Background

Austria is an EU member state with a population of approximately 8.7 million people and  a nominal GDP of US$ 387.3 billion (US$ 44,561 per capita) in 2016 (IMF, 2017). Austria has a highly developed industrial base, which accounts for about 28 percent of its GDP, while services contributed 70.7 per cent of value added in 2016 (OECD, 2017). Austria has a relatively green energy mix, mostly due to the abundant availability of hydropower sites and its extensive use of biomass for heat generation. In 2015, renewable energy accounted for 70.3 per cent of electricity production (the highest among EU countries) and 33 per cent of gross final energy consumption (placing it fourth among EU member states (EurOberservER, 2016)). At the same time, Austria is highly dependent on imports of fossil fuels such as oil, coal and gas (IEA, 2014), which together amounted to 22.3 per cent of Austria’s electricity production and 66 per cent of Austria’s gross energy consumption in 2015 (Eurostat, 2017).

In general, Austria has high environmental standards. For instance, its water quality is among the world’s best and about 28 per cent of the land area is under some form of nature protection. Also, nearly a fifth of agricultural area is under organic farming, the highest share in the EU. Overall, the carbon intensity of the Austrian economy is relatively low by international standards. Among the environmental challenges that remain are the high rate of soil sealing for housing and infrastructure development and the persistently high levels of air pollution in some urban areas (OECD, 2013).

Overall Fiscal Profile

In the years before the 2008 financial crisis, Austria experienced a phase of strong economic growth that was mostly driven by the economy’s deep integration with Eastern European economies that were booming at the time. Growth rates reached 3.6 per cent in 2007 and unemployment rates were among the lowest in Europe (OECD, 2017a). While the financial crisis and the subsequent European debt crisis did not burden Austria’s economy as much as surrounding economies, Austria exhibited comparatively slow growth rates and rising unemployment rates from 2012 onwards (OECD, 2015a). In the last quarter of 2016, Austria’s debt to GDP ratio stood at 84.6 per cent which is slightly above the average of EU countries (Eurostat, 2017).

In 2015, Austria’s total tax collection corresponded to 43.5 per cent of its GDP, which is significantly more than the OECD average of 34.3 percent. Relative to the OECD average, the tax structure in Austria is characterized by high social security contributions and a lower share of revenues from corporate income and value added taxes (OECD, 2016a). Revenue from environmental taxes accounted for 6.72 per cent of all tax revenues (OECD, 2016b).

Policy and Legal Framework for a Green Economy

Austria has developed comprehensive frameworks for sustainable development, climate change and environmental management. Responsibility for implementing environmental policies is shared between several ministries of the federal government, the federal states and municipalities. This makes many horizontal and vertical co-ordination mechanisms such as the Conference of Regional Environment Ministers, the Committee for a Sustainable Austria and the National Climate Change Committee indispensable (Grantham Institute, 2015).

The Austrian framework for sustainable development is based on two strategies. Firstly, the National Strategy for Sustainable Development (NSTRAT), adopted in 2002, aims at integrating the sustainability principle in policies and actions at national level. It sets 20 key objectives in the areas of quality of life, competitiveness, environment and international responsibility. NSTRAT established an overarching governance framework, including institutional co-operation mechanisms, management rules, indicators and monitoring procedures. Secondly, the Austrian Strategy for Sustainable Development (ÖSTRAT), adopted in 2010, provides a common framework for policies and initiatives taken at both the national and subnational levels. According to a report by the Austrian Court of Audit, this coexistence of two sustainable development strategies has created frictions and confusion and has hence hindered effective mainstreaming of sustainable development in decision-making (OECD, 2013).

As an EU member state, Austria has implemented the EU’s environmental acquis and adopted environmental objectives and related measures in various areas. Overall, Austria has performed well in terms of complying with EU environmental legislation, which is reflected in the relatively low number of infringement cases brought against it by the European Commission (OECD, 2013). As a signatory nation to the Kyoto Protocol and the Paris Climate Agreement, Austria has taken several measures to comply with its international climate commitments. For the parts of the economy covered by the European Emission Trading System (EU-ETS), Austria shares the EU-wide goal of reducing GHG emissions by 43 per cent by 2030 compared to 2005 levels. For GHG emissions not covered under the EU-ETS, the EU’s Effort Sharing Regulation requires Austria to reduce GHG emissions by 36 per cent by 2030 compared to 2005 levels (Umweltbundesamt, 2016).

Austria’s efforts to meet these climate targets are guided by several frameworks such as the new National Energy Strategy (2010), the Green Electricity Act (2011), the Climate Protection Act (2011) and the Energy Efficiency Act (2014). The goals of these policies include increasing Austria’s energy efficiency by 1.5 per cent per annum starting in 2014, and to increase investment in electricity generation from renewable sources with specific targets for each technology (Grantham Institute, 2015). Specific measures are investment subsidies, energy efficiency standards, feed-in tariffs and incentives that encourage the usage of biomass for heating. Together these measures ensure that Austria is on track to achieving its target of sourcing 34 per cent of its gross final energy consumption from renewable sources by 2020 (Umweltbundesamt, 2016).

Fiscal Measures for a Green Economy

Austria makes extensive use of fiscal policy measures to achieve its sustainable development and green growth targets. On the one hand, this can be seen in Austria’s high environmentally related tax revenue as a percentage of GDP, which stood at 2.88 per cent in 2014 – the sixth highest among OECD members (OECD, 2016c). On the other hand, Austria’s environmental protection expenditures were also high by international standards, reaching 3.8 per cent of GDP in 2009 (OECD, 2013), much of which was spent by public entities.

Subsidies are a core element of Austria’s fiscal toolset to promote a green economy. The legislative basis of these subsidy programs is the 1993 Environmental Support Act, which has been subsequently amended several times. The Act provides for direct financial assistance to local authorities, industries, farmers and households for investment mainly related to renewable energy and energy efficiency, water management, contaminated sites, transport and mobility. Examples of support provided include subsidies for thermal building retrofitting, municipal water management improvements and industrial wastewater management in enterprises. In 2015, subsidies worth €290 million were provided under the act which enabled green investments of €1.67 billion. Between 1993 and 2015, subsidies worth €7.7 billion were provided under the Environmental Support Act that supported green investments of €30.1 billion (BMLFUW, 2016). In addition to renewable energy support under the Environmental Support Act, the 2002 Green Electricity Act also provides feed-in-tariffs for renewables. In 2014, paid feed-in-tariffs exceeded the market value of produced energy by €631 million, equivalent to a subsidy of €0.077 per kWh of renewable electricity (E-Control, 2015). The cost of these subsidies is passed on to end-users in the form of a surcharge on electricity prices.

Austria also promotes a green economy through its tax code. As noted above, in 2014, environmental taxes corresponded to 6.72 per cent of total tax collection and 2.87 per cent of GDP (OECD, 2016b). As in most OECD countries, the majority of these environmental taxes are levied on energy products (52.4 per cent in 2014), with taxes on transport fuels providing the main source of revenue within this category. There are, however, inconsistent price signals in Austria’s energy product tax system, for example diesel is taxed at a lower rate than petrol (€0.40 vs €0.48 per liter in 2017) despite having a higher carbon content. Furthermore, lower fuel prices in Austria compared to its neighbours (especially Germany and Italy) have given rise to extensive fuel tourism. Transport related taxes account for the second highest share of Austria’s environmental tax revenues which includes annual vehicle insurance taxes, purchase taxes on passenger vehicles and road tolls. Together, these taxes contributed 46.8 per cent of Austria’s environmental tax revenue. Although many of these taxes are already dependent on environmentally relevant vehicle characteristics (weight, engine-power, emissions and usage intensity), this link could be strengthened to further influence the composition of the fleet towards cleaner and more fuel-efficient vehicles (OECD, 2013; Eunomia et al., 2016). In 2011, Austria introduced charges in the aviation sector that amounted to EUR7, EUR15 and EUR35 per passenger and flight depending on whether the route is classified as a short, medium or long-haul flight. However, in 2017, after extensive pressure from Austria’s aviation industry it was decided to lower these charges by 50 per cent (IATA, 2017). Austria also charges regionally differentiated fees for the extraction of aggregates (gravel, sand, ballast) from the landscape (Eunomia et al., 2016).

Economic instruments that incentivize environmentally friendly behaviors are also found outside the tax system. For instance, Austria is among the few EU countries that has an effective pay-as-you-throw waste charging system in place with charges dependent on the size of a household’s waste bin and the frequency of collection, designed to cover the costs of waste collection and treatment. In addition, Austria has implemented a landfill ban for untreated waste and has introduced a landfill tax for treated waste with charges differentiated by waste type and an incineration tax of EUR8 per ton. Furthermore, extended producer responsibility systems are in place for other waste streams, such as packaging waste, end-of-life vehicles and waste electronic and electrical equipment, which make producers cover all or most of the costs of managing such waste. Overall, Austria’s measures in the waste sector have been very effective at improving the management of waste (very high material recovery and recycling rates, low landfilling rates) but have been less successful at reducing the overall quantity of waste. Municipal waste, for example, grew faster than private consumption in the last decade and it appears that current charges are too low to induce household behavior change (OECD, 2013). In the water sector, municipalities levy charges on households and industrial consumers that are directly or indirectly linked to water consumption or wastewater discharge. Overall, it is estimated that such water charges achieve a cost-recovery level of 85 per cent (OECD, 2013).

Fossil Fuel Subsidy Reform

A study by the Austrian Institute for Economic Research (Kletzan & Köppl, 2016) found that total environmentally harmful subsidies in Austria in the period between 2010 and 2013 amounted to between EUR3.8 – 4.7 billion annually. The majority of these subsidies related to transport and energy use while only ten per cent accrued in the housing sector through subsidies for the new construction of single family houses that can lead to increased rates of soil sealing. It was found that the majority of support measures were provided through the preferential tax treatment of environmentally harmful activities while only a small fraction took the form of direct support payments. According to this study, the largest environmentally harmful subsidies were the preferential tax treatment of diesel (EUR640 million), tax deductibles for commuters (EUR560 million) and tax exemptions for producers of energy products for fuel used for energy transportation and transport (EUR535 million). Other distortionary items include the preferential tax treatment of company cars and international aviation.

The OECD Inventory of Support Measure for Fossil Fuels estimates tax expenditure in support of fossil fuels in Austria amounted to EUR270.2 million in 2014, which is down from EUR402 million in 2011.  This decline is due to the removal of energy tax rebates for diesel used in agriculture and for trains and LPG used in public transport. Since 2008, no budgetary support has been granted to fossil fuels (OECD, 2015). Remaining fossil fuel support measures exclusively benefit industrial consumers (OECD, 2016).

References and additional reading

BMLFUW (2016). Umweltinvestitionen des Bundes 2015. Ministerium für ein Lebenswertes Oesterreich. Retrieved from https://www.umweltfoerderung.at/fileadmin/user_upload/media/publicconsulting/Umweltfoerderungsbericht_2015.pdf

E-Control (2015). Unterstützungsvolumen. Retrieved from https://www.e-control.at/statistik/oeko-energie/kosten-der-oekostromentwicklung/unterstuetzungsvolumen

E-Control (2016). Stromkennzeichnungsbericht 2016. Retrieved from https://www.e-control.at/documents/20903/388512/e-control-stromkennzeichnungsbericht-2016.pdf/fd951131-9d0c-401e-8565-d45b73f39a3f

EurOberservER (2016). The State of Renewable Energies in Europe – Edition 2016 – 16th EurObserv’ER Report. Retrieved from http://www.energies-renouvelables.org/observ-er/stat_baro/barobilan/barobilan14_EN.pdf

Eurostat (2017). Environmental tax revenues [env_ac_tax]. Directorate-General Eurostat. Retrieved from http://ec.europa.eu/eurostat/web/environment/environmental-taxes/database

Eurostat (2017). General government gross debt – quarterly data. Retrieved from http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=teina230&plugin=1

Grantham Institute (2015). Climate Change Legislation in Austria. An Excerpt From: The 2015 Global Climate Legislation Study. A Review Of Climate Change Legislation In 99 Countries. The Grantham Research Institute on Climate Change and the Environment. Retrieved from http://www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2015/05/AUSTRIA.pdf

IEA (2014). Energy Policies of IEA Countries – Austria. International Energy Agency. Retrieved from http://www.iea.org/publications/freepublications/publication/energy-policies-of-iea-countries—austria-2014-review.html

IMF (2017). Report for Selected Countries and Subjects. International Monetary Fund. Retrieved from http://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?pr.x=67&pr.y=14&sy=2016&ey=2020&scsm=1&ssd=1&sort=country&ds=.&br=1&c=122&s=NGDPD%2CNGDPDPC%2CPPPGDP%2CPPPPC&grp=0&a=

Kletzan, D., Köppl, A. (2016). Subventionen und Steuern mit Umweltrelevanz in den Bereichen Energie und Verkehr. Austrian Institute for Economic Research. Retrieved from https://www.global2000.at/sites/global/files/WIFO_Subventionen%20und%20Steuern%20mit%20Umweltrelevanz%20in%20den%20Bereichen%20Energie%20und%20Verkehr.pdf

OECD (2013). OECD Environmental Performance Reviews: Austria 2013. OECD Publishing. Retrieved from http://www.oecd.org/environment/oecd-environmental-performance-reviews-austria-2013-9789264202924-en.htm

OECD (2015). Fossil Fuel Support Database. Organization for the Economic Co-operation and Development. Retrieved from http://stats.oecd.org/Index.aspx?DataSetCode=FFS_AUT

OECD (2015a). OECD Economic Survey – Austria. OECD Publishing. Retrieved from http://www.oecd-ilibrary.org/economics/oecd-economic-surveys-austria-2015_eco_surveys-aut-2015-en

OECD (2016). Fossil Fuels Support – Country Note Austria. OECD Inventory of Support Measures for Fossil Fuels -September 2016 Update. OECD. Paris. http://stats.oecd.org/wbos/fileview2.aspx?IDFile=3d0fee0c-fc32-4a5e-b988-ac98bc5c48ca

OECD (2016a). Revenue Statistics 2016 – Austria. Organization for the Economic Co-operation and Development. Retrieved from https://www.oecd.org/tax/revenue-statistics-austria.pdf

OECD (2016b). Environment Database – Instruments used for environmental policy. Retrieved from http://stats.oecd.org/Index.aspx?DataSetCode=ENV_ENVPOLICY

OECD (2016c). Environmentally related taxes – Taxes on energy use. Retrieved from  https://www.oecd.org/tax/tax-policy/environmental-tax-profile-austria.pdf

OECD (2017). Value added by activity (indicator). doi: 10.1787/a8b2bd2b-en. Organization for the Economic Co-operation and Development. Retrieved from https://data.oecd.org/natincome/value-added-by-activity.htm

OECD (2017a). Unemployment rate. Organization for the Economic Co-operation and Development.  Retrieved from https://data.oecd.org/unemp/unemployment-rate.htm

Umweltbundesamt (2016). Elfter Umweltkontrollbericht – Umweltsituation in Österreich. Wien. Retrieved from http://www.umweltbundesamt.at/umweltsituation/umweltkontrollbericht/ukb/

Eurostat (2017). Complete energy balances – annual data. Retrieved from http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=nrg_110a&lang=en

Eunomia, Aarhus University, IEEP, ENT (2016). Study on Assessing the Environmental Fiscal Reform Potential for the EU 28. Final Report to DG Environment of the European Commission. Retrieved from http://www.eunomia.co.uk/reports-tools/study-on-assessing-the-environmental-fiscal-reform-potential-for-the-eu28/

IATA (2017). IATA Welcomes Reduction in Austrian Air Travel Tax. International Air Transport Association. Retrieved from http://www.iata.org/pressroom/pr/Pages/2017-03-08-01.aspx