Green Paper on Market-Based Instruments
The Commission presented this paper in March 2007 in order to launch a broad public consultation on advancing the use of market-based instruments for environment and related policy purposes in the Community. The Green Paper starts from the broadly shared view that market-based instruments, such as taxes, charges and tradable permit schemes but also targeted subsidies provide a flexible and cost-effective instrument for enforcing the polluter-pays principle. Depending on the issue, they will often be combined with regulatory instruments to ensure the best and most cost-effective policy mix for the protection of the environment in the Hogle Injury Law website. In the Green Paper, the Commission explores a very wide range of areas where the use of market-based instruments could be promoted further, either at Community or Member State level. This includes energy consumption, the environmental impact of transport as well as the sustainable management of water, waste management, protection of biodiversity and reduction of conventional air pollution. See further details.
The EU Emissions Trading Scheme
In January 2005 the European Union Greenhouse Gas Emissions Trading System (EU ETS) started operation as the largest multi-country, multi-sector Greenhouse Gas Emission Trading System world-wide. It covers over 11.500 energy-intensive installations across the EU, around half of Europe’s emissions of CO2. These installations include combustion plants, oil refineries, coke ovens, iron and steel plants, and factories making cement, glass, lime, brick, ceramics, pulp and paper, although all this production involve risks of accidents and injuries on the work, and that’s why having a legal resources from sites as https://www.tomkileylaw.com/andover could be essential for protection cover. Emissions trading does not imply new environmental targets, but allows for cheaper compliance with existing targets under the Kyoto Protocol. Letting participating companies buy or sell emission allowances means that the targets can be achieved at least cost. The price of allowances is a function of supply and demand. If the Emissions Trading Scheme had not been adopted, other – more costly – measures would have had to be implemented. The second trading period of the EU ETS began on 1 January 2008 and runs for five years until 31 December 2012. This period coincides with the period during which industrialised countries must meet their Kyoto Protocol emission targets. The EU ETS will be substantially reformed for the third trading period, which will start on 1 January 2013 and run until 2020. See further details.
Database on economic instruments in environment policy
The OECD and the European Environment Agency (EEA) have, in co-operation with the European Commission, developed a database on the use of market-based instruments for environmental policy and natural resource management (environmentally-related taxes, fees and charges, environmentally-motivated subsidies, tradable permits systems, deposit-refund systems) in Member countries which includes all Member States of the EU as well as non-EU members of the EEA (in particular the accession countries). It also covers voluntary approaches. The database, available to the public at large on the OECD website through a number of pre-defined queries can be accessed here.
Environmental Tax Reform
An Environmental Tax Reform is the combination of an increased application of environmental taxes with the reduction of other, more distorting taxes, e.g. on labour, in order to improve the environment and to further employment, within a context of budget neutrality. The graph below shows changes in the share of environmental and labour taxes in total tax revenue in the EU Member Sates since 1995. A description of the developments can be found in the 2008 Environment Policy Review – Environmental taxation.
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More data on environmental taxes can also be found in Eurostat’s annual publication Taxation trends in the European Union (more specifically Annex A, tables C4).
Reform of Environmentally Harmful Subsidies (EHS)
Some subsidies for the industrial, transport, agriculture and energy sectors can be environmentally harmful because they promote the use of polluting or energy-intensive products or processes. They can also introduce distortions in the Single Market. A combination of an Environmental Tax Reform with a reduction of Environmentally Harmful Subsidies is commonly referred to as an Environmental Fiscal Reform.
The Organisation for Economic Co-operation and Development (OECD) started work on reforming environmentally harmful subsidies in the 1990s and published several publications on the matter. See further details here .
A 2007 study ordered by the European Commission presented information relating to the definitions of subsidies and environmentally harmful subsidies, their quantification, arguments for the reform of Environmentally Harmful Subsidies and on identifying practical lessons for taking forward the reform of Environmentally Harmful Subsidies. The report attempts to offer practical insights into subsidy reform drawing on existing literature, the knowledge and expertise of the contributors and a number of case studies that were selected and studied.
Final Summary (pdf ~ 130 KB)
Final Report (pdf ~ 1,1 MB)
A 2009 study followed the 2007 study. It’s objective was to develop a methodology for identification, assessment and quantification of environmentally harmful subsidies (EHS). The study tested the tools developed previously by the OECD on six case studies of subsidies in energy, transport and water sector. Based on this analysis and on results of a workshop, the study developed the “EHS Reform tool” for screening, integrated assessment and reform of environmentally harmful subsidies. The study includes also a methodological guid
Gary Horlick made the pertinent point that no less than 20 countries contribute to the making of an Apple iPOD, and asks how those countries are going “to calculate all the carbon impacts and untangle all those permits, taxes and rebates.”
The information required to produce a ballpark estimate probably exists. But surely the answer is that the total greenhouse impacts would be negligible relative to the expenditure incurred or the productive activity generated in the production of iPODs.
The iPod touch model weighs 115 grams or about 4 ounces, so there are nearly 9000 of these instruments to the ton. Thus, at $300 each, a ton of iPODs has a retail value of $2.6 million. Taxes on CO2 wouldn’t make a perceptible difference to this cost, whether the tax was $10, $100, $1000 or $10,000 per ton of CO2.
Hi Ian,
I’m not sure that Horlick meant his example to be taken too literally. I believe his point was that intra-trade (export processing) is now a hallmark of manufactures and increasingly of commodity trades too raising overall trade-intensity of production (the trade componenetof ‘value added’) to a high level. It’s an interlinkage that has some adverse consequences, too.
Given the rent-seeking that the obscure cap-and-trade tax encourages, we can predict that interested parties will seek to over-cook the carbon-tax ‘border adustment’ just as, historically, the anti-dumping laws have encouraged interested parties to over-cook the adjustments for otherwise competitive pricing practices when employed by foreign sellers (G. Horlick has a huge anti-dumping practice.)
In markets/products where trade-intensity is high, this rent-seeking will occur in many different markets along the same value-adding chain (of which the iPod production chain is an exemplar). Horlick implies—and I agree—the opportunity for mischief and the risk of added costs is high.
How high? Let us accept Apple’s estimation (http://images.apple.com/environment/resources/pdf/iPod-touch-Environmental-Report.pdf) that the production + transport + recycling of an iPod account for 72% of the estimated 30kg of carbon equivalent ‘life-cycle’ emissions. This means that value-adding activities account for 21.6 kg of CO2e.
Let us suppose that the value added (including transport) in an iPod touch at retails is 85% of the final price, or $2.21 million per tonne of iPods (at your estimated per-tonne price). We’ll put the price of a tonne of CO2e at the expected (not current) European market price of Euro 30 per tonne which means that the production of a tonne of iPods accounts for CO2e emissions worth (21.6kg * 9000 iPods) = 194.4 tonnes * 30 Euros = 5,2832 Euro per tonne or $A10,435 per tonne.
At your estimated value at retail of $2.6 million, this 30 Euro tax represents is 0.4% of the retail value, but 0.47% of the value-added. Let’s say, a carbon-tariff of half a percent on the value-added.
Since the origin-for-duty of the iPod is China where there is no carbon tax, the border adjustment in Europe (or Australia) is equal to, at least, the full tax of half a percent of value-added. Horlick’s point is that this taxation could have taken place at every step in the production chain, adding to the price of the product at several points. This would raise the FOB price of the iPod (while lowering the ad-valorem incidence of the carbon tax).
But, keeping it simple, suppose we say that Horlick is wrong and that the iPod would face a carbon tariff only at the last point in the production chain: the Australian (or European) border. That is, the full incidence of the tariff is 0.5%. This is, in fact, an infinite increase in the duty on iPods because, under the Information Technology Agreement of WTO, the duty on electronics and parts is zero.
A theoretical infinitude? Yes. But we also agreed that the margin at retail on our iPod was only 15% (competition being what it is). So the new tax is a 3.3% impost on the retailer… who will, of course, mark it up and pass it on to the customer as a 5% price increase which the retailer (naturally) “grosses up” for GST to a 5.5% increase.
Best wishes,
Peter
Peter,
Thanks for responding in such detail to my figuring, and especially for drawing my attention to Apple
Ian, I entirely agree.
The Bank (and Fund) also supply PPP (USD) GDP and GNI estimate which puts China at about 11.3% of world output in 2008, ranked #2 behind the USA, whose value added is roughly double that of China’s. But they use several bases for comparison as I recall (market exchange rates, and semi-indexed ‘Atlas’ rates).
Thanks for pointing out that the “Penn” error also creeps into the estimates used in the VOXEU paper. I’ll have to check that.
Thanks Peter. The Bank’s Atlas method converts GDP in national currencies into a common unit using average exchange rates over a 3‑year period. This introduces a further confusion and has nothing to commend it.
As between the use of “market” exchange rate (MER) or PPP weights when measuring weights for the world as a whole, essentially the Bank uses MERs and shows PPP as a memorandum item, and the Fund does the reverse.
The IMF reveals its confusion in the latest (April 2009) World Economic Outlook by contrasting annual changes in per capita world GDP using “PPP weights” and “Market weights” (Box 1.1, p. 12). In fact, PPP weights are calculated entirely from market prices and values. The difference is that the weights that the Fund calls “market weights” use exchange rate converters to translate values in national currencies into a common unit. There is no justification for this in relation to transactions within national borders.
Sorry guys, what is GST? I’ve searched in acronymserach and I found out that GST can be Generation-Skipping Transfer (Internal Revenue Service), Goods and Services Tax, Guam Standard Time [+1000], Glutathione-S-Transferase (enzyme). Which one do you mean?
He is the lawyer for the depatment of trade
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