Is interest in environmental tax about to increase?

I’ve written about the need for a common tax treatment for emission trading permits recently and as usual the interest is not as large as for more general tax policy issues. But is environmental tax about to become more significant? A number of unrelated pieces of news suggest to me that this may be on the horizon. Given the Fiscal crisis of most countries it is no surprise that the focus should be on this and in tax policy that BEPS should be significant.

So what are these news items? The G8 summit communique, the emission trading scheme in ,China, the dangerous level of air quality in Singapore and the European Parliament’s decision to revisit back-loading.

A little noted part of the G8 communique (apart for the focus on the three Ts) was about climate change. The communique includes a series of commitments on climate change designed to underline the G8’s support for global efforts to curb greenhouse gas emissions, including the long-running UN-backed negotiations that are scheduled to deliver a new international climate change treaty in 2015.  the final communique dedicates a page to climate change and states that “it is one of the foremost challenges for our future economic growth and well-being”.

It goes on “We remain strongly committed to addressing the urgent need to reduce greenhouse gas emissions significantly by 2020 and to pursue our low-carbon path afterwards, with a view to doing our part to limit effectively the increase in global temperature below 2ºC above pre-industrial levels, consistent with science,” “We also note with grave concern the gap between current country pledges and what is needed, and will work towards increasing mitigation ambition in the period to 2020,” “We reiterate our commitment to the developed countries’ goal of mobilising jointly $100bn of climate finance per year by 2020 from a wide variety of sources in the context of meaningful mitigation actions and transparency on implementation and are advancing our efforts to continue to improve the transparency of international climate finance flows.” “We will… keep our word to refrain from and roll back protectionist measures and support a further extension of the G20 standstill commitment,” the communique states. “We call on others to do the same. We commit our support to efforts to liberalise trade in green goods and services, emphasising that progress in this area will boost green growth. In this regard we commend Asia-Pacific Economic Cooperation’s (APEC) decision in September 2012 to reduce tariffs on environmental goods as an important contribution to this end.”

The British government had faced criticism from France and Germany for failing to include climate change on the main agenda for the two-day summit but despite this it plays a significant part in the communique.

China has announced a pilot emission trading scheme as the city of Shenzhen becomes the first region in China to introduce a mandatory emissions trading scheme (ETS).The pilot scheme, one of seven announced back in 2011, will cover 635 carbon-intensive companies, imposing emissions caps on them and requiring them to hold sufficient tradable carbon allowances to meet government-imposed emissions targets.

The scheme is broadly modelled on the EU ETS and will impose a carbon price on power plants and industrial facilities in one of China’s fastest growing regions.Under the rules of the scheme, China’s National Development and Reform Commission has said that the surrounding region of Guangdong will have to meet an emissions intensity reduction target of 19.5 per cent between 2010 and 2015, while Shenzhen faces a more demanding target of 21 per cent.The companies covered directly by the new emissions cap were responsible for carbon emissions of 31.7 million tons of in 2010, equivalent to 38 per cent of the city’s total emissions. The potential significance of this is great and if China believes that it can embrace carbon reduction in a way which does not harm its competitive position then its stance at the COP meetings is likely to change.

We have probably all seen the coverage of the deterioration of air quality in Singapore from forest fires in Indonesia. A senior adviser in the OECD once advised me that one of the key triggers for climate change action would be air quality. While the cause of the air quality is not climate change per se, a growing awareness of environmental issues is likely to change public perceptions and thus pressure on politicians.

Finally, in the European Parliament MEPs in the European Parliament’s Environment Committee have approved plans to temporarily withhold the sale of allowances in the bloc’s emissions trading system (ETS) in an attempt to force up the price of CO2 and drive green investment.The committee voted in favour of a back-loading proposal that includes compromises to assure businesses that the measure would be a one-off measure that would not be repeated, and that back-loading would not lead to the permanent withdrawal of allowances which have been delayed.They also backed plans to use the revenues gained from back-loading to create a fund that could help energy intensive sectors invest in low carbon technology.

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