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EEA Reports Recommend Environmental Tax Reform

9 January 2012: The European Environment Agency (EEA) has released two reports on European Tax Reform (ETR). The reports, titled “Environmental Tax Reform in Europe: Opportunities for Eco-innovation” and “Environmental Tax Reform in Europe: Implications for Income Distribution,” highlight that implementing the ERT could spur eco-innovation, create jobs, and result in environmental benefits, including greenhouse gas (GHG) emission reductions. Defining ETR as “a shift of the burden of taxes, for example from labour to environmentally damaging activities,” the reports use models to calculate the impact of an ETR on energy and other resources.

The models analyze the effects of imposing an ETR to meet the 2020 target of reducing GHG emissions by 20%, through taxing emissions and plowing back the revenues to spur innovation and reduce income tax and social security costs. The EEA's findings show this policy could result in the creation of over a million jobs at a cost of 0.04% of GDP to achieve the EU's 2020 emissions reductions target. The reports also indicate that the poor could be negatively affected by an ETR on carbon, but that the additional cost to the poor could be mitigated through targeted benefit transfers.

The report on opportunities for tax reform contains literature on ETR and innovation, as well as chapters on modeling ETR impacts on eco-innovation. It concludes that ETR “can deliver environmental objectives, create additional jobs and trigger eco-innovation, while having negligible negative impacts on GDP.” This is especially true in cases where a sizable percentage of the revenues are invested in eco-innovation and EU exports of renewable energies increase.

The report on the implications for income distribution contains sections on the distributional impacts of environment-related taxes and ETR, a scenario study of the distributional impacts of ETR in the EU, and a country-specific study of the distributional impacts of ETR in Germany. It concludes that ETR can increase real incomes for all socioeconomic groups while encouraging employment.

The EEA is an agency of the EU. [EEA Press Release] [Publication: Environmental Tax Reform in Europe: Implications for Income Distribution] [Publication: Environmental Tax Reform in Europe: Opportunities for Eco-innovation]