil

5. Specificproblemswithproducingcountries 1. Excessiveuseofenergyforboth: consumption– throughsubsidizationoffuels and electricity and production: energy intensive sectors and 2. Neglectof non NaturalResourcesRevenue at alllevelsofgovernment (nexttable on down streamtaxes). 3. Makedifficultto finance investmentforproductive and social investment. 4. Create fiscal dependency.

6. Comparative incidence (% of GDP) of down streamtaxationof oil and gas Argentina Bolivia Brasil UK Intern. Oil Price 2000 1,22 2,80 2,043,2 28,5 2001 1,27 2,43 2,19 24,4 2002 1,42 2,31 2,6 2,4 25 2003 1,32 1,73 2,98 28,8 2004 1,20 1,65 2,8138,3 2005 1,12 2,45 2,8354,5 2006 1,00 2,18 2,882,6 65,1 2007 0,91 2,31 2,5272,4 2008 0,93 2,10 2,5097,3 2009 1,01 1,47 2,1561,7 2010 1,05 1,59 2,0479,5

7. All middle incomecountries : energy, and and GDP levels • Distortedpricesand/or insufficienttaxationmayfavor continuationofpresentindustry mix, impactingnegatively on long-termgrowthprospects. Energy useisstillmuchlowerthan in high incomecountries, butitiscatching up quickly. Lowerintensityismatchedbyincreaseofincome.

12. Environment and incomelevels MessagefromKuznets’scurve can bemisleading, ifactionisnottaken. Permanenceofindustry mix. Technology can reduce incentivestocollectiveaction. Richpeople can solve individuallypollutionproblems. Rapid urbanization and industrialization have created some of the world’s largest mega-cities, with challenges for livability.

13. Environment and incomelevels

14. Climatechange and energy security: challenge and opportunitiesfor middle incomecountries Allcountriesneedmuchnewinvestmenttoadopt innovative technologiesto help mitigate and adaptto the adverseconsequencesofclimatechange. Allgovernmentlevelshavetobeinvolved. Particurarly in mega-cities. Implementationofenviromentalpoliciesismostlylocal and costly.

15. DoubleDividend:benefits Introductionofenergy/ environmentaltaxesprovidestwobenefits: fixesthe pollutionproblembyreducingenergyuse and/or the useofmostpollutingenerysources. revenuewouldallow the governmentto reduce distortionnarytaxes,suchaswagetaxes, whichwouldraise the net wage, and henceraiselaboursupply. mostlow-mediumincomecountrieshave a largeinformalsector. Cuts in taxes on wagescontributetoshifttoformalsector. Henceenhancing the overallrate ofgrowthof the economy.

16. DoubleDividend: caveats Revenuefrom pure environmentaltaxes can be low, particularlyiftheyreachthe environmentaltargets. Alsoenviromentaltaxescouldalsobedistortionnary (not in the desiredsense) ifnotproperlydesigned.

17. Optionsforenergytaxes Bettertobet on a multipackage/multitaxesoptionbased on: A wide-basedenergy/environmentaltax. A veryfewenvironmentaltargetedspecifictaxes.

18. Wide-basedenergy/environmentaltaxes: options 1. Pure excises on select fuels and energy sources. traditional solution applied in (almost)all countries. environmental concerns are not to be the primary goal of excises, but rather revenue. modulation of excises according to socio-economic considerations: diesel less taxed than gasoline. price effect is non marginal, [[ahmad and stern (2010) ] a sufficiently large excise on petroleum products could go a long way towards constraining demand, as well as more ecologically friendly industrial restructuring.

19. Wide-basedenergy/environmentaltaxes:options 2. Environmentally re-modulated excises. • Goods with more environmental damage in production or consumption are taxed more heavily according to their environmental impact, such as carbon dioxide emissions, • Goods that cause relatively less environmental damage may be taxed less heavily than their substitutes. • Are an improvement against pure excises with a negligible increase in the administration and compliance cost. • Ideally, as in the next option, tax rates should be set to match the social costs of the energy source used.

20. Exampleofweightsforre-modulation

21. Wide-basedenergy/environmentaltaxes:options 3. Pure measured emission taxes. • Involve payments which are directly related to metered or measured quantities of polluting effluent. • General examples include carbon taxes. • Specific examples of measured emissions taxes include Sweden's tax on Nitrogen Oxides. • In all these cases, emissions sources are charged an amount based on measured total emissions from each particular source. • Are more costly to implement, may be subject to uncertainty about technological impact.

22. Distributionalconcerns Mexico: Distributional impact Incidence of energy subsidies. 2010

23. Wide-basedenergy/environmentaltaxes: intergovernmentaloptions All the preceedingoptions are compatiblewithsubnationalsurcharges. Providedthatconsumption (not production) can bemeasuredtoavoidexportationoftax. Subnationalsurcharges can provideamplerevenueforfinancingenvironmental and otherpolicies.

24. Environmentaltargetedspecifictaxes Congestiontolls. Water pollutioncharges. Specificpollutingemissionstargets. Noiseemissionstaxes.