Executive summary

Green Fiscal Reform (GFR) – a green tax shift

The concept of a green tax shift is simple: taxes on the things that are valued by society; like jobs, incomes and profits; are reduced and the lost revenue is replaced by taxes on things society does not like, such as pollution and environmental degradation. ‘Pay as you burn, not pay as you earn’ as one political formulation has put it. This shift not only reduces pollution, but is a more economically efficient way of raising necessary tax revenues. Taxes on labour at their current level, for example, distort the economy and reduce its efficiency and output. The same considerations suggest that, at times when taxes need to be increased to stabilize the public finances, green taxes should play a more than proportionate role in the increase.

The polluter pays

While a green tax shift does not mean the overall rate of tax will change at the national level, it does mean people and business will see the amount of tax they pay change: the polluter pays. Highly polluting households and businesses will see their tax bill increase where low pollution households and businesses will see their tax bill cut below what it would otherwise be.

The need for Green Fiscal Reform

If the UK is to meet its climate change and other environmental targets it will need to apply a wider range of policy measures, and apply them more stringently. Price is a fundamental factor which affects the type of products and services individuals and businesses buy and the level of demand for them. Changing the price of polluting activities relative to clean ones is a vital element in any serious package of measures intended to reduce climate change emissions. Green Fiscal Reform is the best way for a national economy to achieve this shift in prices.

This Report

There have already been relatively modest tax shifts in a number of European countries, including the UK, the results of which have been shown to be generally positive. A major purpose of the Green Fiscal Commission was to explore the economic, social and environmental implications of a major green tax shift for the UK, such that revenues from environmental taxes would more than double their current seven per cent share in overall tax revenues by 2020.

The results suggest that a large-scale green tax shift would be economically sensible and environmentally effective. If implemented with appropriate complementary measures, it could also be socially acceptable, especially as increasing numbers of people come to realise the imperative of reducing carbon emissions and climate change.

Key messages

Environmental taxes work: numerous studies, including those of the Green Fiscal Commission, have shown that green taxes are effective in reducing the environmental impacts on which they are targeted.

Environmental taxes are efficient: there are good reasons why environmental taxes in many situations will achieve environmental improvement at lower cost than other instruments.

Environmental taxes can raise stable revenues: some environmental taxes, like fuel duty, have been raising sizeable revenues for years. Raising them significantly would therefore both achieve environmental improvements and allow other taxes to be lower than they would otherwise need to be.

The public can be won round to green fiscal reform: a number of polls show majority public support for a green tax shift, which increases when people are persuaded that the green taxes really will be instead of other taxes.

The UK’s 2020 greenhouse gas targets could be met through green fiscal reform: the economic implications of doing so would be broadly neutral, and the green fiscal reform policy approach would increase employment.

Green fiscal reform would stimulate investment in the low-carbon industries of the future: investing a small proportion of the revenues from green fiscal reform in energy-efficient homes and vehicles, and in renewable energy development, would accelerate the growth of new low-carbon industries with real export potential, as well as increasing the environmental benefit of green fiscal reform.

Green fiscal reform can mitigate the impact of high world energy prices: high world energy prices are bad for the UK economy, which is now a net energy importer. Green fiscal reform can drive energy efficiency and make the UK economy less vulnerable to high world energy prices if they rebound once the global economy recovers.

The impacts of green fiscal reform on competitiveness can be mitigated: relatively few economic sectors would face serious challenges to their competitiveness from green fiscal reform, and there are a number of ways in which these concerns can be addressed.

For green fiscal reform to be fair, low-income households would need to be protected from energy price rises while their homes were being made energy efficient: the UK needs a massive programme of energy efficiency improvement to existing homes for social as well as environmental reasons. While this programme is being carried out, special measures would need to reduce the impacts on low-income households of the energy price rises entailed by green fiscal reform.

Green fiscal reform emerges as a crucial policy to get the UK on a low-carbon trajectory; help develop the new industries that will both keep it there and provide competitive advantage for the UK in the future; and contribute to restoring UK fiscal stability after the recession. It is a key to future environmental sustainability and low-carbon prosperity.

Read the report in full

Environmental Tax Reform (ETR) in Europe: The Key to a Resource-Efficient, Low-Carbon Competitive Economy, held at Kings College London on 15&16 July 2009, was the final conference of the Anglo-German Foundation’s petrE Project, held in conjunction with GFC.

Presentations:

Carbon Pricing: Rationale, Progress and Prospects
Dr Sam Fankhauser (London School of Economics, ESRC Centre for Climate Change Economics and Policy, Committee on Climate Change)

Conference introduction and outline of petrE project
Paul Ekins, Kings College London

ETR in Europe: experience to date
Dr Stefan Speck (Kommunal Kredit, Vienna)

ETR evaluation: appropriateness and effectiveness of ETR
Dr Paolo Agnolucci

Large-scale ETR in Europe: results from petrE

Implications for Europe: results from the E3ME model
Hector Pollitt ( Cambridge Econometrics)

Implications for Europe: results from the GINFORS model
Professor Bernd Meyer/ Dr Christian Lutz - GWS

ETR: effects on competitiveness

Insights from the COMETR project
Professor Mikael Skou Andersen (National Environmental Research Institute, University of Aarhus, Denmark)

Discussant: Professor Alberto Majocchi
(Istituto di Studi e Analisi Economica, Rome)

ETR: Implications for innovation and environmental industries
Professor Martin Jänicke (Free University, Berlin)

Discussant: Dr Ralf Martin (Centre for Economic Performance, London School of Economics)

ETR in new EU member states: case study of Czech Republic
Professor Petr Šauer, Ondřej Vojáček (University of Economics, Prague)

Discussant: Dr Stefan Speck

Implications for the rest of the world
Dr Stefan Giljum (Sustainable Europe Research Institute)

Discussant: Dr. John Barrett (Stockholm Environment Institute, University of York)

Implementation issues and obstacles
David Gee (European Environment Agency)

ETR: Political feasibility
Ben Shaw (Policy Studies Institute, Green Fiscal Commission)

To be kept informed of Commission updates, please complete the short form below. This information will only by used for GFC mailings, and will not be sold to any third party.

The Green Fiscal Commission secretariat is provided by Policy Studies Institute:

Policy Studies Institute
50 Hanson Street
London
W1W 6UP
UK

telephone: 020 7911 7518

email: .(JavaScript must be enabled to view this email address)

This page will be updated with presentations and reports from the Green Fiscal Commission as they become available. This will also be publicised through our mailing list and the GFC Blog.

GFC briefings

June 2010

Research paper from the Policy Studies Institute: A new basis for Aviation Taxation

Briefing paper from Green Alliance: Making aviation pay its way

March 2010

GFC Briefing Paper 8:
Achieving Fairness in Carbon Emissions Reduction:
The Distributional Effects of Green Fiscal Reform

GFC Briefing Paper 7:
Competitiveness and Environmental Tax Reform

GFC Briefing Paper 6:
Reducing Carbon Emissions Through Transport Taxation

GFC Briefing Paper 5:
A Major Green Fiscal Reform for the UK:
Results for the Economy, Employment and the Environment

September 2009
GFC Briefing Paper 4:
Doing What it Takes to Reduce Carbon Emissions:
The Case for Green Fiscal Reform

June 2009
GFC Briefing Paper 3:
Public Opinion on a Green Tax Shift

April 2009
GFC Briefing Paper 2:
How effective are green taxes?

March 2009
GFC Briefing Paper 1:
Lessons from two Green Tax Shifts in the UK

Other publications and presentations

July 2009
Environmental Tax Reform (ETR) in Europe:
The Key to a Resource-Efficient, Low-Carbon Competitive Economy

Final conference of the Anglo-German Foundation’s petrE Project, held in conjunction with GFC.

View the presentations.

GFC Director, Professor Paul Ekins, has contributed to a number of publications and events over the course of the project, links to many of which may be found below.

December 2008
One Planet One Day

November 2008
IPPR ‘Red and Green Taxes’ Launch Event
Sustainable Scotland Network Annual Conference 08

September 2008
Presentation at ‘Entrepreneurship for a Zero Carbon Society’
Annual Conference of the European Environmental Bureau
Green Budget Europe Launch Event

July 2008
The Smith Institute Seminar and Publication: ‘Fair Tax: Towards a Modern Tax System’
Chapter 6: ‘Environmental and Behavioural Taxes’

Green Alliance Report: ‘Is there more to life than trading?’
Chapter 3: ‘Squeezing carbon out of the market: the role of carbon taxes’

…which was quoted in a subsequent speech by Shadow Chancellor, George Osborne

Presentation at the FoE Seminar – The Price of Carbon: What should it be and why?

June 2008
Presentation at the Sustainable Development Commission’s Event ‘Redefining Prosperity’

and associated Think Piece: ‘Policies to achieve dematerialisation’

April 2008
Presentation at the Energy Efficiency Partnership for Homes Event: ‘What’s fair? The social implications of cutting individual CO2 emissions’

October 2007
Presentation at the 8th Global Conference on Environmental Taxation

November 2007
Launch of the Green Fiscal Commission and Baseline Survey

embargo 00.01 hrs Wednesday 14 November 2007

NEW EXPERT BODY SEEKS TO BREAK LOGJAM ON GREEN FISCAL REFORM

A new independent expert Commission, The Green Fiscal Commission, is launched today. The Green Fiscal Commission has been formed to break the political logjam on green fiscal reform (1). Polling, carried out by BMRB and released today, shows 72 per cent of the public support the establishment of such a body, with an even higher proportion, 77 per cent, indicating support for the kind of tax shift that would be a central element of green fiscal reform. However, support diminishes markedly for the individual taxes that would need to be elements of such a shift.(2)

The Commission membership includes experts from business, leading academics, senior MPs from all three main UK political parties, three members of the House of Lords, and representatives from consumer and environmental organisations. It will be chaired by Robert Napier, Chairman of the Met Office and former Chief Executive of WWF. Its Director is Professor Paul Ekins, Head of the Environment Group at the Policy Studies Institute, and shortly to become Professor of Energy and Environment Policy at King’s College London (3).

“Most policy experts believe that the fiscal system has a vital role to play in the face of rising greenhouse gas emissions,” said Robert Napier. “Sending the right signals for businesses and households to conserve energy and to create and use more energy-efficient products is vital. Our polling shows clearly that people support green taxes in general, but when the revenues go to improve the environment further, or to reduce other taxes, they become even more supportive.”

Professor Paul Ekins, Director of the new Commission, said: “The balance of evidence suggests that green fiscal reform can be positive for both the environment and the economy. The Commission will take special care to explore the impacts of changing the tax base on both business competitiveness and low-income households and show how its overall effects can be made even more positive. Green fiscal reform is essential to counter climate change. When the Commission has finished its work, politicians and policy makers will have a serious and well thought-through set of proposals for fair and balanced reform, to choose from and implement in their own way.”

ENDS

Notes for Editors:

(1) Green Fiscal Reform involves shifting taxes from ‘goods’ like labour or profits which are cut, to taxes on ‘bads’ like pollution or the depletion of resources which are increased. It does not involve an overall increase in taxation or public expenditure.
(2) A national face-to-face opinion poll was conducted for the Green Fiscal Commission by the British Market Research Bureau (BMRB) between 30 August and 5 September 2007. 1,010 British adults aged 15 and over were interviewed.
(3) The full membership list of the Commission is available on this website.
(4) The Secretariat of the Green Fiscal Commission is provided by the Policy Studies Institute, one of the UK’s leading independent research institutes. The Commission’s major funder is the Esmée Fairbairn Foundation, one of the largest independent grantmaking foundations in the UK with the Ashden Trust also contributing.
(5) For headline findings of the BMRB survey see Annex 1 of Press Release PDF file below.
GFC Press Release - pdf file
(embargo 00.01 hrs Wednesday 14 November 2007)

The Commission is independent of government. Its members, who serve in a personal capacity, are drawn from a representative range of social, economic and political stakeholders. The role of Commissioners, as indicated in the Commission’s Terms of Reference, is to review, develop and approve the release of outputs of the Commission, bringing their particular expertise to bear on the Commission’s work.

The Members of the Commission listed below served between May 2007 and May 2010 (the Chairman and Director continue to serve). The affiliations and positions given are those prior to 6th May 2010 and are given here for archive purposes.

The current work on Environmental Tax Reform is being carried out by the Policy Studies Institute and Green Alliance. Click here for more information about the current project team.

The Commission’s secretariat is provided by the Policy Studies Institute (PSI), an independent research institute and registered charity, with considerable expertise in the area of green fiscal reform. The role of the secretariat include organising the work programme for the GFC, undertaking original research, commissioning economic modelling work and organising the day to day running of the Commission.

PSI is among Britain’s leading social and economic research institutes, and was founded in 1931. It has no connections with any political party and is a registered charity. In January 1998, it became a wholly owned subsidiary of the University of Westminster. PSI has the following features:

• its work informs public policy through the conduct of rigorous, evidence-based research;
• reports and publications are accessible to a range of audiences and are actively disseminated among policy-makers, practitioners and commentators;
• its multidisciplinary groups are organised around subject or problem areas rather than academic disciplines.

PSI’s income derives from a wide range of sources, including charitable trusts, government departments, research councils, the European Commission and companies.

For a number of years green taxes in the UK have been in retreat. Most people remember the fuel tax protests in 2000. Ever since then politicians have found the area of green taxes a very difficult area to deal with. The Green Fiscal Commission has been created to look into this difficult area and break the political logjam surrounding environmental tax reform.

The objective of the Commission is to prepare the ground for a significant programme of green fiscal reform in the UK. The Commission’s Terms of Reference were agreed at the first meeting of the Green Fiscal Commission on 29 May 2007. These are given below and include details of the objectives of the Commission, its methods and the scope of its work.

Terms of Reference

“There is now general agreement among policy analysts that a significant programme of green fiscal reform (in which environmental taxes are increased, and other taxes are reduced in a fiscally neutral way) could play a considerable role in contributing to the cost-effective solution of environmental problems, and in particular climate change.

The objective of the Green Fiscal Commission (GFC) is to prepare the ground for a significant programme of green fiscal reform in the UK, in terms of both assembling the evidence base for such a reform, and raising stakeholder and public awareness of it. The GFC will achieve this through:

• Provision of authoritative, accessible and independent research on the options for environmental tax reform in the UK and assessment of the social, environmental and economic implications of these proposals;
• Use of media and other communication activities to raise awareness and understanding of the options for environmental tax reform and stimulate public and political debate on them

The work of the GFC will investigate a green fiscal reform with the following characteristics:

• It will involve a substantial tax shift, such that, for example, 20 per cent of tax revenues come from green taxes by 2020;
• The environmental benefits will be amplified by selective use of a small proportion of the tax revenues to incentivise less environmentally damaging behaviour and investment in technologies that reduce environmental impacts;
• It will not have a disproportionate impact on already disadvantaged groups;
• It will take account of and seek to mitigate negative effects on business competitiveness, and foster new sources of comparative advantage as the basis for new businesses.

The Commission is independent of government. It is formed of Commissioners with wide experience drawn from a representative range of social, economic and political stakeholders. The role of Commissioners is to review, develop and approve the outputs of the Commission and bring in expertise from their particular background to bear on the Commission’s work. The GFC will not be formulating recommendations for specific proposals for green fiscal reform, so it will not be seeking to arrive at any consensus on such proposals.

The Commission’s secretariat is provided by the Policy Studies Institute (PSI), an independent research institute and registered charity, with considerable expertise in the area of green fiscal reform. Its Chairman is Robert Napier, Chairman of the Met Office, with a distinguished career in business and the environment. Its Director is Professor Paul Ekins, Professor of Energy and Environment Policy at King’s College London, and formerly Head of the Environment Group at PSI.”

Terms of reference - pdf format

During 2010 and 2011, the Policy Studies Institute (PSI) and Green Alliance are jointly undertaking a project to extend and build upon the work of the original Green Fiscal Commission project. PSI and Green Alliance will undertake research into specific environmental taxes that could be implemented under the new, coalition government, and their likely implications on the economy, the environment and the people in this country.

The Policy Studies Institute (PSI) is one of the UK’s leading independent research institutes, which conducts research on the environment, work and social policy. PSI supplied the administrative secretariat of the original Green Fiscal Commission.

Green Alliance is an influential environmental think tank working to ensure UK political leaders deliver ambitious solutions to global environmental issues.

The people working on the Green Fiscal Commission’s extension during 2010-2011 include:

• Paul Ekins, Professor of Energy and Environment Policy, University College London
• Ben Shaw, Head of Environment Group, PSI
• Chris Hewitt, Associate, Green Alliance
• Simon Dresner, Research Fellow, PSI
• Roger Salmons, Research Fellow, PSI
• Ben Watson, Research Fellow, PSI

The Commission is chaired by Robert Napier, Chairman of the Homes and Communities Agency and Board of the Met Office and former Chief Executive of WWF. Its Director is Professor Paul Ekins.

Funders

The original Green Fiscal Commission (2007-2010)

The Green Fiscal Commission was publicly launched in November 2007 with the press release of the results of an opinion poll on public attitudes to environmental taxation conducted by the British Market Research Bureau. This survey showed 72 per cent of the public support the establishment of such a body with an even higher proportion, 77 per cent, indicating support for the kind of tax shift that would be a central element of green fiscal reform.

The Commission published its Final Report in October 2009 and the last in a series of eight Briefing Papers giving further detail on the content of the Final Report was published in March 2010. With this phase of the Commission’s work complete the Commissioner’s stepped down in May 2010.

The Commission membership between 2007 and May 2010 included experts from business, leading academics, senior MPs from all three main UK political parties, three members of the House of Lords, and representatives from consumer and environmental organisations.

The original Commission was chaired by Robert Napier and its Director was Professor Paul Ekins.

Commission work programme
The three work streams of the Green Fiscal Commission between 2007 and May 2010 were:

1. The generation of information/evidence on the operation and implementation of environmental taxes,
2. The generation of information/evidence on public and stakeholder attitudes to environmental taxes,
3. Targeted and appropriate communication of the Commission’s findings to a broad range of stakeholders and the public.

The outputs from this work were discussed and shaped at regular meetings of the Commission between 2007 and 2009.

Secretariat
The Secretariat of the original Green Fiscal Commission was provided by the Policy Studies Institute and consisted of:

• Prof Paul Ekins, University College London (formerly PSI)
• Ben Shaw, Head of Environment Group
• Dr Simon Dresner, Research Fellow
• Sarah Bell, Research Fellow
• Ben Watson, Research Fellow

Welcome to the website of the Green Fiscal Commission. The Commission was publicly launched in November 2007 and launched its Final Report in October 2009. The Commission has looked in detail at the whole range of issues surrounding green taxes and environmental tax reform (ETR). Its work has covered four broad areas:

• How green taxes/ ETR works
• The environmental, economic and social implications of ETR
• Attitudes to green taxes and ETR
• Communication of our findings.

Extension during 2010 and 2011

In 2010, the funders of the original Green Fiscal Commission - the Esmée Fairbairn Foundation and the Ashden Trust  – announced that they would be funding a further year of study to build upon the Commission’s Final Report.

This work is being jointly organised by the Policy Studies Institute and Green Alliance, with the assistance of many of those involved in the original Commission.

Work of the Green Fiscal Commission

The focus of the Commission’s work has been greening the UK tax system - that is moving taxes from ‘goods’ like labour, to ‘bads’ like environmental damage. The key to a green tax shift is that it is revenue neutral – tax cuts on ‘goods’ must be balanced by equivalent tax increases on ‘bads’.

The Commission does not have a view on what level of overall taxation is appropriate but considers that a significant shift from taxing ‘goods’ to ‘bads’ could make a important contribution to the cost-effective resolution of environmental problems.

The Commission is an independent body, is not affiliated to any political party and has aimed to examine the evidence impartially. Our results have been made public to encourage debate in this area.