4 MARKET-BASED INSTRUMENTS
(28524)
8255/07 + ADD1
COM(07)140
| Commission Green Paper on market-based instruments for environment and related policy purposes
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| Legal base | —
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| Document originated | 28 March 2007
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| Deposited in Parliament |
4 April 2007 |
| Department | HM Treasury
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| Basis of consideration |
EM of 19 April 2007 |
| Previous Committee Report |
None |
| To be discussed in Council
| Not known |
| Committee's assessment | Politically important
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| Committee's decision | Not cleared, further information awaited
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Background
4.1 Market-based (or economic) instruments (MBIs) are financial
incentives or disincentives used as a tool to address market failures
or achieve other policy objectives. They can take various forms,
such as indirect taxes or subsidies.
The document
4.2 This Commission Green Paper seeks to launch a discussion on
advancing the use of MBIs in the Community, including how these
might be more explicitly aligned to Community environmental and
energy policy objectives. The document contains no specific proposals
for action. Rather the Commission calls for reactions to the ideas
and specific questions in the Green Paper and requests responses
by 31 July 2007. The key areas covered by the Commission for discussion
and on which it poses questions are:
- MBIs in the Community and at national level, consideration
of their impact and the wider fiscal objectives;
- the case for environmental tax reforms by Member
States and whether it would be helpful to establish a Community
level forum to share best practice on MBIs;
- how to advance the process of reforming environmentally-harmful
subsidies;
- review and possible streamlining of the Energy
Taxation Directive, which sets common rules for taxing energy
consumption and minimum rates for various fuel sources. The Directive
is due for review in early 2008 and the Green Paper asks whether
that there may be a case for restructuring it to tax all fuels
according to their energy content and for introducing some reflection
of environmental aspects of energy, for example by differentiating
between greenhouse gases and non-greenhouse gases;
- interaction of the suggested reforms to the Energy
Taxation Directive and other environmental taxes and how these
could work alongside the EU Emissions Trading Scheme (EU ETS);
- whether MBIs could be used to tackle the environmental
impact of transport, for example what might be the best MBI in
relation to shipping, how infrastructure charging, including considerations
related to environmental costs, can best be applied to transport
modes and how the Eurovignette Directive (which sets common rules
on distance-related tolls and time-based user charges for heavy
goods vehicles) could be used in this regard;
- possible use of MBIs to address water pollution
and protect resources — for example, what is the best way
to ensure the implementation of water pricing policies set out
in the Water Framework Directive and how can users be encouraged
to bear the full cost of their water use;
- for waste management, whether harmonised landfill
taxes with EU minimum rates should be considered and how the Commission
might facilitate the application of MBIs in this area;
- whether Member States should make more use of
MBIs to protect biodiversity and integrate conservation into decisions;
and
- use of MBIs to address air pollution, including
whether there is scope for trading schemes to combat air pollution
from sulphur dioxide and nitrogen oxide emissions.
4.3 The Green Paper is supported by a staff working
document in which the detail is elaborated.
The Government's view
4.4 The Paymaster General (Dawn Primarolo) says that
the Government is considering the Green Paper in detail and will
formulate a response to meet the Commission's deadline. She comments
that in general the Government believes that MBIs, including taxation,
have an important role to play in environment policy alongside
non-market based instruments, such as regulation and public spending.
The Minister notes that domestically the Government has implemented
a number of environmental taxes since 1996, while in the Community
it is a strong supporter of the climate change agenda, in particular
the EU ETS, which controls roughly half of the UK's carbon emissions.
4.5 The Minister continues that the Government considers
that:
- in general individual Member
States are best able to decide on the appropriate mix of instruments
to address particular market failures;
- these should reflect the circumstances of the
Member State concerned, including its own priorities for social,
environmental and public finance objectives;
- tax is one possible economic instrument alongside
regulatory and spending interventions. However, as well as influencing
behaviour, tax fulfils a number of economic and social objectives
such as maintenance of revenue raising to fund public services;
- differences between Member States' tax policies
reflect different circumstances and priorities, both in terms
of social and environmental policies and the public finance. It
is important therefore that Member States have the flexibility
to choose how to apply taxes based on national circumstances;
- in principle it may be the case that some action
at Community level in this area might be appropriate, for example
in circumstances where environmental problems are cross-border
in nature and where the achievement of environmental objectives
by individual Member States would be undermined by cross-border
movement of activities or products;
- but, in all cases, any use of MBIs at Community
level would need to be considered carefully, be accompanied by
a full impact assessment and fully meet the subsidiarity test;
and
- under the relevant Treaty provisions any decisions
on environmental tax must be unanimous.
4.6 In relation to subsidiarity the Minister also
says that it is possible that there would be such concerns around
some of the suggestions for possible action at Community level
raised by the Commission in the Green Paper, if these became official
proposals. But she notes that it is impossible to speculate at
this stage on whether that will be the case, nor on the possible
content of any such proposals.
Conclusion
4.7 This Green Paper raises some important, and
potentially difficult, issues. Before considering the document
further we should like to see the Government's response to the
document. Meanwhile it remains uncleared.
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