A new study for the European Commission investigates civil society’s role in improving the effectiveness of environmental taxes for pollution reduction and natural resource management. Forty new case studies reveal the role of stakeholders throughout the policy cycle and key design features for successful economic instruments.

Emma Watkins is a Senior Policy Analyst at the Institute for European Environmental Policy, focusing on circular economy, waste and related economic instruments. She has led studies on building civil society capacity on environmental tax reform (ETR), on economic instruments to improve waste management performance, on the socio-economic impacts of marine litter and on greening taxes and subsidies in the Pacific islands. She has previously contributed to studies on ETR for the European Commission and the Dutch and Swiss Governments.

The potential for environmental tax reform

Environmental taxes are considered an important part of the policy mix to support the transition to an inclusive green economy and are attracting increasing attention. For example, the European Union (EU) has called for further action on environmental tax and subsidy reform in several country-specific recommendations under the European Semester, and in broader policy discussions. The EU Flagship Initiative for a Resource-Efficient Europe calls for environmental taxes to account for 10% of total tax and social contribution revenues by 2020 – a substantial increase from the average of 6.3% in 2015 in the 28 EU Member States (EU-28).

Although many EU countries already have environmental taxes, charges and levies (notably related to fuel, emissions, products and materials), scope remains in both environmental and fiscal terms for wider and more effective application, particularly in the areas of pollution reduction and natural resource management. For example, a 2016 study for the European Commission estimated that further shifting taxes from labour to pollution in the EU-28 could generate around EUR 100 billion in 2018 and EUR 208 billion in 2030 (around 0.7 and 1.5% of EU-28 GDP at 2014 prices).

Major new study to build capacity on environmental tax and budgetary reform

To encourage further use of economic instruments in the EU, a new study for the European Commission undertaken by the Institute for European Environmental Policy and partners seeks to build civil society capacity on environmental taxation and budgetary reform. Through detailed case studies on 40 instruments across the EU-28 (see Table 1) and a series of workshops, the study has identified the roles that civil society can play during the policy cycle. In addition, the study has identified a number of design features for successful instruments.

Table 1: Cases examined in the study

The role of civil society

The study took a fairly broad definition of civil society, including bodies that explicitly represent citizens’ interests (e.g. membership NGOs) and those that do so indirectly (e.g. other green NGOs, think tanks and academia). Civil society organisations can – and do – play key roles in environmental tax reform, all the way from the initial stages of problem identification and policy formulation, through decision-making and policy implementation, to monitoring and evaluation (see Figure 1).

Figure 1: Examples of civil society engagement throughout the policy cycle

Civil society can help make the case for the introduction of economic instruments by identifying the need for action. For example, the Hungarian NGO Clean Air Action Group kick-started discussions on an air pollution charge that was later adopted. Public and NGO pressure led to the introduction of the Austrian landfill tax, whilst academics, scientists and NGOs provided inspiration for ecological fiscal transfers in Portugal and biodiversity offsetting schemes in Germany.

Civil society can shape instrument design through engagement in stakeholder consultation processes. For example, the salmon fishing licence in Ireland was designed following meetings with 46 different agencies, organisations and individual stakeholders, leading to a perceived fair distribution of burdens amongst recreational and commercial fishers. Formal consultations on Swedish air pollution taxes, the Irish plastic bag levy and the Slovenian Forest Act helped ensure each instrument’s acceptability and effectiveness.

The case studies demonstrate that civil society can also support the implementation and evaluation of instruments. For example, Estonian fishermen are consulted each year on new fishing fees. An executive committee including a broad range of stakeholders is responsible for the implementation and enforcement of Dutch water pricing policy. Stakeholders have helped evaluate and revise the UK landfill tax, while a consultation board of environmental NGOs was responsible for assessing the effectiveness of the Latvian packaging tax.

Key design features of successful economic instruments

The case studies and workshops also identified several key features for successful economic instruments:

Clear objectives linked to specific environmental goals can garner stakeholder acceptance. For example, the Belgian Environmental Charge and Irish plastic bag levy were both accompanied by successful communication campaigns specifying the environmental aim of reducing the use of single-use plastic bags.

The tax base, calculation approach and rates are important. A specific, well-targeted tax base will be most successful in promoting the desired behavioural response, as in the case of the Danish pesticide tax, which includes environmental impacts in the calculation of rates. Adopting a low initial tax rate with predictable increases (as with the UK landfill tax) can often be successful, although in some cases a high initial rate can give a strong behaviour signal (as with the Swedish NOx fee).

Other design features can also incentivise behaviour change. A rate increase can encourage improved environmental performance (an increase in the Lithuanian environmental pollution tax on batteries encouraged wider adoption of producer responsibility to gain exemption from the tax). The water pollution levy in the Netherlands has been credited with stimulating investment in innovation in water and waste water treatment plants as companies seek to reduce their levy payments by cutting emissions.

Introducing economic instruments as part of a wider reform package can provide a window of opportunity for their establishment and ensure policy coherence. The introduction of the Danish pesticide tax in 1996 and the increase in the Estonian mineral resource extraction charge in 2006 both formed part of wider green tax reform efforts, accompanied by a percentage reduction in land value tax and in income tax, respectively.

Visible environmental earmarking of revenues can enhance effectiveness and acceptance, as illustrated by the Romanian packaging charge (revenues are paid into an Environmental Fund) and Polish wastewater fee (revenues are allocated to National (and Regional) Funds of Environmental Protection & Water Management). However, care is needed to ensure earmarking doesn’t detrimentally divert revenues from other productive uses, such as cutting burdensome taxes.

Finally, the evaluation and revision of instruments is important. For example, the Czech air pollution fees were revised in 2012 to introduce higher fees and annual increases, after recognition that they were ineffective.

So what about the future for civil society engagement?

Civil society organisations have undoubtedly been effective on many occasions at making the case for environmental tax reform. However, they have often missed opportunities to help at other stages of the policy cycle, in particular with implementation. This may be due to lack of funding or visibility for such activities.

In some countries, policy-makers are currently reticent in asking for civil society inputs. These countries should consider how to re-engage with civil society to utilise its expertise to promote change with wide-ranging citizen support. To do this, trust is needed between governments and civil society. This can be built, for example, through the use of well-established collaborative processes such as broad consultations accessible to NGOs. The ideal is to move towards cooperation in areas where there are common objectives – governments are public servants, and civil society provides a voice for citizens, so the benefits of mutual cooperation are self-evident.

The final report of our study will be published in autumn 2017. A conference will be held in Brussels on 5 October 2017, hosted by the Committee of the Regions, to showcase and discuss the findings with civil society and policy-makers. The agenda and registration details can be found on IEEP’s website, so please register and we’ll look forward to seeing you there!