Written evidence submitted by PricewaterhouseCoopers
the budget the Government's main green tax policy measure was
the introduction of the carbon price support mechanism (CPSM)
which gives a level of certainty to the EU Emissions Trading Scheme
(EU ETS) carbon price for electricity generators.
view is that introducing a carbon floor price is broadly a sensible
policy approach that should help to underpin investment in low
carbon infrastructure. However, it is likely to lead to at least
some increase in energy costs experienced by trade-exposed UK
energy consumers that their overseas competitors will not experience.
This impact should be assessed through further consultation with
the affected industries.
also have concerns about the proposed methodology for implementing
the CPSM. Setting the price two to three years in advance without
flexibility to respond to carbon price movements could lead to
greater variability in the actual carbon price experienced, thereby
undermining the intent of the floor.
introducing a floor price unilaterally, the UK has shown strong
leadership on green tax policy compared to other countries. However,
the floor would have greater effect and less adverse side effects
if it was implemented across the EU and more widely. The Government
should engage its EU counterparts on this issue, whilst commending
its approach actively at COP17 in Durban to other participants.
funding, an earlier start date, and the potential for links to
the government's wider enterprise and manufacturing support packages
announced in the budget are good news for the proposed Green Investment
Bank. Whilst the reduction in fuel duty could be described negatively
in green terms, it is unlikely to have any real impact on behaviour
given the high levels of fuel prices in the UK. The longer policy
objective of Air Passenger Duty (APD) needs to be considered in
terms of the actual impact of its current design.
changes proposed in the budget have furthered the green tax agenda,
but have not addressed the issue of the growing complexity of
carbon taxes and price signals and other green taxes and incentives.
To succeed in mobilising the substantial private sector activity
required for the transition to a low carbon economy a more coherent
and clearly articulated approach is needed to green taxes and
broader environmental policy. This has the potential to deliver
"win-win" environmental and economic outcomes for the
public and private sector.
believe that there is a case for a more thorough review of green
tax policy, founded on six principles, namely:
of policy objective.
that address real policies on the ground.
security/independence is an important feature of the UK's energy
policy. Both the CPSM and the North Sea tax increases should be
considered in this context.
A CLEAR, COHERENT
1. Alongside the changes announced to the Green
Investment Bank noted in the summary, there were two main "green
tax" measures announced in the budget: The carbon floor price
and the cut in fuel duty funded by North Sea oil and gas tax increases.
The carbon floor price
1(a) Broadly, the CPSM is a sensible policy and
the Government should be commended for showing leadership on this
issue for Europe. Below we consider four questions in relation
to the new CPSM:
1(b) Is a carbon price support mechanism conceptually
the right approach for the UK in 2011? Broadly we consider
this to be a positive policy development which underpins the market
price for carbon. Variability of market prices was too high to
enable proper inclusion of carbon prices in long term energy investment
models and the expected trajectory for carbon prices too low to
sufficiently incentivise the low carbon investment decisions required
by the UK to meet emissions reduction targets. The longer term
stability of the carbon price at a level above the market's expectation
should help address these problems. Although the UK is the only
country in the EU ETS to adopt this approach at the moment we
believe this unilateral approach is justified. Significant investment
is required over the next 5-10 years in the UK in particular to
renew ageing electricity generation capacity. Whilst the Electricity
Market Reform and other measures will be crucial to ensuring this
investment, action was required now to ensure that those investment
decisions are able to include a predictable carbon price and a
level which will help encourage low carbon choices for these investments
to me made.
1(c) Have the prices been set at the right
level? The levels set are £16 moving to £30 per
tonne in 2020 in real prices, expected to be £19 to £40
in nominal prices. IDEAcarbon research shows that the floor prices
will lead to UK emitters paying a significant premium over EUA
prices. Consistency is also an issue as it is not clear how the
UK CPSM price will relate to lower carbon prices under the Carbon
Reduction Commitment scheme (initially set at £12 per tonne,
with auctioning planned post 2014).
1(d) Given that the UK is taking a lead in this
area, there are concerns about the impact on competitiveness of
the higher prices for differing sectors of the UK economy operating
in a global environment. We would recommend further research and
consultation with the affected industries in this area. It is
also important that the Government engages its EU counterparts
on this issue, whilst commending its approach actively at COP17
in Durban to other participants. See also paragraph 1f below.
While managing the impact on competitiveness should be a priority,
the reality is that higher carbon prices are likely to be needed
to achieve the government's ambitious greenhouse gas reduction
targets as set out in the Climate Change Act. Whether overall
the price is right could be better understood through economic
forecasting of the impact of the price on UK carbon emissions.
Key factors in this will be the elasticity of carbon consumption
in electricity generation to changes in the price which in turn
will be impacted by the availability of substitutes.
1(e) What is the impact of the mechanism chosen
to implement the policy? The carbon floor price is effected
through a pre-set tax on fossil fuel supplies. The Government
appear to be proposing that the tax rate is set based on carbon
futures markets two to three years in advance. This is an impure
application of the floor price concept as there does not appear
to be flexibility to adjust the tax rate to accommodate changes
in the carbon price after it has been initially set.
1(f) For example in the first three months of
2011 there was a 20% increase in carbon prices, attributable at
least in part to unexpected events: the earthquake and nuclear
disaster in Japan and the North African and Middle East political
disturbances. The effect of this could be that when the pre-set
floor price is applied to the actual price of carbon the actual
total carbon price (EU ETS price plus the top-up tax) exceeds
the floor set by the Government. To avoid this price risk, those
affected would need to set their carbon prices by buying futures
at the same time (two to three years in advance) that the Government
sets the CPSM rates. This may not be commercially desirable for
participants and may create a degree of complexity for those businesses
not geared up to actively manage their participation. This places
greater emphasis on the importance of carbon price hedging strategies
and could constrain participant's carbon management practices.
1(g) Has the impact on UK competitiveness
been adequately assessed and addressed? The Government has
taken the view that the increase in energy prices in the short
to medium term will be offset by a longer term reduction: The
UK will develop a more sustainable electricity generation infrastructure
and be less reliant on increasingly expensive imported fossil
fuels. This is a reasonable rationale, but the short term impact
of increasing energy prices, albeit small in 2013, should not
be underestimated or ignored because of the positive long term
impact. This is particularly important in a global economy where
businesses recovering from recession are deciding where to focus
capital investments and expansion plans. At least some of the
CPSM revenues should be spent on policies to help UK commercial
energy users facing higher energy prices than their overseas competitors
as a result of this policy.
1(h) The Government should now encourage primarily
other European, but also non-European nations, to follow suit
to help address the competitiveness issues that have arisen from
this approach in the UK. There are two strands to the impact on
competitiveness. First, there is the impact for trade-exposed
energy consumers that now have an additional cost that their competitors
overseas will not have. Second, there is a threat to UK electricity
generatorstheir overseas counterparts can produce power
without the CPSM applying and sell to the UK market at an advantage.
We would encourage the EAC to test the Government's assertion
that this risk is immaterial because it is limited by current
UK to Europe inter-connector capacity (2% of overall generation
capacity). The inconsistency could encourage future inter-connector
capacity expansion. We suggest that the Government monitors developments
in this area and opens appropriate channels of communication with
the energy industry to understand the impact.
1(i) Energy security/independence should be a
core part of the green tax policy. Current political tensions
over fossil fuel supplies are likely to increase as these resources
become scarcer. As well as the threat posed by the CPSM, the additional
North Sea oil and gas taxes are also a threat to energy security.
This is discussed in the following section.
Fuel duty cut funded by increased North Sea oil
and gas taxes
1(j) The government has announced an intention
to fund the 1p cut to fuel duty by additional North Sea oil and
gas taxes. In principle the 1p reduction is counter to the policy
objective to increase the use of green taxes. However, given the
extremely high rate of environmental tax implicit in the existing
fuel duty rate (see paragraph 5b), the inelastic demand for fuel
and the far greater impact of increasing oil prices, the effect
of this policy change on the environmental efficacy of fuel duty
is negligible. North Sea taxes (Petroleum Revenue Tax and 62%
Corporation Tax including the Supplementary Charge) are not typically
considered environmental taxes, but by increasing them it is possible
that a positive environmental effect will ariseencouraging
a shift to cleaner energy sources. However, in reality the lack
of suitable substitutes to fossil fuels with quickly scalable
volume increases will minimise this effect.
1(k) Gas extraction in the North Sea has been
disproportionately affected by this policy as the tax rate makes
no distinction between oil profits (inflated by rising oil prices)
and gas profits (suppressed by low global gas market prices).
Gas is a less carbon intensive electricity generation source than
coal and cannot be transported as easily. By applying a disincentive
to exploit UK gas reserves, this policy could have an environmentally
detrimental impact by shifting the balance for fossil fuel based
electricity generation to coal.
1(l) This additional tax could have a long term
effect on North Sea productivity and investment, even if it is
eventually reversed. There is a limited window for the North Sea
while the infrastructure and skills are in place to produce efficiently
and any loss of production now may never be recovered. As a result,
this policy is likely to result in greater reliance on imported
oil and gas. The first few months of 2011 alone have highlighted
the volatility and sensitivity of global energy markets:
energy generally the short and long term impact of the Japanese
nuclear disaster is still becoming clear, but will inevitably
lead to an increase in demand for fossil fuels.
the oil markets, the current unrest in North Africa and the Middle
East has led to a significant price spike.
gas, global markets are suppressed by the material unconventional
source (such as shale gas) discoveries, particularly in North
America. However, the political sensitivity in Russia and other
former Soviet states, key suppliers of gas to Western Europe,
remains a strong lever to domestic gas prices that is very difficult
to control or predict.
1(m) These developments acutely highlight the
importance of keeping the proportion of energy that the UK produces
domestically as high as possible. We would suggest that the North
Sea tax increases are counter to this objective. On the assumption
that energy independence remains a policy objective for the Government,
we recommend that progress towards this objective is reviewed,
in consultation with the industry, and appropriate policy responses
2. The budget continued a regularly recurring
trend in recent years by focussing on adding to or amending slightly
the existing green tax policy mix. We believe there is a justification
for a separate process to review green taxes. This paper sets
out the justification for this process and what we believe the
guiding principles should be.
3. The UK now has a more complex mix of green
taxes and incentives than ever before. This is understandable
given the ever increasing prominence of green issues, but there
is a danger that the cumulative effect is less than the sum of
the parts because the policy mix is too disparate. For example
there are now four carbon "tax" points in the electricity
supply chain. The point of a carbon tax is to encourage a change
in behaviours and shift in investment to lower carbon substitute
products and services. However, particularly with regard to investment,
the effect will be dampened if the investors are unable to distil
a single and reliable carbon price that has a reasonably predictable
future trajectory. As explained below in section 5e, the private
sector is currently frustrated in their attempts to understand
the carbon prices currently applying.
4. The CPSM achieves this aim in isolation, but
when considered alongside the other three overlapping carbon pricing
policies (Climate Change Levy, CRC Energy Efficiency Scheme and
the EU Emissions Trading Scheme) inconsistencies, confusion, overlaps
and uncertainty undermine the signal to low carbon investment.
5. To ensure that green tax policy properly resonates
with individuals and businesses and has the behavioural impact
desired by the Government, we believe some broader changes and
consolidation are needed. Some key guiding principles must be
embedded, with cross-party consensus as a worthwhile ambition
to cement these principles over the long term investment horizons
that are implicit in this sector.
Clarity of policy objective
5(a) Environmental policies, particularly green
taxes, should be targeted at changing behaviours. This is in essence
the purpose of a green taxto deliver the core environmental
objective. At the moment there is a tendency towards using loosely
defined environmental objectives to justify what is ostensibly
a revenue raising tax.
5(b) Fuel duty is a good example of this. If
this is considered a full environmental tax, as defined in Appendix
2, then the implicit carbon price is £247 per tonne of carbon.
To put this into context the existing EU ETS carbon price is around
17 and the UK Government have set price levels at £12
(CRC Energy Efficiency Scheme) and £16 (EU ETS carbon floor
price) recently. There are clearly two elements to fuel dutyan
environmental element and a revenue raising element. Environmental
taxes should be used to change behaviour in line with clearly
set environmental targets. In line with this principle, the element
of fuel duty that is an environmental tax should be measured against
the reduction in driving that it achieves. This should be benchmarked
against the element of the carbon reduction target set out in
the Climate Change Act that has been allocated to road transport.
5(c) The same can be said for Air Passenger Duty.
This is currently included in the definitions of an environmental
tax (see Appendix 2). We understand that the Government more recently
has taken the view that this is a "revenue raising"
rather than an environmental tax, consistent with the statements
made by Kenneth Clark when he introduced the tax in 1994. If this
is the case then decreasing the number of passengers flying to,
from and within the UK is not the overall policy objective. This
viewpoint may be justified on the basis that the overall benefits
to the economy of passenger travel outweigh the environmental
cost. If the Government wishes to impose an environmental tax
on aviation and remain consistent with the policy objective not
to constrain the number of flights, then environmental goals can
only be achieved by a policy that encourages greater fuel efficiency.
Air Passenger Duty is not fit for this purpose as it is not linked
to the fuel consumption of the aircraft. We recognise the Government's
effort to address this problem and introduce a "per plane"
or fuel based tax. The 1944 Chicago Convention has been cited
as a roadblock to this, deeming taxation in this area as illegal.
If this roadblock can be overcome, aviation tax policy should
be developed through close consultation with the aviation industry.
Unilateral aviation tax by the UK carries a material threat of
simply shifting the takeoff or landing points from the UK to nearby
neighbours. This could in some case increase overall emissions
rather than reduce them. The consultation will need to consider
this "emissions displacement" threat thoroughly together
with the broader competitive impacts of any changes on the UK's
5(d) The Treasury Committee Report on the budget
identified "trailing" or "presenting policies in
the best possible light" as a weakness in existing policymaking.
There was an element of trailing with the carbon floor pricethe
Government was keen to avoid the description of a "pre-set"
tax in describing the policy, which led to some surprises when
the details became available. Trailing should be resisted. The
clear, coherent framework can only be properly delivered if the
policy objectives are set out clearly from the outset.
5(e) Green taxes are only one arm of policy.
There are three pillars of green policysubsidies/financing
support, regulation and market based mechanisms, of which tax
is a subset. The Government's green policy ambitions should be
clearly set out within these three categories. Coherence also
means coherency across Government departments. There are some
signs that joined up thinking is not as strong as it could be,
for example between DECC and HMT, on the Electricity Market Reform
policy package. The Government has stated that it is committed
to using market-based approaches to simplify this policy landscape,
minimising the costs of transition and reducing burdens on business.
There needs to be a step change in approach if this can be achieved.
This is a strongly held and consistent view throughout the private
sector and within the public sector. The House of Commons Treasury
Committee Budget 2011 review, published on 9 April 2011, makes
several references to the lack of coherence in green policy. The
"The Budget contained a number of measures that
have an impact on energy prices, from the cancellation of the
fuel duty escalator to the introduction of the Price Floor for
carbon. Whilst we do not comment here on the likely impact of
individual measures, we note that, as a package, they lack overall
Reference is made to a quote which, in our experience,
provides a fair representation of the view held by many in the
private sector (source not specified):
"if you read the stuff on low carbon here, on
the various grants, subsidies, price floors, levies, caps and
so on, it is impossible to work out what the overall impact is,
what the strategy is. Frankly, if you were an investor trying
to decide whether to invest in low carbon technology or in electric
vehicles, I think you would look at this and not know what to
It is also important to note that there are non-fiscal
instruments available to achieve policy, including the provision
of alternatives, clear communication and education.
5(f) One of the greatest barriers to environmental
policymaking is the threat to international competitiveness. The
policy will inevitably price the consumption of an environmental
resource that others will continue to use for free. Global integration
and consistency of policy is unfortunately not a realistic near
term prospect, illustrated by the often frustrated negotiations
that are a recurring feature of the UNFCCC climate negotiations.
We urge the Government to continue efforts to engage on international
policymaking by all mechanisms available.
5(g) One such mechanism is the OECD's green growth
project which PwC have been linked into via the BIAC industry
representative group. The objective of the project is to provide
a framework and set of tools to enable countries to measure and
compare their environmental policies against a consistent set
of environmental metrics. The executive summary of the green growth
strategy report is to be presented to ministers in May. There
are at least two strong benefits of this approach. First, it enables
countries to compare progress and identify areas of policy that
need improvement. Second, it enables international sharing of
policy ideas and success stories.
Policies that address the real problems on the
5(h) A current example of the problem on the
ground that is not currently addressed by policy is access to
finance. Green projects investors and banks are often uncomfortable
with the level of perceived risk in markets which are usually
less mature and tested than high-carbon or resource intensive
alternatives. In the current global financial market where capital
is scarce and expensive, this threatens to be a material barrier
to the level of green growth desired and required to meet the
Climate Change Act and other environmental targets. The Green
Investment bank can help to address this but the extent to which
it is successful will depend how well aligned it is to the specific
financing challenges that arise. To maximise the chances of success
it will be important to ensure that private sector consultation
is fundamental to defining how the Green Investment Bank will
operate. Further targeted policies may also be required. The tax
system can be part of this. One such policy could be extending
the ISA scheme with "Green ISA's" exclusively for low
5(i) The Government should have a process in
place to ensure that they are quick to identify and respond to
current and future real issues as they arise.
Cross party consensus
5(j) Whilst it is recognised that achieving
political consensus has a number of challenges, it is important
that to the extent possible, areas of common ground are established
and publicised so that all stakeholders can have confidence in
policy regardless of a change in government, particularly where
long term investment decisions are involved.
5(k) Put simply, the policies could temper penalties
for polluting with incentives for cleaner behaviour. It cannot
be all stick and no carrot. The private sector recognises that
in the current fiscal climate it is extremely difficult to justify
new incentive schemes. However, efforts could be made to take
green tax revenues and invest them in providing tax or other green
incentives to accelerate the shift to a low carbon economy. As
the fiscal position improves, these efforts must be increased
as a priority. There is strong competition internationally to
attract green growth, for example South Korea recently committed
80% of fiscal stimulus measures to environmental incentives.
5(l) In addition any use of the taxation system
to achieve green policy needs to ensure that there is no disproportionate
or unfair impact on the more vulnerable sections of society. The
system should ensure, for example, that any significant increase
in energy costs is counterbalanced by relevant incentives for
investment in fuel efficient capital equipment.
6. If these six principles can be achieved the
rewards for the UK can be great, but the damage to green growth
from failing to achieve this can also be significant.
6(a) Rewards for getting it right. It
is a well established, empirically proven, fact that green taxes
can be "win-win" for the public and private sector.
They deliver a "double dividend" economically. This
effect arises from the economic impact of pricing externalitiesdamages
to natural capital that arise through pollution. Carbon pollution
externalities (societal "bads") are not currently sufficiently
priced, so good green tax policy allows these prices to be captured
(the first dividend) while allowing other taxes on the "goods"
in societylabour and profitscan be cut (the second
dividend). In the current fiscal climate a "cut" in
a good tax may not be possible. Instead it may be possible to
consider the "cut" as reducing the amount that this
tax would otherwise have to rise. The economic effect of the reduction
is the same, but this does make the task of communicating this
as a tax "cut" more challenging. A policy framework
that meets the criteria above can unleash the private sector to
deliver the green investment and growth. The effect is likely
to be positively self-reinforcing and accelerate as long as these
six principles are adhered to.
6(b) Penalties for getting it wrong. Without
this approach there is a danger that the effect on green investment
will be too weak. This could be negatively self-reinforcing. More
and more "emergency" additional measures are needed
to keep up with the legally binding carbon targets. These would
further add to the complexity of the green policy framework and
therefore further weaken the overall potential for green growth.
7. It is worth observing that the UK Government
has the benefit of an electorate that appear more amenable and
a political environment that is more conducive to green policymaking
than elsewhere. The challenges for environmental policy advocates
in the USA are well documented and show no signs of diminishing.
If anything the anti-environmental movement is gaining momentum
through current efforts to challenge the EPA's authority to regulate
greenhouse gases. In Australia Julia Gillard's carbon tax is attracting
intense criticism and is threatening to become a key electoral
issue. The UK electorate are resistant to fuel duty increases,
particularly in the context of rapidly increasing oil prices,
but introduction of the CPSM tax has attracted, relative to the
Australian carbon tax, low levels of resistance from energy consumers.
It is likely that a significant factor in this is that the impact
of the CPSM is not visible to the majority of the electorate.
If it had been described as a carbon tax policy the perceived
understanding of the impact would probably have been greater,
and the resistance to the policy enhanced may have been enhanced
accordingly. However, research by the Green Fiscal Commission
reveals that environmental taxes designed properly with clear
"green spending" of the proceeds are relatively well
accepted by the public. The challenge with the low likelihood
of international action is the potential competitiveness disadvantage
created by unilateral action.
8. The Government could benefit from ensuring
a robust assessment of the "instability impact" of policy
announcements such as the recent proposed changes to the feed-in-tariffs.
Investors have limited capital, particularly in the current climate
of restricted access to bank lending to supplement equity. The
UK needs to persuade them to invest here. It is possible that
the long term damage to confidence in the UK clean technology
market in general (not just the part that qualifies for feed-in-tariffs)
will be more expensive to repair than the relatively small savings
(for example, £40 million in 2013-14) achieved from the proposed
cut to feed-in-tariffs. Although "investor confidence"
is difficult to assess and quantify, it is still an important
factor to consider when carrying out impact assessments. The key
theme of the Plan for Growth (objectives A to C) is to create
a more attractive tax environment. This should be broadened to
policy environment. It is no use offering a solar company a simpler
corporation tax regime and few percentage points lower headline
corporation tax rate if the promised subsidy (the feed-in-tariff)
that was fundamental to their business model is unexpectedly halved.
REFERENCE TO SPECIFIC QUESTIONS ASKED IN
THE REQUEST FOR SUBMISSION
This appendix addresses the six questions that the
EAC have asked in their request. We believe the answers are contained
within the document and have included references accordingly.
Whether Budget 2011 furthers the Government's
green objectives, including the impact of the cut in fuel duty
on greenhouse gas emissions and air pollution
See paragraph 1.
Approaches to shifting the burden of taxation
from "goods" (eg labour) to "bads" (eg emissions)
and factors that need to be considered when designing and introducing
It is a well established, empirically proven, fact
that green taxes are "win-win". They deliver a "double
dividend" economically. It can be challenging to communicate
complex economic theory to the vast majority of the electorate
who have not studied economics. This is why clarity of policy
objectives is paramount. See paragraphs 5a-5d.
The scope for the tax system to create a "modal
shift" from high carbon transportation to low carbon alternatives,
including Fuel Duty, Vehicle Excise Duty, and Air Passenger Duty
and issues the Government should consider when developing strategies
for sustainable aviation and motoring
A pure green tax has one objective, to encourage
behavioural change. Where there is a lack of suitable substitutes,
such as for driving or flying at the moment, the behavioural change
impact is extremely difficult to achieve. The impact of a policy
seeking to engender a behavioural change in travel where practical
alternatives do not yet exist is to suggest that people should
travel less. We do not believe this is the objective of the Government.
This highlights the needs for carrots as well as sticksto
encourage the rapid development of alternatives like electrically
powered cars that perform and look as good as their fossil fuel
counterparts, and to encourage fuel efficient planes.
The scope for the taxation system to protect and
increase stocks of natural capital and the possible role of proposed
Properly executed tax policies are proven to change
behaviour, where alternatives to the item being taxed exist. One
good example of this is the Irish Plastic Bag tax which has seen
a significant reduction in the use of plastic bags in Ireland.
Provided alternatives or substitutes exist, there is no reason
why the tax system cannot be asked to protect natural capital
or support the principle of capital "banks".
The impact of the taxation system in general on
The UK has some valuable environmental tax levers.
As this submission notes, improvements could be made but tax should
always remain as a key behavioural change tool in any environmental
How policy proposals in "The Plan for Growth"
will affect sustainable development and environmental protection
(ie planning, green growth, low carbon investment, regulations
We do not comment on this in detail. It is fair to
say that "green" and "growth" can go hand
in hand and can be mutually reinforcing. There is a danger with
some environmental policies that they will generate some green
but not enough growth, if the impact on competitiveness is not
addressed and incentives do not accompany additional costs / taxes
The announcement in Budget 2011 on the Green Investment
The tripling of initial funding for the Green Investment
Bank from £1bn to £3bn is a major step forward for the
low carbon economy and the Government should be commended for
this given the current fiscal constraints. They should also be
commended for the decision to bring forward the establishment
of the Green Investment Bank to 2012. The next stage is to consider
the Green Investment Bank's remit. Estimates of the amount of
capital needed in the next 10 years to address green infrastructure
challenges range from £200 billion to over £500 billion.
Defining this challenge and working through the detail of where
the money is expected to come from will help test whether the
Green Investment Bank is fit for purpose. Lifting the ban on the
borrowing is likely to be a crucial step to enabling the Bank
to be able to help deliver the amount of investment required.
See paragraphs 5(h) and 5(i) for further comments relating to
making sure that policies address the real problems faced.
DEFINITION OF GREEN TAXES FROM THE EAC SUBMISSION
There is no single definition of what a green or
environmental tax is, but they are generally considered to be
taxes which have been designed specifically to meet environmental
aims; taxes that have been restructured to reflect environmental
objectives; or taxes not specifically introduced for environmental
reasons, but which have an environmental impact.
Environmental taxes, as classified in the UK Environmental
Accounts: Fuel duty, VAT on Fuel duty, Renewable energy obligations,
Climate change levy, Vehicle excise duty, Air passenger duty,
Landfill tax, and Aggregates levy. 7.4% of all taxation revenues
collected in 2007 were from environmental taxes (mostly from Fuel
duty and VAT on fuel). Environmental taxation as a proportion
of GDP has fallen from 3.5% in 1998 to 2.7% in 2007.
The Coalition agreement set out the Government's
overall approach to taxation for this Parliament: "the Government
believes that the tax system needs to be reformed to make it more
competitive, simpler, greener and fairer. We need to take action
to ensure that the tax framework better reflects the values of
this Government." HM Government, The Coalition: our programme
for Government, May 2010. It has adopted the previous Government's
policy aim of shifting the burden of taxation from "goods"
(such as employment) to "bads" (such as pollution).
On 30 March 2011 the Department for Transport published
"Developing a sustainable framework for UK aviation: scoping
document" which can be found here: http://www.dft.gov.uk/consultations/open/2011-09/
5 May 2011
107 A graphic showing an example of an OECD co-ordinated
framework is set out in the PwC submission, but is not reproduced