Green taxes are essential to the green shoots of recovery

May 18, 2009

Editorial by Jos Dings, T&E Director After some eight months of unprecedented panic, and equally unprecedented action to soften the sharp edges of the global downturn, we now seem to be entering a new phase – an after-emergency phase in which people are starting to come to their senses and scratch their heads over the consequences of the crisis for the next years, if not decades.

The world has changed enormously in the meantime. States expect crushing budget deficits, in some cases even more than 10% of GDP. Energy prices are less than half those of a year ago. Employment is falling very quickly now, and many expect a huge further decrease over the next years.

In that context, the EU just held an employment summit that, all rather logically, called for lower taxes on labour and business start-ups. But there is one thing that has not slowed down, and that is climate change. On the contrary, last March the world’s scientists sounded the alarm bell, that climate change is developing in line with the worst-case scenarios predicted by the IPCC.

What do all these seemingly unrelated facts add up to?

To my expectation that over the next years we are going to see a huge revival of green taxation, in particular on energy. At some point, governments will have to plug these massive budget gaps, and all the well-known virtues of green taxation will once again come to the fore. The share of green taxes has fallen over the past years, but this will now end.

Allow me to offer a few tips to the policy makers of this world.

Look at company car taxation. In quite a few countries it is three times cheaper for employees to drive a car registered in the employers’ name than to drive it on one’s own account (regardless of whether it’s used privately or not, and in some cases there are incentives to drive more, not less). Such an outrageous indirect subsidy for cars and congestion does not make sense at all.

The habit of subsidising commuting through fiscally deductible commuting benefits will also come under scrutiny.

Road charges for lorries are a very obvious candidate – experiences of countries having them is universally positive. Even kerosene taxation for aviation will be considered, as the full tax-free status of the fuel is incompatible with an efficient tax system, let alone sustainable mobility. And last but not least, the good old fuel tax. Ireland, the UK and Sweden have implemented or announced rises, countless others will follow.

People talk about the ‘green shoots’ signalling economic recovery – may green taxation help these shoots become beautiful plants.

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