Green fiscal policy: Reducing GHG emissions and mobilizing revenue Jacqueline Cottrell, Vice President, Green Budget Europe

Definition of green fiscal policy “…a range of taxation and pricing measures which can raise fiscal revenues while furthering environmental goals.” “…can contribute to poverty reduction directly by helping address environmental problems...and indirectly by generating or freeing up resources for anti-poverty programmes…or for pro-poor investments…” “…an important part of the development policy toolkit.” Source: OECD / DAC 2005http://www.oecd.org/greengrowth/green- development/34996292.pdf

Rationale: “Getting the prices right” GDP and CO2e emissions in Sweden 1990-2015 Carbon tax rates in Sweden 1991-2018 Source: https://www.government.se/48e9fb/contentassets/18ed243e60ca4b7fa05b36804ec64beb/lessons-learned-from-25-years-of-carbon-taxation-in-sweden.pdf#mce_temp_url#

Green fiscal policy instruments – examples Revenue-generating Revenue-spending Revenue neutral Taxes or charges on energy / carbon / electricity / fuels Tax exemptions, tax reductions Tax reform / tax shifting packages Reform of fossil fuel subsidies Feed-in-tariffs for renewable energies Differentiated import duties or taxes, e.g. on vehicles Emissions trading systems (auctioned permits) Below market rate loans and grants Emissions trading systems (free permits)

Fossil fuel subsidy reform in Indonesia Million USD Sources: Ministry of Finance, Indonesia (2018) and http://www.greenfiscalpolicy.org/wp-content/uploads/2016/09/Noor-Iskandarsyah_Indonesia.pdf

Environmental protection tax in Vietnam Year Revenue % GDP Revenue (% total tax revenue) CO2 emissions (compared to BAU) High tax scenario CO2 emissions (compared to BAU) 2012 0.34 2.64 -1.7% -7.5% on BAU 2013 0.32 2.24 2014 0.30 2.22 Source: Huong 2014 Source: Willenbockel 2011 2015 0.64 3.65 2016 0.98 5.35 Source for data on tax revenues: Ministry of Finance, Vietnam

Potential of fossil fuel subsidy reform to raise revenues and reduce emissions is substantial In 2015, if fossil fuel prices had been at an efficient level – i.e. not subsidized and priced in line with health and climate externalities – the IMF suggests the following impacts: CO2 emissions 28% lower than BAU [for some countries, this exceeds their Paris mitigation targets] A 46% reduction in premature global air pollution deaths Fiscal gains worth almost 4% of global GDP Annual welfare gains worth 1.7% of global GDP Source: IMF 2019 - WP/19/89

Potential of carbon pricing – taxes and trading systems – is not yet realized Less than 5% of global emissions covered by carbon pricing initiatives are priced at a level consistent with achieving the targets of the Paris Agreement 51% of global emissions are priced at less than USD 10 / tCO2e Nonetheless, governments raised USD 44 billion in carbon pricing revenues in 2018, more than half from carbon taxes = an increase of USD 11 billion on 2017 Potential to raise substantially more revenue with GF policies which also facilitate the achievement of NDC targets is considerable Source: World Bank 2019 – State and Trends of Carbon Pricing

Thank you for your attention Thank you for your attention! Jacqueline Cottrell Vice President, Green Budget Europe Senior Policy Advisor, Green Budget Germany Jacqueline.Cottrell@foes.de Tel: +44 789 43 42 504 Source of image: https://openknowledge.worldbank.org/handle/10986/13334