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Environmentally Damaging Subsidies (EDS): Definition and Volume in Germany

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Environmentally Damaging Subsidies (EDS): Definition and Volume in Germany

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  1. Kai Schlegelmilch*Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Berlin/GermanyGreen Budget Reform in Germany – Results and Perspectives2nd-3rd September 2004, Budapest, HungaryInternational Conference “Environmentally harmful subsidies and ways to eliminate them“*Though views expressed here represent government positions in general, they are made on a personal capacity.

  2. Environmentally Damaging Subsidies (EDS): Definition and Volume in Germany • Definition is difficult and tricky • All subsidies (expenditures and tax expenditures) that contribute to damaging the environment • EDS also comprises the non-internalisation of external costs as it is a subsidy to the market-economy • No official volume estimations,studies: between 2.1 and 43 billion € p.a. (FiFo/FoE) • 19th Government Subsidy Report: General subsidies:21.4 bn €:8.2 = expenditures and 13.2 = tax expendituresBut a limited scope: E.g. commuters tax reduction of 3 bn. € is not included

  3. National Climate Protection Programme 2000 • Ecological Tax ReformInternalising external costs = reducing subsidies to the market-economy • National Allocation PlanOverallocation could be considered as subsidy, however none takes place in Germany. In fact, real reductions have to be achieved. • Promotion of rail transportProviding for a level playing field by catching up investment unbalances:Investment of 1 bn. € p.a. in rail infrastructure • Transport-related measures:such as the heavy vehicle charge on motorways to be introduced by 2005 (initially in summer 2003). • Update of the National Climate Protection Programme:foreseen for 2004 (initially by 2003, postponed due to ETS)

  4. Features of ETR in Germany (I)- Regular Rates Steady increases in 1999-2003: • Electricity tax 1.02 Ct/kWh in 1999 (+0.26 Ct/kWh p.a. between 2000-2003) • Mineral oil taxes on transport fuels: + 3.07 Ct/litre p.a. between 1999-2003) Single increase in 1999 and 2003 only: • Tax on natural gas + 0.16 Ct/kWh + 0.202 Ct/kWh • Tax on light heating fuel: + 2,05 Ct/litre

  5. Features of ETR in Germany (II) – Reduced Rates • To take into account industry’s concerns about competitiveness • To promote environmental measures (overall > 10 % of total revenues for environmental purposes):- local public transport- track transport- natural gas in the transport sector- low-/no sulphur containing fuels- efficient power plants • To ensure revenue neutrality:Reduction of employers’ and employees’ social security contribution by overall 1.7%-points

  6. ETR in Germany - Results • In 2000 transport fuel sales decreased by 2.8%, in 2001 by another 1.0%, in 2002 by additional 2.3% and in 2003 by –3.5%. All this happened for the first time in three subsequent years against an upward trend since 1950! • Demand for car pooling increased by 25% in the first half year of 2000, in 2001 +22%, in 2002 +8%, in 2003 +15%. • The number of passengers in the public transport system increased in 1999 for the first time (+0.4%), additional 0.8% in 2000, another 0.8% in 2001 and again +0.5% in 2002, in 2003 +1.5%– against a downward trend for decades before. • Macroeconomic Study:Job increase predicted of up to 250,000 until 2003, due to reduced labour costs, but also due to increased investment in energy savings.CO2-emissions and energy consumption will be reduced by 2-3% until 2003

  7. Environmental Fiscal Reform in the coalition agreement 2002 – in general: • Green Budget Reform (GBR) and Environmental Fiscal Reform (EFR) are used synonymously. • EFR/GBR comprises: • 1. structural adaptations of existing taxes (e.g. ETR-reductions) • 2. reduction of environmentally damaging and macro-economically questionable subsidies, including tax expenditures • 3. increased spending for environmental purposes

  8. Environmental Fiscal Reform in the coalition agreement 2002 – in detail: • Support for building new houses will be reduced to the level of that for buying existing houses and concentrated on families. A supplement shall be further available for environmentally advanced measures. • The annual car tax will be based on CO2-emissions • On EU-scale D will push for a kerosene tax for aviation. • VAT-exemption for flights into EU-MS will be abolished. • Restructuring of the German hard coal mining sector will be continued. Subsidisation of the German hard coal sector will be ensured for the period 2006-2010. The contribution from the federal budget – which is at 3.05 billion € nowadays and which will be reduced to 2.17 billion € by 2005 – will be developed further in a degressive manner. • 2005: VAT-rate on public passenger transport for long-distances will be reduced from 16 per cent to 7 per cent. • More revenues will be spent on renovating buildings and promoting renewables. • Adjustment/Phasing out of some ETR reductions

  9. ETR-adjustments in Germany from 2003 on: • Reduction of environmentally damaging tax reductions for • - industry (now a positive marginal tax rate) • - night storage heatings (phase out by 2007) • Adaptation of the gas tax to the level of the light heating oil based on CO2/energy content • Increased use of revenues for building stocks renovation and shift away from night storage heatings; prolonged tax reduction for natural gas used in the transport sector until 2020 for ensuring investment certainty.

  10. General Guidelines for Fiscal Reform: Decision by Government 2003 and 2004: • New subsidies should only be • - provided as expenditures, but no longer as tax expenditures. • - provided for a certain, fixed time period • Existing subsidies should be phased out. • They have to be justified every year during the budget consultations • However, no particular mention of environmentally damaging subsidies any more. • A bi-yearly subsidy report offers monitoring, though no explicit mention or evaluation of environmentally harmful subsidies

  11. Political process of reducing EDS • 1.+2. (structural adaptations of existing taxes and EDS) 2002/3: Tax expenditure reduction law (including ETR), but it was blocked by opposition in the Upper House • In a mediation Committee it was agreed – according to the Koch-/Steinbrück-Paper – to lower „all“ subsidies by the same percentage (4% p.a. in 3 years or 12% in one year). • But it did not comprise all subsidies, particularly critical ones like ETR-reductions, hard coal subsidies and road infrastructure expenditures were not included, while rail infrastructrue expenditures and programmes for renewables were included • For the year 2004 a review is foreseen in order to assess if and how energy taxation will be further developed according to environmental aspects, given the environmental impacts, the oil price, the macro-economic development, the competitiveness of German industry and the social impacts.

  12. Implementation progress of EFR-measures in the coalition agreement: Measures agreed Extent of implementation Support for building new existing houses: only slightly  Annual car tax on CO2-emissions: no longer a priority  EU-kerosene tax for aviation: at least option available o Abolish VAT-exemption for flights into EU-MS blocked, waiting for EU  Reducing German hard coal subsidies high level until 2012  More revenues for buildings and renewables slight progress o Adjustment/Phasing out of some ETR reductions implemented since 2003  Reduction of VAT-rate on rail transport to be decided for 2005 o ? 4 x  3 x o 1 x  Summary: mixed picture and several measures left for taking action

  13. Perspectives for ETR · Very difficult to implement further ETR-steps on transport fuels given the high level of taxation and nine neigbhouring countries. · More likely to increase taxes on heating fuels and/or electricity since tankering hardly takes place. · Implementation of the EU energy taxation directive (particularly: introduction of coal tax for heating purposes, abolishing the gas tax for electricity generation;possibly: tax supplement on sulphur-rich light heating fuel,introduction of a national kerosene tax) · Increased taxation of industry, e.g. linked to energy audits or emission trading schemes, particularly for energy-intensive industries. UK’s climate change levy on business only and DK’s long experiences, but also signals for moves of Hungary offer room for manoeuvre. · Increased use of additional revenues for the promotion of environmental measures · Better embodiment of EFR in a policy package to overcome non-fiscal/-price barriers

  14. Contact: • kai.schlegelmilch@bmu.bund.de • Tel.: +49-1888-305-3664 • Fax: +49-1888-305-2349 • http://www.bmu.de • http://www.bmu.de/oekologische-finanzreform (information in D, E, FR, ESP) • THANK YOU VERY MUCH FOR YOUR ATTENTION!

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