Published Thursday, 05 June 2014

Environmental Tax Reform in Europe: Opportunities for the future 

The momentum behind environmental tax reform (ETR) has continued to grow over the past two decades. What began as an exercise among a small vanguard of European countries has gradually expanded to encompass a number of countries and regions across the globe. As we look to the future, different approaches to ETR can be considered to ensure further progress. One option could be voluntary cooperation and coordination through ‘coalitions of like-minded countries’ which bring together groups of countries (and actors) with similar interests in a particular area. These coalitions could support more effective and efficient environmental taxes, in some cases potentially leading to more harmonised or synchronised approaches between countries, while in others supporting better sharing of information on experiences and plans. This could help avoid sub-optimal situations that have occurred in the past and overcome some obstacles (e.g. competitiveness concerns, institutional barriers such as the fiscal unanimity rule in the EU on tax issues).

Such cooperation is likely to be more useful in certain circumstances, in particular depending on the ease with which a given tax could be avoided for example through trade (e.g. waste exports) or movement of consumers (e.g. airline tax, fuel tax). Varying forms of cooperation are likely to be needed in relation to different resources, materials and pollutants, and can be structured according to the issue at hand. Some are more amenable to collaboration between neighbouring countries (e.g. to reduce the risk of fuel tourism, leakage of products or activities), some may be more suitable to a multi-country or regional approach (e.g. marine litter in the Baltic Sea, North Sea or Mediterranean), others could focus on common challenges independent of geography (e.g. fiscal consolidation) or on general pan-European concerns (e.g. climate change, energy security, biodiversity).

This scoping study by IEEP for the Ministry of Infrastructure and the Environment of the Netherlands (IenM) indicates that there is appetite among certain European countries for some form of voluntary cooperation and coordination on issues of environmental taxes and ETR. It sets out some initial proposals to establish coalitions of like-minded countries in a number of thematic areas, how to engage action and take this initiative forward in the years ahead.