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The main idea of Environmental Tax reform is shifting the tax burden from capital and labor from these towards the use of natural resources and pollution. This paper aims to discuss the implications on the reformed environmental taxes. There by how the reformed environmental factors affect on different aspects like international trade and how it affects the economic growth of the Europe are discussed here. The views presented in this paper are a result of various ideas that were presented by different scholars. Their ideas are being taken into account in this report to identify whether the reformation of environmental tax is good or bad.
Key words: Environmental Tax reform (ETR), Regressive, Progressive, Implication
When compared to the way of life in the past and present it can be clearly identify that the resources are consumed in a much rapid way than that were used in early days. But sadly everyone does need to agree that the resources are scarce. That may be a reason why all the governments, pressure groups and private institutes are much concern on safeguarding the environment which is one of limited resources available for mankind. That may have been the reason to reform the environmental taxes.
Environmental Tax Reforms (ETR) according to the European Environment Agency could be defined as “a reform of the national tax system where there is a shift of the burden of taxes from conventional taxes such as labor to environmentally damaging activities, such as resource use or pollution” (EEA 2005, p.84). Likely ETR is a review of the current tax system. Where the taxes will be transferring from factors that are currently being looked upon such as “labor and capital”(Bosquet,2000,p.19) will be now shifting the tax burden towards resource depletion and pollution.
Environmental tax reform is also called green tax reform, green tax swap, environmental ï¬scal reform, green tax shifting, or ecological tax reform.
02. Literature Review
2.1 ETR and its implication on Household Energy and Transport Tax
Based on the studies that have been conducted most of the environmental taxes are likely to have regressive impacts on private households. Especially this could be experienced in the European part of the world. Household energy is the biggest area that has been affected due to the regressive nature of environmental tax. “The lowest income groups bearing the largest tax burden relative to their income” (Ekins et al., 2011,p.2473) similarly the same idea has been presented by Ekins and Dresner (2004) that the poor population had to bear the burden largely when a flat carbon tax was charged from the whole population.
The same idea has been presented by different studies with regard to household energy. Next with regard to taxes related to transport are more likely to “have mixed distributional results” (Ekins 2011, p.2476).This ideas is further explained by both Ekins and Dresner (2004) and McNally and Mabey (1999),the reason for considering motor fuel taxes as progressive since vehicles are mostly owned by the rich not the poor. But on the other hand McNally and Mabey (1999) in their study bring in an argument against the above statement. It can be a false statement reason is due to poor household too may have to travel far and in that case more fuel will be used by them.
2.1.1 How to avoid the regressive impacts
Studies suggest that through “various redistribution and compensation mechanisms” these regressive impacts could be reduced but not fully. However in the other side of the this scenario the scholars further discuss that in order to overcome the negative environmental impacts reduction of prices is not a suitable of solving this problem. Instead the governments must be able to put up policies that would benefit the households and at the same time to save the energy and other resources respectively. In this review they have suggested “by adjusting other elements of the taxation system (e.g. income and labor taxation) in a way that contributes to a more even distribution of income, or by increasing overall transfer payments for the poor.” (Ekins et al.,2011).
Environmental tax reform could decrease investments because of the substitution effect go against capital, as capital is a price of energy and complement of energy increases. In additionally, in energy-intensive industries such as intermediate goods negative demand effects tend to be strong. (Bosquet,2000).
2.3 CO2 emissions
Using carbon emission reductions is the main indicator of environmental effectiveness environmental tax reform appears to inï¬‚uence the environment positively. To help of these predictions, some assessments have been conducted for the effectiveness of Swedish and Norwegian carbon taxes. One report that the Norwegian carbon tax achieved to have a carbon emission reduction in 3–4% of stationary sources in the service and manufacturing sector and around 40% of total CO2 emissions in Norway, over the period 1991–1993. In the same time the Swedish carbon tax helped to reduce carbon emissions, there is no quantitative estimate is available for this assessment.(Bosquet, 2000).
2.4 Global environmental tax implication
As Global implications of a European environmental tax reform., (2010) assert choose two core indicators for analysis of the environmental impact. First indicator material extraction of natural resource is higher related to the environmental impacts. It can effect environment in many ways including structural changes to the landscape it can decrease the valve of important ecosystem services, the loss of biodiversity, diminished aesthetic valve, the contamination of the surface and ground water, and increased local demand for water and electricity. However, GINGORS model does not give a date on environmental impact related to material extraction and use. The main second indicator is CO2 emission, it is a major cause of global warming and also its plays a major role of current climate policy negotiation. However CO2 emissions are mostly link between material uses. All indicators are production oriented. GINGORS model used to identify that.
Finally as Global implications of a European environmental tax reform., (2010) say that, environment tax reform can be uses as an instrument to reduce the Europe’s resources consumption as well as CO2 emission. Economic impacts on rest of the world of a highly environmental tax reform in Europe’s are small but the environment benefit can also be significant.
2.5 Impact on international trade
As Global implications of a European environmental tax reform., (2010) assert increasing the international trade and the integration of different world region in a global market has been central characteristic of the globalization. 2000 to 2007 export volume of the world increases by 5.5% annually. The environmental tax reform does not only effect to the international trade but also that different sectors.
2.6 Economic growth of Europe
In generally, after analyzing of global implication of tax reform ETR in Europe, “they compared economic growth and trade and on the performance of the different industries. The following analyses mainly focus on the emerging countries, EU-27, OECD (Non –EU) and the rest of the world. Annual average of EU-27 is expected to remain positive and it can be fluctuate till 2020. In the non EU group also have positive rates. In emerging countries projected to increase significantly and average annual rate of the group of emerging countries are higher than in the EU and other OECD countries. Economic growth of the rest of other countries depends on energy and resources which are not support to be above average after 2010. Policy measures largely impact to the world GDP. After introducing the policy measures in Europe alone reduce GDP by only USD 3 billion compare to the baseline 2020. In EU USD 92 billion, non EU OECD countries USD 28 billion, the emerging countries USD 53 billion and rest of the world USD 6 billion”. (Global implications of a European environmental tax reform., 2010. p.11) An important issue is whether environmental tax reform affects the level of economic activity, measured by the gross domestic product (GDP). Aim of measuring is increase the environmental qualities argue that these come at the expense of production growth and aggregate production. (Bosquet,2000).
2.7 Environmental conservation Levy on Sri Lanka
Environment conservation levy has been charged on specified items owned by consumers. These specific goods are likely to create dangerous impacts to the Environment. These specific goods refer to those items may be manufactured in Sri Lanka or those imported to Sri Lanka. The Environment Ministry of Sri Lanka has bought in such preservative methods to conserve the environment. (Island.lk, 2008)
It is very clear that Environment ministry mainly concerned about creating environment friendly atmosphere. Arguments say due to the imposing of such levies the households in Sri Lanka are being badly affected. The reason for being badly affected is because it is stated that households liable to this levy would be those that have a vehicle, a telephone,and electricity supply. Therefore this is another situation where the environmental tax and the household consumption could clash with each other. (Island.lk, 2008)
When taking the whole report into account different views of scholars are being discussed here in this report. Where some opinions discussed is similar and some of the ideas clashed with the other person’s idea. However based on the important ï¬ndings are that reductions in carbon emissions can be signiï¬cant, the marginal gains in employment and marginal gains or losses in activity may be recorded in short or long term, investments decrease and prices increase rapidly.
In particular, when environmental tax revenues are rearranging to cut distorting taxes on labor, such as environmental quality improves. Also it is important to keep in mind that at the end of day it is the responsibility all the responsible authorities to ensure the whole population who depend on natural resources are equally being served no matter they are rich or poor. Simply these environmental taxes should be imposed in a way benefiting both rich and poor people without putting the burden on one party and these regulations should also help to safeguard the environment.
04. Reference list
Anomalies of the Tax System in Sri Lanka. (2009). 1st ed. [ebook] Available at: http://www.scribd.com/doc/30433210/Anomalies-of-the-Tax-System-in-Sri-Lanka#scribd [Accessed 3 Feb. 2015].
Bosquet, B. (2000). Environmental tax reform: does it work? A survey of the empirical evidence.Ecological Economics, 34(1), pp.19-32
Ekins, P. and Dresner, S. (2004). Reducing The Impact Of ‘Green’ Taxes And Charges On Low income'.
Ekins, P., Pollitt, H., Barton, J. and Blobel, D. (2011). The implications for households of environmental tax reform (ETR) in Europe.Ecological Economics, 70(12), pp.2472-2485.
Global implications of a European environmental tax reform. (2010). 1st ed. [ebook] Available at: http://://www.academia.edu/215098/Global_implications_of_a_European_environmental_tax_reform [Accessed 12 Feb. 2015].
Island.lk, (2008).The Island-Features. [online] Available at: http://www.island.lk/2008/05/06/features4.html [Accessed 12 Feb. 2015].
McNally, R. and Mabey, N. (1999). The Distributional Impacts Of Ecological Tax Reform.
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