1 LET A HUNDRED SOLUTIONS BLOSSOM Asia Pacific Finance and Development Center 2010 Biennial Forum Michael Mossakowski Senior Adviser on environmental taxation to the Secretary of State for Finance (Belgium, Europe)

2 CONTENTS 1.Introduction 2.Achievements Conclusions

3 1.Introduction (2) Where does Belgium stand

4 GREEN HOUSE GAS EMISSIONS Transport18% Buildings22% Energy production21% Industry19% Industrial processes10% Agriculture 8% Other & waste 2%

5 1.Introduction (2) Where does Belgium stand Environmental taxation (in % of GDP) Source : Eurostat (2008), Taxation Trends in the European Union

6 2. Achievements General Objectives Green loan initiative Roof, wall and floor insulation tax credit Electric car & motorcycle plan Passive house & low energy house tax credit CO² based company car tax

7 2. Achievements: Objectives INTRODUCE MORE EFFICIENT TAXATION Expected dividends:  Fight climate change (use less energy so lower emissions)  Create jobs (in energy saving or producing industries)  Enhance competivity (by encouraging green industries)  Energy independence (less imports more alternative energy)  More disposable income (by lowering energy bills)

8 Government pays part of the interest on bank loans used for energy saving in homes. Maximum loan € Lower financial cost for all private citizens  Government pays 1,5% of the interest on the loan  40% tax credit on the remaining interest 2.1 Achievements: Green Loan

9 Existing 40% tax credit for roof and window insulation, new efficient boilers and solar energy are extended to insulation of 1.Walls 2.Floors + Tax credit limited to € 3.000/year but portable over 4 years + If citizen pays no taxes Government pays citizen + Energy efficiency cannot be invoked to increase local taxes on house 2.2 Achievements: Insulation tax credits

Achievements: Electric vehicle plan –30% tax reduction for electric cars (max € 9.000) –15% tax reduction for electric motorcycles –Tax reduction for recharging points

Achievements: Low Energy new housing Existing tax reductions for passive housing (< 15 kWh/m²/year – N < 50 Pa) are complemented by 2 new categories - « Low Energy » housing (< 30 kWh/m²/year) - « Zero energy » housing (=or< 0 kWh/m²/year and N < 60%)

Achievements Company car tax New rules  Are company cars bad for the environment? Company cars are kept for no more than 4 years and newer cars emit less  The advantage in kind for personal income tax purposes depends on emissions instead of engine size (previously)  Companies can deduct according to emissions (50 to 120%)  Fuel is only 75% deductible for companies (previously 100%)

13 3. Conclusions 1.Are carrots more efficient than sticks? 1.Who gets to eat the carrot? Only a few 2.Who gets the stick? 2.The role of the state 1.Set level playing fields 2.Technological neutrality What we would have liked to do…

Green Tax Shift Shift taxes from labour to energy: Increase duties on fossil fuels to reflect externalities Decrease taxes on labour by the same amount Expected dividends: More disposable income (by lowering energy bills)More disposable income (by lowering energy bills)  Create jobs (in energy saving)  Enhance competivity (by encouraging green industries)  Energy independence (less imports more alternative energy)  Fight climate change (use less energy so lower emissions)

Green Tax Shift Source : OECD (2008), Energy Prices and taxes % of taxes in road fuel prices (diesel)

Green Tax Shift Implicit taxation per ton of CO²

Green Tax Shifts Expected problems: Regressivity: increases social disparitiesRegressivity: increases social disparities –Heating fuels: yes –Transport fuels: no SolutionsSolutions –Concentrate tax cuts on smaller incomes –More public transport

Green Tax Shift Source : OECD, employment database Employment Unemployment rate Employment perspectives for ages 15 to 24 (2007)

Environmentaly harmful fiscal subsidies Example 1 Intra-european air travel VAT = 0% and Excises on jet fuel = 0! Brussels to Nice (South France) by car, taxes = € 83 Brussels to Nice (South France) by air, taxes = € 5 Example 2 Heating coal. VAT 12%. Normal rate 21%

Congestion charging Congestion Accidents Noise Air pollution Taxes

21 Environmental taxation’s essential task is to: Internalize external costs With a clear long term perspective (increasing carbon tax) Not to decide which solution is best, but Let the private sector work out the best answer to dealing with finite ressources, and doing so help A HUNDRED SOLUTIONS BLOOM )

22 Michael Mossakowski Senior Adviser on environmental taxation to the Secretary of State for Finance (Belgium, Europe) THANK YOU