The Ecological Tax Reform in Germany- an environmental policy innovation in international comparison Lutz Mez Environmental Policy Research Unit Free University of Berlin The Consolidation of Governance and Entrepreneurship in the Czech Republic and the EU Prague, 1 November 2002

ETR – Content ETR Characteristics Denmark Netherlands Finland Sweden Germany EFR

ETR - Characteristics Target: improvement of the environment Taxing of rare resources Release of the factor labour Polluter shall pay social costs Consumer and industry shall get a feeling for the effects of their behaviour on the environment

ETR in Denmark I Energy taxes since 1977 CO 2 component introduced 1992 Left-center government tried to solve economic problems by „green policy“ ETR in force since 1 January 1994 Five year commitment for tax increases – longer than legislature periode

ETR in Denmark II Environmental effect review of all new laws, ordinances etc. Structural change of the tax revenue Burden in first place for private households Tax package for industry - introduced in the 2nd stage 1996 Whitsun Package 1998 – increase of energy taxes in the year

ETR in Denmark III Refinement of the ecotax instrument by instrumental mix Optimisation of instrumental effects Bundling with voluntary agreements Diffusion of best appliances 2001 Action plan for reducin CO 2 emissions in the Danish transport sector Over 6% of total tax revenue and around 3% of GDP

RANGE OF INSTRUMENTS IN THE INNOVATION PROCESS (Case: Energy Efficient Refridgerators) DANISH PLAN “ENERGY 2000“ (1990) / CLIMATE POLICY CO 2 / Energy Tax Environmental Tax Reform Labelling Energy Consumption Public Awarens Campaigns Part Exchange Scheme R&D- Funding R&D- Networks Maximum Consumption Standards DIFFUSIONINNOVATION

ETR in Denmark IV Instititutional innovations Enlargement of the environmental and the energy agency Appointment of Danish Sustainability Council Connection with energy action plan “Energy 21” New liberal/conservative government cancelled this!

Ecotaxes in The Netherlands 1988 Introduction of environmental tax on energy consumption 1992 Energy /CO 2 tax on energy and CO 2 content of fossil energy (temporary spare out of small and large consumers) 1998 raising tex-free limits and doubling the tax rates until 2001 – about 14% of total tax revenue

Ecotaxes in Finland 1990 CO 2 tax as component of energy consumtion tax (1. country in the world!) 1997 New CO 2 / electricity tax (due to EU accession) % of GDP or around 0.5% of total tax revenue

Ecotaxes in Sweden 1991 Tax reform Reduction of income tax, increase of indirect taxes and additional CO 2, NO x and SO 2 taxes 1998 Energy/CO 2 tax shall rise faster as inflation rate 2000 Special tax on nuclear plants came into force

Ecotaxes in Norway 1991 Introduction of CO 2 tax nd stage, inclusion of industry (100 NOK/t CO 2 = 2.5 bn. NOK) % of total tax revenue

ETR in Germany I Phase-in in three steps - 1. stage Rise the price of energy by taxes Reduction of social security contributions Article law (Electricity law (StromStG), Review of Mineral oil tax law) ETR in five steps until 2003 Efficient power plants are exempt from eco- and mineral oil tax

ETR in Germany II Social security contributions - before ETR 42.3% - will be reduced to around 40.5% by the end of 2003 ETR is basically revenue-neutral € 735 million for a market incentive programme for RES

Ecotax in Germany Mineral oil / electricity Increase January 1, 2002 Tax rateShare of ecotax Gasoline3.07 Cent/l62.38 Cent/l12.26 Cent/l Diesel3.07 Cent/l43.97 Cent/l12.26 Cent/l Light fuel oil06.14 Cent/l2.05 Cent/l Natural gas00.35 Cent/kWh0.16 Cent/kWh LNG03.83 Cent/kg1.28 Cent/kg Electricity0.26 Cent/kWh1.79 Cent/kWh

Environmental Effects of ETR Petrol consumption decreased by 12% ( ) Diesel consumtion decreased by 2% Fuel sales declined by total of 5% Car-pool agencies reported a 25% growth Development of one-litre car has progressed Number of rail passenger increased by 2% in 2000

General environmental effects Increasing energy taxes provide a market incentive to save energy. Thus energy saving is promoted instead of energy consumption subsidised Insurance companies ask for higher ecotaxes in the sense of precautionary climate protection Tax concessions for local public transport, rail traffic, gas-powered vehicles and sulphur-free fuels

Effectiveness of ETR Instrumentation Economic stimulation Policy mix Strategic approach Process support Policy Style Dialog orientation Calculability Demanding goals Flexibility Management orientation Actor’s Constellation Stakeholder influence Regulator/target group interconnection Target group network Policy integration

Ecological Fiscal Reform Priority for the removal of subventions and tax reductions harmful to the environment Market incentive programme for RES will be increased: 2004: € 200 Mio., 2005: € 220 Mio., 2006: € 230 Mio. Tax reductions for industry are reduced Car taxes will be reformed in a revenue neutral way (CO 2 as basis) Ecotax on natural gas will be adapted according to the energy content of fuels

That‘s all, folks! Lutz Mez Environmental Policy Research Unit Free University of Berlin