The topic of OECD policy discussions since the early 2000s, EFR, Environmental Fiscal Reform – a shift in economic policies to incentivize businesses to stay within ecological boundaries – is even more valid today in 2017. Recent events point to the urgent need for reform: carbon emissions are on the rise; pollution is the biggest killer, the Paris Agreement is far from within reach and the nitrogen cycle is so badly broken that accumulated nitrates in rock threaten water supplies and aquatic environments.
Pollution- the result of externalization of product costs to society – is an economic burden on society and the economy
All the negative effects of pollutant emissions – including health costs, reduced eco system functioning and climate destabilization – are such a burden on the global economy that investment in clean technology – driven by EFR – should bring overall huge net economic benefits.
EFR is the way to retain control AND retain the positives of free market
EFR works through changing levels of certain taxes, fees and transferences. EFR is accompanied by changes in regulation and legislation. EFR is, therefore, a pragmatic economic instrument, a business-friendly policy tool to address environmental challenges such as climate change, pollution and the depletion of natural resources.
EFRs critics rebutted by US Council and treasury investigation
Businesses have been vehemently against EFR saying taxes influence purchasing power and thereby profits. Politicians have been concerned about income distribution – where increased prices of goods will affect the poorest the most. However, the Swedish Sustainable Economy Foundation, along with the US Republican Climate Leadership Council argue that taxes and fees collected should, as a guiding principle of all taxation, be redirected back to citizens as a dividend. This redistributes wealth as those who purchase most services and products that pollute are those with the better economies. Indeed, a US treasury investigation concluded that 70% of the population, those who were less well-off, would benefit from a Climate Dividend scheme. This argument invalidates both concerns that consumers will have less money to spend, and that the worst off will be the hardest hit.
Climate change – or climate destabilization – is a most pressing issue and demands we restrict the amount of fossil fuel being used to drive the economy. With costs for renewable energy becoming competitive to fossil-driven solutions, there seems to be no need for delay. However, the business community needs a nudge.
Between 2014 and 2016, global carbon emissions stayed flat giving hope that carbon emissions had peaked. However, data from the Global Carbon Projects, released at the Bonn Climate COP23, predicts a 2-3% rise in 2017. The main cause of the expected growth has been greater use of coal in China as its economy expanded. The net growth in carbon dioxide emissions into the atmosphere is the difference between absorption by carbon sinks (on land and the oceans) and emissions from land-use change and fossil fuel burning. It is possible that sinks will absorb less CO2 in the future, and the report is unclear if this rise is a one-off or the start of CO2 build-up.
Scientists lay out drastic reduction pathway
Scientists call for a global peak of C02 before 2020 to limit damage from climate destabilization. The economy needs to accelerate its transition to renewable energy, and economic incentives are badly needed to drive this acceleration. The graph below indicates the scale of change needed.
Rockström et al 2017
The report “ A roadmap for rapid decarbonization” http://science.sciencemag.org/content/355/6331/1269 calls for a 50% reduction per decade starting now.
But equally urgent is the fixing of the broken nitrogen cycle
Apart from carbon, another area requiring economic policy intervention is nitrogen. According to a new study from the British Geological survey huge quantities of nitrates from chemical fertilizers are polluting the rocks beneath the soil layer. Read more on the report in the BBC article here http://www.bbc.com/news/science-environment-41945650-
A flexible surcharge on nitrogen fertilizers and other sources
The Swedish Sustainably Economy Foundation called for surcharges on nitrogen in chemical fertilizers after a study carried out with the Nordic Council of Ministers.
Nitrogen oxides are implicated, too, in air pollution which according to a recent article in the Guardian, is now responsible for some 9 million deaths a year and is by far the biggest killer. Again, fossil fuel burning is a major case of air pollution.
The Swedish Sustainable Economy Foundations urges policy makers to introduce environmental fiscal reform for at least fossil fuels and nitrogen. The economy can only benefit from EFR if dividends from the fees levied are put back into each taxpayer’s account.
Contact TSSEF for more information http://tssef.se/contact/
- Climate dividend http://tssef.se/us-council-promotes-mechanism-for-carbon-dividend-plan-similar-to-tssefs-proposal/
- OECD EFR conference http://www.oecd.org/env/tools-evaluation/1936186.pdf
- The Nordic Council of Ministers’ report Two approaches to pricing pollutionTN2014:512,