Measuring the the implementation of ecological tax reform in Estonia, present state and way forward 23nd Meeting of the London Group on Environmental Accounting San Jose, 17-20 October 2017 Kaia Oras, Statistics Estonia

environmental effectiveness (effect of the tax on the tax base) Since 2005 Estonia has been implementing the ecological tax reform (ETR) Key principle of an ecological tax reform: partial re-orientation of taxes from taxation of income to the taxation of the use of natural resources and pollution of nature. Aspects to be taken into account in the monitoring of the implementation of ETR*: environmental effectiveness (effect of the tax on the tax base) revenue neutrality zero impact on total tax burden sectoral competitiveness equity use of the revenues * - The Political Economy of Environmentally Related Taxes. (2006). OECD. 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Dimensions to be covered in monitoring of the ecological tax reform * environmental effectiveness use of the revenues revenue neutrality equity of the environmental taxes competitivness * - Environmental tax reform base document. Estonian Ministry of Finance, 2005 - Environmental Taxation A Guide for Policy Makers, OECD, 2011 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

ENVIRONMENTAL EFFECTIVNESS 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Environmental effectiveness: changes in resource use and environmental pressures, selected trends, 2005–2014, 2005=0, % Red columns (upper seven) refer for the selected main trends which have gone worse Green columns are some main positive trends 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Environmental effectiveness, effect of the tax on the tax base Households electricity consumption and payments of excise duty on electricity (2008=100%), 2008-2014. Positive effect of the electricity excise duty on the tax base: households electricity consumption has started to decline in 2010 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

REVENUE NEUTRALITY 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Share of labour taxes versus environmental taxes in GDP Increase of the taxation of environmental pressures and resource use in combination of the decrease of the taxation of labour were the main instruments foreseen to implement ecological tax reform. 1% reduction of the rate of social contributions per year 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Is there a zero impact on total tax burden? Changes in burden of social contributions and environmental taxes, 2008-2014 15.11.2018 Measuring the effectiveness of the implementation of ecological tax reform in Estonia, Kaia Oras Monitoring of the ecological tax reform in Estonia; Kaia Oras

COMPETITIVNESS 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Is there a zero impact on sectoral competitiveness Is there a zero impact on sectoral competitiveness? Environmental taxes (and charges) in comparison to operating surplus, 2014. Land transport’s environmental taxes exceed their operating surplus in relative terms. Mining and energy sector has 4 times higher surplus compare to environmental charges they pay. 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

EQUITY 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Equity of environmental taxes: relative distribution of the payments of excise duty on transport fuels and transport fuels consumption by economic activity, 2014 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Equity issues and environmental effectiveness: transport fuels consumption and excise duty trends in sectors 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Environmental effectiveness and equity: distribution of environmental taxes (on the right ) among selected main activities. Total air emissions (as a proxy for environmental pollution) are displayed on the left. Data refer for 2014. 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

USE OF THE REVENUES 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Analyses have revealed a space for improvement in most of the dimensions ecological tax reform: Environmental efficiency has been quite low The principle of the revenue neutrality was not due for some sectors Distribution of taxes among industries is not fair in some cases Impact on the competitiveness of enterprises could provide useful signals. The revenues from environmental taxes are much higher than spending on environment (however the classification issues do not allow in some cases straightforward analyses) 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

WAY FORWARD 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

NEW POLICY FOCUS - switch to a low carbon economy; taxes targeting to climate change drivers CHALLENGE FOR POLICY - reaching simultaneously climate change targets and other targets in socioeconomic spheres (economic growth and reduction of inequality)*. Impact of additional taxes. TASK FOR STATISTICAL SYSTEM 1. Create the statistical infrastructure that would contribute in a positive way 2. Contribute to a respective communication mechanism * - ISSUE eg PROBLEM - income growth is correlated with higher energy use and with higher pollution levels. Kuznetz curve seems not to work for the public „bad“ – climate change gases. Attaining of the decline in pollution would need additional mechanisms. 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Policy Cycle: a simplified way of visualizing the policy management process * Ecoinformatics International: http://www.geostrategis.com/images/policycycle.jpg 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Policy implementation Policy cycle and statistical systems role in monitoring of the ecological tax reform Emissions and socioeconomic scenarios Monitoring Analysing of the options Set up relevant statistical infrastructure: accounts, indicator systems Impact analysis of diferent climate policies Measuring of the outcomes Dissemination of the results Policy review Agenda setting Policy formation Policy implementation 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Next step: relevant statistical infrastructure Organised meaningful multidimensional information system should: - capture the relevant dimensions and complexity of the issue - have a sufficient quality - allow to perform impact analysis of various low carbon and climate policies - be accessible to users in order to make visibe the climate scenarios effects on the targets at socioeconomic side - be of use at different stages of the policy development and review 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

DATA, ACCOUNTS, INDICATORS Next teps: relevant statistical infrastructure, how do we know? COMMUNICATION POLICY RESEACH KNOWLEDGE DATA, ACCOUNTS, INDICATORS 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Next steps: 1. Dimensions to be considered: - impacts on households income - resilience and risks (regarding several of the tax bases) damage costs dimensions in order to justify environmental taxes 2. Collaborate with statistical community in order to learn from the best practices 3. Work on communication (main findings, visualize the outcomes but not only). Development of a technical solution (on line database) 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Questions to the London Group Should a framework for the monitoring of the green fiscal reforms cover additional aspects/dimensions? Are there other assessments of the efficiency of the green fiscal reforms based on environmental accounts data available? What kind of additional research is needed in order to develop better assessments? What could be the data needs for these possibly more developed assessments? Should the consistency between the domains of environmental accounts be further developed? Should statistical agencies carry out and disseminate these kind of analyses or is this a task for other dedicated agencies? Is there a need for specific LG reseach theme dealing with the monitoring issues of green fiscal reforms? Who would like to cooperate with us? Please send the suggestions to: kaia.oras@stat.ee 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Thank you! 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

General: share of environmental taxes and charges in GDP 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

Influence on households Environmental taxes form just around 2% of the final consumption expenditure of households, no major change in the share of environmental taxes in final consumption The share of labour taxes in the income of householdsa (10%) did not change in this period either. 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras

BASES FOR THE EVALUATION/ CONTENT Environmental effectiveness DIMENSION/ASPECT BASES FOR THE EVALUATION/ CONTENT Environmental effectiveness Changes in the absolute values of tax base (indicators: changes of waste landfill, emissions, relevant driving forces, resource use, etc.). Alternative: changes in the productivity, e g emissions or resource use per unit of value added. Principle of revenue neutrality of an overall taxes Balance between following components: Sectoral level: changes in the share of the payments of social taxes in total expenses and changes of the share of environmental taxes in total expenses State level: share of the environmental taxes in GDP compared to the share of the accrual from labour taxes in GDP (indicators: share of taxes in total expenses, share of labour taxes in total expenses)  Competitiveness Sectoral: comparison of profit with environmental taxes paid. (indicators: surplus compared with paid environmental taxes, monetary) Equity of environmental taxes: who is carrying the burden of environmental taxes Sectoral equity: sectors relative shares of paid taxes in comparison with the sectors relative shares in respective tax base (consumption, emissions etc.). Indicators: tax base in physical quantities, tax in monetary values) Use of revenues Public sector expenditures on environmental protection relative to the receipts of environmental taxes 15.11.2018 Monitoring of the ecological tax reform in Estonia; Kaia Oras