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Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future Development

Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future Development. Seventh Annual Global Conference on Environmental Taxation Ottawa, October 23rd, 2006 Dr. Anselm Görres – Chairman Green Budget Germany. GBG commercial – and the challenge ahead Germany’s situation in comparison

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Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future Development

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  1. Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future Development • Seventh Annual Global Conference on Environmental Taxation • Ottawa, October 23rd, 2006 • Dr. Anselm Görres – Chairman Green Budget Germany

  2. GBG commercial – and the challenge ahead Germany’s situation in comparison Red-Green Ecotax Reform: Facts and figures Some lessons from the German ETR debate A few closing remarks Optional: Insights from the instrument debate CONTENT OF THIS PRESENTATION Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future Development

  3. About “Green Budget Germany” and the author • Green Budget Germany (Förderverein Ökologische Steuerreform e.V./ FÖS) is a nonprofit organisation and NGO, founded in 1994. • Topics: Ecotax Reform (ETR) andEmission Trading(ETS) or more general:Environmental Fiscal Reform(EFR) includingSubsidy Debate • Target Groups: Business, academicandpolitical communities. • Publications: Many books, articles and newsletters in German in English: ÖkoSteuerNews and GreenBudgetNews. • Dr. Anselm Görres, born 1952, economist and former McKinsey consultant, is manager and entrepreneur in Munich Germany (www.zmm.de). He is co-founder and President of FÖS/GBG and since 1985, has written many books and articles about ecotaxes in Germany. Förderverein Ökologische Steuerreform e.V. Landsberger Str. 191 • D-80687 München Fon +49-89-520-113-13, Fax -14 foes@foes.de; www.foes.de; www.eco-tax.info

  4. 1968/69 Exchange Student with YfU in West Des Moines, Iowa with first trip to Canada 1982 Working five months as researcher for IMF, Wash. DC 1984 to 1991 Working with US-headquartered consulting firm McKinsey&Company; second trip to Canada 2000 Plenary Speaker at First Global Conference on Environmental Taxation, Cleveland, Ohio 2002 Speaker in Portland, Oregon and at Second Global Conference in Woodstock, Vermont 2006: Economic instruments information tour through US and Canada, supported by German MoE PS: Two of my three daughters were exchange students in the US Even people from “Old Europe” can have strong ties to the New World

  5. Readers of our two • newsletters: • 7000 in D • 3000 abroad ...and how about you?!? German edition: ÖkoSteuerNews ...it’s easy: www.foes.de

  6. StaBarbara Wash.DC Sacramento Boston SELECTED WORLDWIDE ECOTAX PRESENTATIONS BY GBG-MEMBERS After some time we realized that GBG is not only an NGO but also a travel agency Hamburg Talinn London Riga Krakau Ottawa Vancouver Munich Barcelona Wien Prag Portland Vermont Cleveland Tokyo Malta Madrid Havanna Thanks a lot for helping to add further US and Canada cities to our list of destinations! Sydney

  7. We proudly present.. The Eighth Annual Global Conference on Environmental Taxation: From 18th to 20th October 2007 in Munich

  8. OIL PRICE DEVELOPMENT FROM 1860 UNTIL TODAY Congratulations! We’ve finally come back to the oil prices of 1870! Look familiar? Every engineer knows: get out before the tub curve ends!

  9. As much as we look: There‘s less and less oil in the tub And if there were – we cannot risk to burn it all in the next few years!

  10. Sun Energy plus ζ = efficiency TRANSITION FOSSIL TO SOLAR (1) Our only problem is to step from the old, fossil bathtub into the nice new bathtub of solar energy... Solar energy bathtub Fossil energy bathtub With ETR, ETS, and solar subsidies we’ll make the transit faster and smoother!

  11. Sun Energy TRANSITION FOSSIL TO SOLAR (2) Don’t scare people with higher prices forever – tell them about the sunlight at the end of the tunnel! Switching price - upper limit - lower limit Switching corridor Sustainable price level Bad energy before ecotax Bad energy plus ecotax Alternative energy

  12. GBG commercial – and the challenge ahead The challenge ahead – from bathtub to bathtub Germany’s situation in comparison Red-Green Ecotax Reform: Facts and figures Some lessons from the German ETR debate A few closing remarks CONTENT OF THIS PRESENTATION We’ve come to our next topic:

  13. PERCENTAGE SHARE OFECOTAXES IN GROSS DOMESTIC PRODUCT The share of ecotaxes in total GDP is a good indi-cator for the use of market-based instruments

  14. CO2-EMISSIONS PER CAPITA (IN METRIC TONS; 2005) The average American produces almost twice as much CO2 as the average European

  15. CHANGES IN CO2-EMISSIONS PER CAPITA IN TONS (BASEYEAR 1993) The development of CO2-Emissions is very unequal Fuel Duty Escalator 1993-1999 German Ecotax 1999-2003 Reference: DIW 2005

  16. CO2-EMISSIONS PER GDP (TONNES PER MILLION US-DOLLAR) Europe leads in energy intensity of GDP Reference: DIW 2006

  17. Wealth and industry strongly affiliated with old energies (Rockefeller, Bushes, Haliburton...) Canada six-largest exporter of exploration technology Poor population particularly vulnerable to energy price hikes (oldest cars, worst insulated homes, long commuters) Aggressive anti-tax rhethoric of many politicians SUVs as symbol of American Way of Life and freedom of mobility Great tradition to live up to national and global challenges (though sometimes with delay) – Wilson, New Deal, Marshall plan, Peace Corps... The will to renew in America is a renable resource (Al Gore) People like Benjamin Franklin, Jeffrey Immelt, Al Gore, Arnold Schwarzenegger Care about Environment is “in” – not only in Hollywood (“Day after tomorrow”) and California Many ecoinstruments have been invented in USA (ET, fuel consumption limits) North America has some particular problems, but also some extraordinary strenghtes

  18. “Americans can always be counted on to do the right thing ... after they have exhausted all the other possiblities.” Attributed to Winston Churchill Source: Robert J. Samuelson – An Oil Habit America Cannot Break. Washington Post, Oct. 18, 2006

  19. +4,3 2003 2002 +2,5 2001 +3,0 2000 +2,5 +4,3 1999 FINANCIAL EFFECTS OF ETR IN GERMANY (IN BILLION EURO) Energy taxes in Germany increased by 55 percent, additional increase in 2005 through truck toll ~ 56 ~ 53 3,0 + 3,0 Road Toll (0 → 9-14 cents/km) 18,7 bn € = 55% in- crease 6,5 Electricity (0 → 2,1 cents/kWh) 2005 5,0 Natural gas (0,2 → 0,6 cents/kWh) 1,8 Fuel oil (4,1 → 6,2 cents/l) 16,0 Diesel (31,7 → 47,2 cents/l) Road toll for trucks ETR Petrol (50,1 → 65,6 cents/l) ~34 22,8 Total green taxes almost 90 Bn (incl. tobacco, land etc.) Energy taxes Energy taxes 2003/2005 1998

  20. GERMAN ETR: RECYCLING OF THE RETURNS Almost 90 Percent was recycled to citizens in order to reduce labour cost • Environment Projects • Renewable Energies • Less CO2 in buildings • Tax break bio-fuels Govt. Budget use Social Security Economy Pension system • Our Comment: • Great idea, in principle • Less than perfect execution Decrease in pension costs = 16 Bn relief for employers, employees and pensioners

  21. FISCAL INSTRUMENTS WITH ECO-IMPACT IN GERMANY (Bill. Euro 2003) Over 130 Billion of taxes and subsidies directly affect the environment Incl. toll, taxes on land and tobacco etc. Est. world total: $ Bn. 1950 Negative Subsidies

  22. POSITIVE EFFECTS ON NATURE, INNOVATION AND LABOUR First Results of Ecological Tax Reform • Tax share of Nature • Car sharing (+70 %) • Public transport (+5 %) • Energy saving technologies • Energy efficiency • Gas-powered cars (x10) • Bio-fuelled cars (x2) • Job creation (≈ 250.000) • Renewable energies More • Fuel consumption (-16%) • CO2-emissions (2-2,5%) • Pension costs (-16 bn) • Costs for industry (-1 bn) • Empty truck travel • Imported fossil fuels (-13%) • Overall tax burden (-4 %) Less

  23. GERMAN PETROL PRICES IN COMPARISON (EURO CENT / LITRE SUPER) The base cost (cost before tax) rose much more than ecotaxes 141 139 111 79 Value Added Tax 64 +30% 50 Mineral Oil Taxes +184% 40 40 Cost before tax Taxes and charges on the federal level are different

  24. INCREASE IN GHG-EMISSIONS IN TRANSPORT (IN PERCENT) Ecotaxes can reverse the trend in transport emissions Oil price shock 2001 Ecological Tax Reform Changes to baseyear 1994 Reference: UNFCC 2005

  25. FUEL CONSUMPTION IN GERMANY IN MILLION LITERS (1995-2005) Since 1999, petrol consumption in Germany decreased by 22 percent, diesel by 6 percent 1999-2005: - 22 % Petrol Diesel 1999-2005: - 6% Ecological Tax Reform Reference: Federal Statistic Office, 2006

  26. IMPACT OF ECOTAX ON TRANSPORT EMISSIONS IN D AND UK The two exceptional cases in the EU: CO2 transport emissions are falling in Germany and the UK Other EU UK Germany

  27. TOTAL CHANGE IN OILIMPORTS FROM 1998-2005 IN MILLION BARRELS PER DAY While the US increased their oil imports by 26 percent, Germany reduced it by 13 percent 1998 2005 Absolute Change Change in percent USA 9,764 12,353 2,589 Germany 2,867 2,485 -0,382 Saving energy perhaps less costly than fighting wars for oil...

  28. DISTRIBUTION OF WORLD OIL RESSOURCES Most of the oil comes from rather unstable sources Conflicts, Terrorism, Instabiltiy

  29. ANNUAL INCREASE OF ENERGY TAXES AND OVERALL TAX RATIO Despite the increase in energy taxes: Overall tax rate was falling Year-on-year change (percent) Increase in energy taxes+55 % Decrease in overall tax rate: 4.2 %

  30. RELATIVE BURDEN SHARES IN TOTAL LEVIES GERMANY 1970 - 2003 Since 1998, the tax share of nature has increased Increase ~20 percent Nature Neutral Capital +10-15% burden shift needed! Labour Nature: Taxes on energy, land, toll etc. Neutral:VAT, duties etc. Capital: business and capital taxes etc. Labour: income tax, social security

  31. GBG commercial – and the challenge ahead Germany’s situation in comparison Red-Green Ecotax Reform: Facts and figures Some lessons from the German ETR debate A few closing remarks CONTENT OF THIS PRESENTATION We’ve come to our next topic:

  32. BRIEF HISTORY OF ETR IN GERMANY Only 20 years from textbook to lawbook (Pigou: 1924) 1978 First proposal by Hans Christoph Binswanger, Swiss economist 1980s Politicians, parties, NGOs like BUND, and others discover the concept (e.g. Prof. Ernst von Weizsäcker). Radical approaches even advocate total substitution of conventional taxes through ETR (UPI) 1990s Double Dividend Debate.Social Democrats and Greens take ETR into their programmes, but German unity distracts from the debate 1994FÖS/GBG presents first FÖS-Memorandum after DIW-study financed by Greenpeace. Both claim: Double dividend is possible. Second round of intensive political debate – in theory, all parties are in pro. But Helmut Kohl wins election and freezes debate. Merkel silent... 1998 Green Party triggers third round of debate with demand for fuel price to 5 DEM/litre. ETR becomes important issue in 1998 campaign 1998GerhardSchröder leads Red-Green Coalition to its first victory. 1999 On April 1st, German ETR enters into effect– after two decades.

  33. German ETR debate was part of a widespread consensus throughout Europe 1970/80ies: Wild array of Ecotax proposals Early 1990ies: EU-wide consensus emerges • Concentration on energy/CO2: • not 150 different ecotax candidates! • Carefulescalation/ no shocks: • Slow, but steady growth,3-5% p.a. • Concrete blueprints: (like Green Budget in Germany 1994) • 100% Budget neutrality:No rise in tax quota – no gain for State • Shifting of tax burden:From labour to nature • Export protectionfor energy intensive branches • European and global dimensionof ecotax debate and reform Batteries SO2 • Waste Chloride Plasticbags High speed cars ENERGY or CO2 Areas Packages Fertilizers One-way-bottles Water

  34. In the summer of 2000, there were anti-ETR demonstrations throughout Europe Unlike many other EU governments, the red-green coalition didn‘t back down under pressure…

  35. One of the most played plays in this debate is from Molière – works fantastically since 1673! • So beware of • Phantom Pain! • Very frequent and popular disease • Particularly with business people • Car drivers also quite often affected • Tabloids love to fight for the poor victims!

  36. ADMINISTRATION COST OF DIFFERENT TAXES – PERCENT OF REVENUE Bureaucracy? Ecotaxes with lowest admin costs Without exemptions even lower admin cost! The tax with lowest admin costs gets the most bashing – are only old taxes good taxes?!? Average 1,6 %

  37. EXECUTIVE SUMMARY (0) German ETR fulfilled its promises for economy and ecology, but was less successful in political terms Effects Pos. Neg. Comment Economical + + + – None of the dire predictions came true! Environmental + + + + – It did what it promised, with a little help from oil prices Political + – – – Remained a net burden de-spite of good debate start IN TOTAL + + + ++ + + + – – – – – WE MUST IMPROVE THE POLITICAL MARKETING!

  38. Future ecotax campaigns should not stress dangers, but innovation, benefits and future jobs

  39. JOBS IN THE ENERGY SECTOR IN GERMANY 2005 More jobs in RENs than in our heavily subsidized problem energies REN: 150.000 jobs Water Geothermal power Solar Bioenergy Windpower Problem energies: 107.000 jobs Source: BEE 2005

  40. Air traffic should be a primary target for new measures of the new German Government • VAT • Ticket tax • Kerosine tax • Integration with ETS

  41. THE “MENU ILLUSION” OF INSTRUMENT CHOICE A lot of people think about ecological policy choices like eating out in a nice restaurant The bitter truth is: Even if we combine all known instruments, we cannot be sure if we will prevent a Climate Crisis! Which mix of instruments?

  42. Mankind seems to learn only by catastrophes 1859 Battle of Solferino – Book of Henry Dunant 1864 Red Cross founded in Geneva 1914-18 World War I 1920 League of Nations J+D both leave 1933! 1939-45 World War I 1945 United Nations founded 1945 Hiroshima, Nagasaki 1970 (!) Non-prolife-ration Treaty 1986 Czernobyl 1990s nuclear exit of some countries

  43. consumer lifestyle leisure Individual Society media societies elections State regional national supranational Ecologically rational behaviour must pay! Laws laws jurisprudence taxes/ETR/ETS MINIMISING CONFLICT BY CHANGING FRAMEWORKCONDITIONS Everything must aim to reconcile market and ecological rationality Market rationality Ecologicalrationality

  44. Merci beaucoup D a n k e v i e l m a l s ! THANK YO UK INDLY! Muchas gracias CAN USA ES ありがとうございます

  45. ANNEX SLIDES

  46. GBG commercial – and the challenge ahead Germany’s point of departure in comparison Red-Green Ecotax Reform: Facts and figures Some lessons from the German ETR debate A few closing remarks Optional: Insights from the instrument debate CONTENT OF THIS PRESENTATION Germany’s Ecotax Reform 1999 - 2003: Implementation, Impact, Future Development This part usu-ally not shown

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