WASHINGTON
- September 12 - Ending $650 billion in obsolete subsidies for environmentally destructive
activities like clearcutting and fishing, and levying taxes on resource depletion and
pollutants like greenhouse gases, could provide $1.5 trillion a year for income tax cuts,
according to The Natural Wealth of Nations, a new book from the Worldwatch Institute, a
Washington, D.C.-based environmental research institute. Under this proposal, a U.S.
family of four would get a net tax cut of $2,000.
"These changes would allow us to put the power of the market to work to protect the
environment," said author and Worldwatch Senior Researcher David Malin Roodman.
"Too many costs of industrial activity are not incorporated into markets. By
translating environmental costs into prices, governments can grab business decision-makers
by the bottom line and help consumers better understand the true environmental costs of
their purchases and investments. If we're going to save the planet, prices must tell the
ecological truth."
Roodman argues that in order to put markets to work for the environment, we must adopt the
"polluter pays" principle, which says that when people act in ways that hurt the
environment, they should be held accountable for the damage they do. This simple idea has
been an economics textbook staple for more than 80 years, but it is practiced much less
than preached.
Roodman argues for two major shifts in how governments raise and spend money. First, he
documents how governments are subsidizing environmentally harmful activities like logging
and highway building to the tune of $650 billion a year, subsidies that are inefficient at
creating jobs, boosting growth, and helping the poor. Ending 90 percent of these subsidies
could effectively cut the global tax burden, currently at $7.5 trillion a year, by $585
billion (8 percent).
Most of these cuts would occur in industrial nations, which subsidize pollution the most.
In the United States, Germany, and Japan, where taxes average $6,000-7,000 a person, there
would be a net tax cut of roughly $500 per person, or $2,000 for a family of four.
Second, Roodman makes the commonsense argument that we should shift taxes from things we
want to encourage-like investment and payrolls-onto things we want to discourage-like
pollution. Roodman estimates that another $1 trillion-roughly 15 percent of the global tax
pie-can be gradually shifted to new environmental taxes, especially the greenhouse gases
that promote global warming.
Roodman suggests phasing in a tax on carbon from fossil fuel burning, starting low and
rising gradually over time, allowing cars and factories to live out their useful lives and
then be replaced by cleaner models. Announcing gradual tax changes would send a powerful
signal about an economy's direction and encourage businesses to plan ahead.
"A major advantage of this approach is that it makes environmentally sound choices
cheaper and easier," said Roodman. "Harmful products will become more expensive,
but high-mileage cars and recycling will become more affordable and convenient. Using
taxes instead of regulations, governments can set targets for environmental protection-and
markets can do what they do best, finding the cheapest ways to hit those targets. And
countries that make these subsidy cuts and tax shifts will spur their companies to develop
clean technologies, giving them a competitive advantage in the global marketplace."
Government officials do not usually set out to waste money and hurt the environment when
they grant environmentally harmful subsidies. Most subsidies were initially intended to
stimulate development, protect jobs, or aid the poor. Yet close examination shows that
almost all are obsolete, ineffective, grossly inefficient, or self-defeating:
- Road building for loggers in the Australian state of
Victoria cost the government $170 million a year more than it earns on the wood hauled out
of the forest. In effect, taxpayers are paying timber companies to raze public forests.
- Germany spends $7.3 billion a year propping up uncompetitive
hard coal mines. That equals $90 per German and an astonishing $86,000 per miner. It would
be cheaper to shut down the mines and pay miners not to work.
- Subsidies for the global fishing fleet-some $14.0-20.5
billion a year, or 14-28 percent of industry revenue-have helped produce enough boats,
hooks, and nets to catch twice the available fish, contributing to overfishing and fishery
collapse.
The greatest obstacles to making fiscal policy good for the
planet are political, Roodman concludes. But a majority of workers are on the payrolls of
the relatively clean service industries, from communications to insurance, that would come
out ahead under the tax and subsidy changes. And everyone would benefit from a healthier
environment.
"Voters should know that for many of these subsidies, they're paying twice when they
shouldn't be paying at all," Roodman said, "first in higher taxes and then in
higher prices. In fisheries, our taxes are paying for the subsidies that are causing the
fisheries to collapse. And then we're paying more at the market for the very fish our
taxes are paying to deplete."
Reform is tough because the special interests that would be hurt by subsidy cuts and tax
shifting usually enjoy more legal recognition and are better organized and financed than
those who would gain. For example, in the 1995-96 U.S. election cycle, oil and gas
companies gave $11.8 million to congressional candidates to protect tax breaks worth at
least $3 billion-250 times as much-over the period.
Despite opposition from special interest groups, a number of governments have already
begun slashing market-distorting subsidies:
- In the 1990's, China cut subsidies for consumption of fossil
fuels-the main cause of global climate change-from $26 billion to $11 billion a year.
- The United Kingdom cut subsidies for production of coal by
91 percent, from $2.2 billion a year to $200 million, during the first half of the 1990's.
Cleaner natural gas grabbed market share, and the country's economy grew even as its
carbon emissions fell.
- Indonesia abolished its heavy pesticide subsidies in the
mid-1980s. Pesticide use fell two thirds, but rice production did not falter.
A few subsidies should stay in place, Roodman argues-as long as they are targeted at
deserving recipients. As examples, his book points to a program in Sri Lanka, which
delivered kerosene subsidies to the poorer half of the population during the 1979 oil
shock, and to subsidies in the Netherlands, Germany, and India that have fostered thriving
wind power industries.
Cutting harmful subsidies is an important first step towards correcting distortions in
market prices. Roodman argues that to take full advantage of the power of the market, we
should also use taxes more intelligently, taxing production of things we do not want, like
pollution.
One of the best examples of using environmental taxes to better inform the market is the
water pollution levies in the Netherlands. Since 1970, gradually rising charges on
emissions of organic material and heavy metals into canals, rivers, and lakes have spurred
companies to cut emissions-without dictating how to make the cuts, the way regulations
would. Between 1976 and the mid-1990s, emissions of cadmium, chromium, copper, lead,
mercury, nickel, and zinc into waters managed by regional governments plummeted 72-99
percent-primarily because of the pollution taxes.
The Dutch example illustrates the strengths of environmental taxes at their best.
Companies for whom it was less expensive to clean up presumably made the largest
reductions. Firms would also have passed part of the taxes on to their customers through
higher prices, causing them to switch to less-pollution-intensive products. And demand for
pollution control equipment has spurred Dutch manufacturers to develop better technology,
triggering innovations that regulators could never have planned, lowering costs, and
turning the country into a leading exporter of pollution control equipment.
Malaysia used an adjustment in motor fuel taxes to make leaded gasoline more expensive
than unleaded gas, allowing unleaded fuel to grab more than 60 percent of the market.
Germany used taxes to cut the production of toxic wastes by 15 percent in three years, and
Sweden used taxes to reduce emissions of sulfur-which cause acid rain-by 13 percent
between 1989 and 1995. Australia, Denmark, and the United States used taxes on CFCs to
help phase out these chemicals-pursuant to the 1987 Montreal Protocol, the treaty to
protect the ozone layer-in less than a decade. The U.S. tax has raised $4.24 billion.
Building a coalition to support raising taxes on a particular polluting industry can be
difficult, because the benefits may not be compelling to enough of the voting population.
But by advocating tax shifting, Roodman believes that environmental advocates can show the
public a direct, pocketbook connection between a cleaner environment and personal tax
cuts.
Since 1991, six European nations-Denmark, Finland, the Netherlands, Spain, Sweden and the
United Kingdom-have cut taxes on work and investment and raised taxes on air pollution,
fossil fuels, or landfilling. Denmark is the leader with 3 percent of its taxes shifted
thus far.
Some governments have taken another approach to harnessing the market. Instead of taxing
environmental harm, they identify environmental costs by auctioning or giving away permits
for pollution and resource depletion. Businesses can then trade the permits among
themselves, creating a market for the permits. For example, the U.S. government
established a system of permits for the emission of sulfur dioxide in 1990. By 2000, this
system will have reduced emissions to half the 1980 level, while saving utilities $2-3
billion, compared to the cost of regulations. Pollution permit trading will be a hot topic
at the Buenos Aires climate change conference in November.
"We need a fiscal system that will protect the ecosystems on which the global economy
rests," Roodman said. "If we can't protect these ecosystems in the short run, we
cannot have economic progress in the long run. And when you explain our current tax and
subsidy policies to people, they overwhelmingly support cutting subsidies and shifting
taxes."
Polls in the European Union and the United States have found that 70 percent of the people
support the idea of "green tax reform," once it is described. Many political
parties in Northern Europe have endorsed it, as have groups like the European Trade Union
Confederation. In a U.S. poll conducted earlier this summer for Friends of the Earth by
International Communications Research, 71.5 percent favored shifting taxes from payrolls
and income to fossil fuel energy sources, with support cutting across party lines.
"There is a big political opening here for an enterprising politician who understands
the world we are really living in," said Roodman. "These environmentally
destructive taxes and subsidies are ready for the junk heap of history. The first
politician who gets this message across and taps into this strong voter support is going
to go far."
Special Note: The Natural Wealth of Nations will be the subject of an on-line discussion
hosted by Communications for a Sustainable Future, at the University of Colorado, October
15-22. Check CSF's web site for further details http://www.csf.colorado.edu
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