19 MARKET-BASED INSTRUMENTS
(28524)
8255/07
+ ADD1
COM(07)140
| Commission Green Paper on market-based instruments for environment and related policy purposes
|
| Legal base | —
|
| Department | HM Treasury
|
| Basis of consideration |
Minister's letter of 24 July 2007 |
| Previous Committee Report |
HC 41-xx (2006-07), para 4 (2 May 2007) |
| To be discussed in Council
| No date set |
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
19.1 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.
19.2 This Commission Green Paper, published in March 2007, sought
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 contained
no specific proposals for action. Rather the Commission called
for reactions to the ideas and specific questions in the Green
Paper and requested responses by 31 July 2007.
19.3 The key areas covered by the Commission for discussion and
on which it posed questions were:
- 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.
19.4 When we considered this document in May 2007 we said the
Green Paper raised some important, and potentially difficult,
issues. We asked to see the Government's response before considering
the document further and meanwhile it remained uncleared.[81]
The Minister's letter
19.5 The Financial Secretary to the Treasury (Jane Kennedy) now
sends us the Government's response to the Commission. The response's
introductory overview says:
"The UK Government welcomes this opportunity to provide
comments to the European Commission on the Green Paper on market-based
instruments for environment and related policy purposes. This
is an important issue, both nationally and internationally, particularly
in the context of Member States' recent agreements on climate
change at the Spring Council.[82]
"The scientific evidence, including the latest findings from
the inter-governmental Panel on Climate Change, together with
work on the economics of climate change from the Stern Review,[83]
have shown a need for early and urgent global action to mitigate
the most serious effects of climate change. The same evidence
also sets out that with the right policies in place — and
a credible and flexible policy framework — the costs of
action can be limited to around 1% of global GDP each year.
"To deliver this framework the UK believes that further European
and wider international action is vital. The EU has assumed a
position of leadership on Climate Change through ratification
of the Kyoto protocol and the UK fully supports the development
of an EU consensus on the main elements of a post-2012 Climate
Framework.
"As part of this approach the UK is pleased that the Commission
is seeking the views of Member States on the development of market
based instruments for environment and policy related purposes
and broadly welcomes the work and the opportunity to present its
view for discussion with other Member States.
"The UK supports the view that the use of economic instruments
to achieve environmental policy goals is sensible in principle.
It is important, however to consider when economic instruments
are best applied and to ensure they are applied at the most appropriate
level, either at Member State or Community level. Taxes can be
particularly effective where price is an important part of consumer
decisions. For example, applying reduced rates of VAT to energy-efficient
products and energy-saving materials would provide an incentive
for the private consumer to make more sustainable decisions. However
in other circumstances mandatory regulation and providing information
can be more determinative of consumer decisions.
"In this respect the UK considers the establishment of the
EU Emissions Trading Scheme (EU ETS) as an example of how market-based
instrument can be designed and applied at community level to deliver
environmental objectives. Indeed the UK believes that the ETS
is, and should remain, the EU's primary carbon pricing mechanism
in the capped sectors and that efforts should be focused on strengthening
the scheme and providing clear and convincing signals about its
continuity beyond 2012, indicating the likely level of future
ambition, and considering how it can be expanded and strengthened
in future phases to act as the hub of a global carbon market.
The UK welcomes the Commission's review of the EU ETS which will
examine these areas.
"The UK is of the view that any further action at an EU level
should maintain and include the flexibility for Member States
to choose how to apply economic instruments — particularly
taxes — based on national circumstances, including environmental
social and economic considerations. The UK is not in favour of
substantial reform to the Energy Taxation Directive as set out
in the Green Paper. We do not believe that the suggested reforms
would provide additional benefits to the existing Community framework,
nor represent an effective way in which to tackle climate change.
"The rest of this response provides more detailed rationale
for our response on the propositions set out by the Commission
with the specific questions from the Green Paper listed at the
beginning of each section."[84]
Conclusion
19.6 We are grateful to the Minister for this further information.
We are pleased to note that the Government emphasises that the
use of economic instruments, particularly taxation, is largely
better determined at national rather than Community level and
that structuring of tax systems is a Member State competence.
We now clear the document, but we will want to examine closely
any specific Commission proposals which may eventually emerge,
particularly for issues of competence and subsidiarity.
81
See headnote. Back
82
European Council, 8-9 March 2007: see http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/93135.pdf. Back
83
Stern Review on the Economics of Climate Change: see http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/stern_review_report.cfm. Back
84
It is expected that the Commission will put the full text of the
response on its website in due course. Back
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