Switching to greener taxes

4 March 2014

The advantages of moving the tax burden away from labour and towards resource use and pollution.

Two studies published by the European Commission show how environment policy can spur economic growth by boosting flood protection and making more of a switch to greener taxes. One produces more evidence about the overall economic benefits from timely investment in defences against flooding, and the other highlights the advantages of moving the tax burden away from labour and towards resource use and pollution.

EU Environment Commissioner Janez Potočnik said: "Investing in flood protection can bring overall benefits to the economy, especially through nature-based solutions which are highly cost-effective. And environmental fiscal reforms have the potential to almost double the revenues they currently bring to national treasuries, with benefits for our environment as well as scope for cutting taxes on employment or cutting the deficit. That's a powerful argument for changing the status quo."

The study on the potential for greener taxes, which pools data from 12 Member States, suggests that moving taxes away from labour and towards pollution (increasing taxes on the causes of air and water pollution, for example) would bring in revenues of EUR 35 billion in real terms in 2016, rising to EUR 101 billion in 2025, with far higher figures involved if steps were also taken to remove environmentally harmful subsidies. The potential revenues range from just over 1% of GDP per annum through to just over 2.5% of GDP per annum in 2025, depending on the Member State concerned.

The second study looks at various links between environment and economic policy, including the macro-economic impact of floods, best practices in supporting SMEs focusing on resource efficiency, and environmental expenditure in all Member States. The approximate total cost of damage from flooding in the EU over the 2002-2013 period was at least EUR 150 billion. Investing in measures to reduce flooding is highly effective, on average costing some 6-8 times less than the damage caused by flooding. Better still, the benefits of investing in green infrastructure – i.e. restoring natural features to help manage and store flood water include better outcomes for biodiversity and could help reduce construction costs.

Background

The studies published will feed into the European Semester, a mechanism established in 2010 to improve the co-ordination of economic policies in European Union countries. It was one of the EU's responses to the financial and economic crisis, which has resulted in economic contraction and rising unemployment in many EU countries. The European Semester is based on the idea that, because EU economies are highly integrated, enhanced policy co-ordination can help boost economic development in the EU generally.

By 'Greening the European Semester', the Commission is aiming to ensure that macroeconomic policies are sustainable, not only economically and socially, but also environmentally. An earlier study highlighting the economic benefits of environment, which looked at implementing waste legislation to boost green growth, showed that full implementation would save EUR 72 billion a year, increase the annual turnover of the EU waste management and recycling sector by EUR 42 billion and create over 400,000 jobs by 2020.