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Friday, 14th August 2020
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Faraway taxes are green Back  
The EU favour the introduction of environmental taxes by the Member States. The current government’s programme promises the introduction of green taxes in Ireland. So far little has happened. What may be in the pipeline?
Environmental taxes, popularly known as green taxes, are flavour of the decade. The objective principle is to use tax penalties to discourage environmental pollution. In practice many such taxes are just good old fashioned revenue earners. If they did indeed succeed in discouraging the activities they are imposed on, the governments in question would probably be aghast at the loss of revenue.

In Ireland VAT and excise duties on motor fuels, and road tax, are the primary green taxes. Notwithstanding the fact that they are marginally adjusted in favour of unleaded petrol compared to leaded petrol, and LPG compared to petrol or diesel, there is no disguising the fact that they are primarily a revenue raising device. If the motorists of Ireland handed in their car keys in the morning, there would be a huge hole in the national budget. You would probably see tax incentives being introduced to get them back on the road again!

The EU have recently published a number of reports on the effects of green taxes in the community. These reports give some idea of the range of green taxes that could be in the pipeline.

Nitrogen oxide taxes: These are taxes on nitrogen oxide emissions, typically from power generators. In Sweden the tax operates by taxing the polluters, and refunding the cash to clean guys. Overall the power industry does not pay any net tax in this way. Those who don’t choose to clean up end up subsidising the cost of clean up for those who do choose to clean up their act.

The tax has had major impact in Sweden with measured pollution from power plants falling sharply. In contrast, the tax on nitrogen oxide emissions in Galacia in Spain has proved a good money raiser in the State, which by definition means that emissions have actually been increasing! Which model do you suppose Ireland will copy?

Water usage: Ireland has experience of some relatively unsuccessful attempts at introducing water charges on private residences.

In Denmark, the government have been disappointed in the reducing amount of revenue raised by such a charge. Consumers acted as good Europeans and reduced their usage of water! Water leakages from burst mains have also sharply reduced by reason of a special tax on such leakages.

In the Netherlands the water tax takes the form of a tax specifically on the use of ground water (as opposed to river water or lake water). The amount of the tax still left it cheaper to use ground water than to use river or lake water so it has little or no environmental impact.

Pesticides: Taxes on pesticides have reduced usage in Sweden and in Denmark. However the report notes that the effect of a tax could be to reduce the dosage of pesticides in each treatment which apparently can be even more harmful than heavy dosage. That sounds odd but the EU say so!

Fertiliser tax: This is used in the Netherlands, Finland, Sweden and Austria. This would be politically sensitive in Ireland for obvious reasons. However if the revenue from the tax was ploughed back to the farming industry, it might be acceptable.

Landfill tax: This is used in France, the United Kingdom, and Austria. It tends to be particularly focused on the dumping of building rubble and construction waste. The intention is to promote the recycling of such rubble etc.
This in turn ties in, or may tie in, with a tax on the mining of aggregates, which is to be found in Denmark, Belgium, and the United Kingdom. There can be some degree of substitution between recycled building materials and aggregates.

Our current landfill crisis may promote thinking in this area. However there is already a charge for the commercial use of landfill sites. There will also be a trade off point between increasing charges, and ‘cowboy dumping’ by the roadside!

Disposable containers: Taxes are possible on plastic bags, plastic bottles, and a plastic bag levy is already threatened in Ireland.

Batteries: Italy, Belgium and Hungary have taxes on batteries designed to promote recycling. In Belgium the introduction of such a tax led to a voluntary scheme involving the battery industry. The battery tax was diverted to this scheme which has met its collection targets for all years.

Reality check
It all sounds bright and wonderful. However the overall assessment noted that it was very difficult to determine if much at all had been achieved by the green taxes.

In part this is because the taxes pull their punches. Governments, fearful of affecting employment levels and competitiveness of exporting industries, tend to grant exemptions from the taxes to precisely the heaviest polluters, and therefore those who would be worst affected by the taxes.

The taxes are sometimes introduced at too low a level to have any impact, other than raising an amount of useful revenue for the government.

Even where a tax is at a level at which it begins to hurt, the impact is not necessarily always good. The first instinct of those affected by the taxes is not so much to clean up their act, but to consider how to avoid the tax, which may involve even more pollution, albeit of a type that does not attract the tax.

The report admits that effective taxes would have an impact on cost for industries. It concludes that the impact of such costs on employment and competitiveness would not be significant if the taxes are introduced on an EU wide basis.

That may be true for the EU, but it is not true for Ireland. Unlike the EU as a whole, Ireland depends heavily on trade with non EU member states. Ireland has to consider its competitive position as against the rest of the world, and not simply as against the rest of Europe.

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