The Politics of the Environment: Ideas, Activism, Policy, 2nd Edition

Policy instruments and implementation

12.3 Eco-taxes and the double dividend

All governments are currently interested in

fiscal reform. One key idea involves shifting the

burden of taxation from environmental ‘goods’,

such as enterprise, employment and savings,

on to environmental ‘bads’, such as pollution

and inefficient use of energy and resources.

Proponents argue that a double dividend is

possible: eco-taxes protect the environment

and, by removing inefficient subsidies and tax

distortions, they also stimulate employment.

Although the existence of the double dividend

is hotly debated among economists (O’Riordan

1997 ), an OECD ( 2001 ) overview found that

using eco-tax revenues to reduce labour taxes

and social security contributions, particularly of

unskilled labour, can generate jobs.

Recent examples of taxes, or tax packages,

that apply these principles include the

following:

Finland Cuts to income and labour taxes in

1997 were partly compensated by a

landfill tax and increased energy taxes.

Germany The first in a series of energy tax

increases by the SDP/Green coalition

government in 1999 raised taxes on

gas, heating oil, diesel and petrol, and

imposed a new electricity tax

(subsequent annual increases were

smaller and levied only on transport

fuels and electricity). The aim was to

cut CO 2 emissions and to use the extra

revenue to stimulate employment by

reducing social security contributions.

UK The revenue from the UK climate

change levy on industry, introduced in

2001, is recycled to business through

a cut in their National Insurance

contributions and government support

for energy efficiency measures.

municipality. The total tax revenues of EU member states raised from envi-
ronmental taxes (on energy, transport and pollution) was only 6.5 per cent
in 2002, having slipped from 6.7 per cent in 1997 (EEA2006a:31). More-
over, many of those taxes were imposed primarily for revenue-raising rea-
sons rather than to shape environmental behaviour. However, the number
of eco-taxes in the EU-25 has grown steadily since the mid-1990s, with a
much wider range of taxes applied to carbon emissions, sulphur in fuels,
wastedisposal, raw materials and some new product taxes, such as plastic
bags, batteries and tyres (ibid.: 26–7). Denmark stands out as the country
with the widest spectrum of eco-taxes in Europe, contributing almost 10
per cent of its total tax revenue (ibid.: 16).
Here then is a paradox. There seems to be a convincing economic case that
MBIs are more efficient and, possibly, more effective at achieving environ-
mental outcomes than conventional regulatory methods. Influential inter-
national organisations such as the OECD ( 2001 , 2004), the EU in its fifth
and sixth EAPs, and national green tax commissions, as in Norway and
theNetherlands, have strongly recommended wider use of MBIs – indeed,
along with the voluntary agreement, they are the preferred policy instru-
ments of ecological modernisation. Yet, eco-taxes and tradeable permits still
play only a limited role in environmental policy. How can this paradox be
explained? The following discussions of the practical and political obstacles