Memorandum submitted by the Royal Society
for the Protection of Birds
SUMMARY
The RSPB supports the wider use of green taxes
and charges in environmental policy. This submission presents
the case for a pesticide tax and discusses how the environmental
benefits of the Climate Change Levy can be maximised. We hope
that the Pre-Budget Report 1999 will lead to the next Budget announcing
a decision to introduce a pesticide tax, together with some changes
to the design of the Climate Change Levy.
INTRODUCTION
The RSPB welcomes this inquiry. We believe that
green taxes and charges have a key role in protecting biodiversity
and the environment. They can give consumers and businesses strong
financial incentives to reduce environmental impacts. They can
ensure that prices reflect environmental costs and implement the
polluter pays principle. They can generate revenue which can be
used to fund environmental programmes or reduce other taxes. However
economic instruments must be used in conjunction with regulations
and other measures, recognising that regulations are better at
ensuring minimum standards and reflecting local conditions.
The RSPB is the largest wildlife conservation
charity in Europe, with over one million members. Our work to
protect birds and other wildlife ranges from managing nature reserves
and carrying out ecological research, to trying to ensure that
government policies, including tax policies, help protect the
environment.
This submission addresses two parts of the inquiry's
terms of reference: the case for pesticides taxes and the design
of the Climate Change Levy.
1. THE CASE
FOR PESTICIDES
TAXES
The RSPB strongly supports the introduction
of a pesticide tax. The Pre-Budget Report 1999 should propose
this measure and in the Spring 2000 Budget the Government should
announce a decision to introduce it. As with the Climate Change
Levy, the decision should be followed by a period of at least
18 months, to determine the details.
The pesticide tax must be part of a comprehensive
package of measures designed to reduce the environmental impact
of pesticide use. This section presents the environmental case
for the tax, and then discusses the economic impacts and alternatives
to the tax.
(a) The environmental benefits of a pesticide
tax
From the RSPB's viewpoint, the main potential
environmental advantage of a tax is that it would benefit farmland
birds. Pesticide use has been a significant factor in the decline
of farmland birds since the 1970s. Pesticides have removed plants
and invertebrates (bird food) from farm habitats. Research shows
that pesticides are a major factor in the decline of the grey
partridge and corn bunting, and there is strong circumstantial
evidence linking pesticide use to the decline of 18 other bird
species.
However, if the tax is going to reduce these
impacts, it must be carefully designed and be introduced with
other measures. A poorly designed tax could have adverse environmental
impacts, if, for example, it encouraged the use of cheaper pesticides.
In our response to the DETR/HM Treasury consultation[1]
we argued for a banded tax, with higher tax rates on the more
environmentally-damaging pesticides. This would help to prevent
any perverse environmental effects which might arise from changes
in the price of different pesticides, and would encourage a switch
to more benign pesticide products. We argued that the banding
system must take account of the full effects of pesticides on
wildlife. ECOTEC's proposed banding system[2]
does not address these effects, especially those of herbicides
through the removal of arable plants. Further work is needed to
incorporate the effects on wildlife into the banding system.
The tax must be accompanied by a package of
measures to reduce pesticide use and its environmental impact,
including advice, training and agri-environment schemes. A significant
part of the revenue from the tax should be allocated to these
measures. In this way the environmental benefits can be maximised.
By helping farmers to reduce their reliance on pesticides, such
measures would also help to soften the economic impact of the
tax.
The ECOTEC report suggests that a 30 per cent
tax would reduce pesticide use by between four per cent and 21
per cent, depending on its design. Apart from benefiting farmland
birds, it would also benefit the aquatic environment by reducing
pesticide levels.
(b) Impact on the farming industry and the
economy
The farming industry has opposed the tax on
the grounds that it would increase production costs and damage
the competitiveness of the UK industry. However research shows
that there is great potential for cost effective pesticide reductions.
These have been estimated at £274 million per year (without
the tax) in a study for DETR[3].
Even a critique of this for the British Agrochemicals Association
put the savings at £100 million annually[4].
This suggests that the savings are at least 20 per cent of the
value of pesticide sales. Therefore a significant part of the
extra costs of a tax (say at 30 per cent) could be offset by pesticide
reductions—without damaging farm incomes, especially if
some of the tax revenue was used to help farmers to reduce pesticide
use.
The evidence that there are cost effective savings
available to farmers supports the view that a tax is necessary
to encourage farmers to reduce use. A continuation of current
policy alone would not reduce pesticide use or the environmental
impact of this use so significantly.
Another point is that the tax could boost the
incomes of organic farmers, as their competitive position would
improve.
The impacts on the farming industry and rural
communities in general could be significantly reduced if much
of the revenue from the tax was spent on training and agri-environment
schemes, as suggested above.
The industry claims that the timing is bad.
Farming is in crisis, and incomes have fallen in the last three
years. However arable farm incomes were at record levels three
years ago, and are still higher than in the early 1990s. Further,
even if the Government decided in favour of a tax now, it would
not be implemented for at least 18 months, and could be phased
in after that.
A key economic argument for the tax is that
it would help implement the polluter pays principle. At present
water consumers have to pay the costs of removing pesticides from
drinking water supplies. The annual cost of water treatment has
been estimated at £100-120 million per year, on top of capital
costs of £1 billion[5].
The tax would help reduce these costs.
(c) Alternatives to a tax
The existing regulatory system for pesticides
plays a vital role in ensuring that pesticides are rigorously
tested before entering the market, which helps to control their
impact on human health and the environment. However, the regulatory
system is unable to eliminate the environmental impacts of pesticides.
For example, the most significant concerns about biodiversity
relate to the effects on food chains resulting from the routine
and legal use of pesticides. It is difficult to see how regulation
could eliminate these impacts. A tax, however, can reduce them
by encouraging overall reductions in pesticide use and a switch
towards narrower spectrum products.
Advisory and training schemes also have an important
role to play, in equipping farmers with techniques to achieve
profitable reductions in pesticide use. A tax would provide revenues
to enable schemes such as these to be expanded, as well as price
signals to enchance their effectiveness.
Agri-environment schemes are also important,
in encouraging the adoption of techniques and management practices
that reduce pesticide impacts. However, in keeping with the polluter
pays principle, regulations and taxes should be used to prevent
environmental damage, and the use of subsidies should be restricted
to encouraging the provision of public benefits. Some of the revenue
from the pesticide tax should be used to support agri-environment
schemes that enhance biodiversity and the environment, such as
Arable Stewardship and the Organic Farming Scheme.
2. THE DESIGN
OF THE
CLIMATE CHANGE
LEVY
The RSPB strongly supports the introduction
of this levy. The Pre-Budget Report 1999 and the 2000 Budget should
confirm its introduction in 2001.
The levy is a key part of the Government's plans
to reduce carbon emissions by 20 per cent by 2010. This, in turn,
will benefit birds and other wildlife, although we recognise that
much larger reductions (about 60 per cent) will be needed by the
middle of the next century to protect biodiversity in the UK and
overseas. Official research shows that about half of the UK's
statutorily protected sites are likely to be affected by climate
change by 2020[6].
Apart from mitigating climate change, the levy will also help
reduce acid rain emissions and other environmental problems associated
with the production and transportation of fossil fuels.
Our recommendations for the design of the levy
are as follows:
(a) All renewables should be exempt from the
levy
All renewables, including renewable electricity,
should be exempt from the levy. This is because the development
of renewables is one of the main ways in which climate change
can be mitigated. It would be illogical and perverse to apply
the levy to renewables. The levy must encourage renewable electricity
sources—and not merely be neutral towards them. We believe
that exempting (or rebating) the electricity if the source is
accredited under an accreditation scheme is the way forward.
There is no compelling technical or administrative
reason not to exempt renewables. Although renewable electrons
are indistinguishable from other electrons once they are in the
grid, it is perfectly possible to distinguish renewable electricity
from other fuel sources on a contractual basis and to distinguish
among renewable resources themselves (eg between NFFO-supported
capacity and other renewables). Indeed, the ability to distinguish
between products is a prerequisite for successful retail electricity
competition based on bilateral contracts.
Competition, and the ability to exempt or rebate
renewable electricity, would be greatly facilitated by the introduction
of a renewable (or green) electricity accreditation scheme, based
on the EST's proposed scheme Future Energy. The electricity subject
to this accreditation could be effectively exempt from the tax.
This could mean exempting it from the tax or paying a rebate to
accredited electricity, equal to the tax payment. The accreditation
scheme might have to be put on a statutory basis, to ensure adequate
verification.
(b) The levy should be based on the carbon
content of fuels, not the energy content
The failure to exempt renewables partly relates
to the decision to base the tax on the energy-content rather than
the carbon-content of fuels. In our submission to Lord Marshall's
consultation we argued for carbon-based tax, and this remains
our view. A carbon-based tax would not only benefit renewables,
it would also encourage fuel-switching from coal to gas, a lower-carbon
fuel. A carbon-based tax would therefore be more environmentally-effective.
However, even if the levy is introduced on an
energy basis, it would still be environmentally effective. The
Government estimates that it would reduce carbon emissions by
1.5 million tonnes by 2010. This is significant: the levy would
bring five per cent of the total savings needed (29 MtC) to meet
the 20 per cent reduction target.
(c) Any special treatment for intensive energy
users must not significantly weaken the incentives for those companies
to improve their energy efficiency
We consider that any special treatment should,
as far as possible, retain incentives for major energy users to
reduce their energy consumption. We therefore recommend either
recycling the tax revenue to individual companies on a non-energy
basis or requiring companies to meet demanding energy efficiency
targets, in return for tax reductions.
The energy-intensive sectors have claimed that
the tax would be very damaging to their interests. The Energy
Intensive Users Group, for example, claims that its members will
pay extra tax of £571 million (without any tax rebate) and
that job losses would be 28,000 (even with the 50 per cent rebate)[7].
However these figures do not take account of the scope for industry
to make cost effective energy savings.
ETSU has estimated that cost effective savings
(even without the levy) amount to 11 per cent of energy use on
average across industry. Even energy-intensive sectors such as
iron and steel have potential savings of at least eight per cent[8].
The levy will help industry realise these savings. Furthermore,
the figures do not take account of OFGEM's proposed changes to
the pool system, which would reduce electricity bills by at least
13 per cent. These potential savings will offset the cost of the
tax which (with the 50 per cent rebate) will be only between 10
per cent and 20 per cent of energy bills.
However the concerns expressed by industry re-inforce
the need for energy/carbon taxes to be agreed at an EU or wider
level. This would be the best way of ensuring the UK's business
competitiveness, without any weakening of the environmental effectiveness
of the tax (through special rebates etc). One step forward would
be to support the EU's proposed directive on the taxation of energy
products, which would introduce minimum duty rates for fossil
fuels across the EU.
(d) The £50 million allocated to environmental
programmes should be increased, to increase the overall environmental
benefits of the tax
We support the decision to use most of the revenue
to reduce employers' national insurance contributions, because
this will ensure that the levy contributes to eco-tax reform—or
shifting tax from goods to bads. However we consider that insufficient
funds (£50 million) have been allocated to environmental
programmes. There is a good case for increasing the proposed level
of expenditure in 2001-02, and increasing it in subsequent years,
as the programmes become fully developed. This is because this
spending could provide a significant proportion of the total environmental
benefits of the tax.
Some of the funds should be used for energy
efficiency grants and advice—especially to SMEs. It should
enable the programmes of the Energy Savings Trust to be expanded—and
should not require the establishment of new bodies such as a carbon
trust (with associated extra adminstrative costs).
The funds should also be used to create new
wildlife habitats, to replace those which will be lost from sea-level
(see above). Since the use of fossil fuels in the major cause
of these losses, using some of the revenue to fund these compensatory
measures would be in accordance with the polluter pays principle.
The habitats concerned include wet grassland, reedbeds and coastal
lagoons.
The funds should not primarily be used to support
renewables because other major policies should do this—for
example the proposed obligation on suppliers to a certain proportion
of renewable electricity[9].
Also it is difficult to see how funding for renewables research
would directly benefit SMEs, or help them to respond to the levy.
September 1999
1 RSPB response to DETR and HM Treasury consultation
on Issues relating to the design and impact of a possible tax
or charge on pesticides (June 1999). Back
2
Design of a tax or charge scheme for pesticides (March 1999).
Report by ECOTEC to DETR. Back
3
Risk and Policy Analysts Ltd and Entec UK Ltd (1997) Private
costs and benefits of pesticide minimisation. Back
4
Morley Agricultural Consultants Ltd (1998) An analysis of "Private
costs and benefits of pesticide minimisation". Back
5
Redman (1996) Industrial agriculture: counting the cost. Soil
Association. Back
6
Climate Change Impacts Review Group (1996). Second report. Review
of the potential effects of climate change in the UK. Report to
DoE Back
7
See para 24 of Trade and Industry Committee report on The impact
on industry of the Climate Change Levy (July 1999). Back
8
See Table E1, Marshall Task Force report. Back
9
For further details see our response to the DTI's consultation
paper on New and Renewable Energy (June 1999). Back
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