By Kim Hak-Su
Bangkok last month hosted the most important annual
environmental technology trade fair in Asia-Pacific. About 10,000
people visited Entech Pollutec/Renewable Energy Asia 2007. More
than 300 green business exhibitors from the private sector were on
hand.
The United Nations Economic and Social Commission for Asia and
the Pacific (UNESCAP) was also there. It brought together
government policy makers, business executives and consumer rights
groups in the Third Green Growth Policy Dialogue. "Renewable
Energy: Technology, Markets and Policies in Southeast Asia" was a
special focus of the dialogue.
With the sustained high oil prices and climate change
threatening the global economy, energy taxation could be an
important instrument for promoting renewable energy without
undermining the competitiveness of Asia-Pacific economies. On the
surface, that may seem to fly in the face of conventional economic
theory. But the energy taxation we are referring to is not about a
new, additional tax burden. Rather, it is about a shift of the tax
base - from income to pollution.
Green tax reform is one of five tracks of the Green Growth
approach initiated by UNESCAP and endorsed by its 62 member
governments. Building sustainable infrastructure, encouraging
sustainable consumption patterns and promoting the greening of
business are the other broad measures promoted by the Green Growth
approach.
Currently, growth is measured in terms of "economic efficiency"
or market prices that do not reflect ecological costs. The Green
Growth approach stresses "ecological efficiency" - to maximize
resource efficiency and minimize the impact of pollution.
Green tax reform changes the tax base from income to pollution,
so that market prices may properly reflect ecological costs.
But does a green tax work? The experience of Europe shows that
it does. Green taxes aimed at promoting energy conservation and
reducing carbon dioxide (CO2) emissions have been in place in
Western Europe since the early 1990s and have been increased
progressively. Germany increased its energy tax by 55 percent over
a span of just five years between 1999 and 2003. Energy taxes now
account for about three quarters of environmental tax revenue in
the European Union.
The main objective of taxes is of course to generate revenue for
public spending. In a revenue-neutral situation, green tax reforms
bring a double dividend - reducing income taxes without cutting
public spending. In the German experience, citizens dissatisfied
with high pension insurance contributions are delighted that
additional tax revenues collected from polluters have significantly
offset their pension burden.
But how about the green bit of the tax? In Sweden, it is
estimated that 60 percent of the reduction in CO2 emissions between
1987 and 1994 resulted from the energy tax. A study by the National
Environmental Research Institute, at Denmark's University of
Aarhus, found that green taxes in six EU countries have contributed
to better economic growth, competitiveness and employment.
In comparison, the Asia-Pacific region still has a long way to
go. Some countries, such as China, Japan and the Republic of Korea,
have made modest inroads towards shifting taxes from income to
carbon-generating activities. Some parliamentarians in Japan have
been pushing in the last few years for a bill on an environmental
consumption tax, against fierce opposition from industrial interest
groups. In the Republic of Korea, the petroleum excise tax has been
raised at a rate of 30.9 percent per year since 2000. China is now
considering a 20 percent to 50 percent tax on retail gasoline and
diesel prices to promote energy conservation.
At the environmental technology trade fair in Bangkok, companies
vied with each other to showcase technology allowing for cleaner
energy and production. To reduce pollution and emissions and to
counter climate change, technology no doubt has an important role
to play.
However, it is clear from the European experience that a
concerted effort to reform taxation is also crucial to achieve
sustainable energy production and consumption. It is possible that
energy taxes linked to a reduction in income taxes - being revenue
neutral - could reduce consumption and pollution without negatively
affecting industrial competitiveness.
In fact, such tax reform would spur further innovation in
environmental technology. As we declare war on global warming, we
should deploy both the fiscal and physical weaponry that is at our
disposal.
The author is United Nations under-secretary general and
executive secretary of the UN Economic and Social Commission for
Asia and the Pacific (UNESCAP).
(China Daily July 18, 2007)
