Ecological Tax Reform

Ecological tax reform (ETR) shifts the tax burden away from “value-adding activities” such as labor and increases the tax burden of “value-depleting” activities, such as resource depletion. Most ETR programs aim to make the final tax income/revenue neutral. This means the savings employers would gain from paying less in employee benefits, such as social security contributions, would be balanced, for instance, by their increased taxes on energy use. ETR thereby provides an incentive to save money through environmentally sound actions — in this case by installing energy efficiency measures. ETR can spur innovation and efficiency. The World Resources Institute estimates, for example, that a high-carbon tax coupled with reduced tax rates on income and profits could generate a possible gain of 45–80 cents per dollar.

A German study prepared by the influential German Economic Research Institute (DIW) and commissioned by Greenpeace showed that a unilateral ETR program that raised energy prices by 7% per year for 15 years, and recycled the revenues to industry and households, would not damage competitiveness. At the same time, it would cut energy consumption by 21%, create over half a million jobs and favor lower incomes.

The results of the German ETR study were in line with others produced in the Netherlands, Belgium, Austria, and France. The European Commission funded a six country study that showed that unless economic and environmental policies were integrated through an ETR program, either the economy or the environment would suffer.

For more information visit the Green Tax Shift website