Swiss-EU Forum Discusses Carbon Taxation

by Ulrika Lomas, Tax-News.com, Brussels

29 July 2009

At the EU environment and energy ministers meeting in Are, Sweden, in which Switzerland was also a participant, EU Environment Commissioner Stavros Dimas advocated the use of incentives to encourage companies to realize the 'true cost of environmental damage,' and encourage others to be at the forefront of innovation to reduce emissions.

In his opening statement, Dimas said:

"The reality of climate change and a finite supply of natural resources mean that the move to a low-input, low-carbon economy is inevitable if we want to avoid ecological catastrophe."

"There are also sound economic reasons for making these changes and if we move faster than our competitors there are many economic opportunities:"

• "First, we can capture the fast-growing markets for environmental technologies, services and products.
• Second, a resource-efficient economy will be able to better compete in a world with higher-resource prices.
• Third, the EU's payments for our energy consumption would decrease.
• Last – and by no means least – we would increase our security of energy supplies."

Dimas went on to underlined that the European Union would need to capitalize on the shift to renewable energy and urged that investment be channeled into subsidizing innovation and taxing those resisting the shift:

"The opportunities are there but what is worrying is that our competitors appear to be moving faster than we are. Comparing the economic recovery plans, we find that China allocated around 34% of its investments to eco-efficiency related measures. South Korea allocated 69% and the USA 17%. By comparison, in the EU recovery plans, Member States allocate at most 21% and as little as 1.3% to eco-efficiency."

"The economic crisis is an opportunity for decisive action and not a reason to slow down change. We have circulated a paper that analyzes the various measures that have been taken."

"One message that comes through clearly is that companies will not invest seriously in a low-carbon, low-input future if there is no profit to be made. We need to develop policies that can send unambiguous price signals to the market about the true costs of environmental damage. 'Getting the prices right' is essential since it means that environmentally friendly business models will be rewarded."

"The best way to introduce appropriate price signals across the economy is to use taxation policy to promote eco-efficient products and processes," urged Dimas, adding: "To encourage employment and enterprise the tax burden should fall on pollution, resource-use and energy-use rather than on labor or corporate profits."

"To cut wasteful and inefficient public spending, we should also cut any subsidies which work as perverse incentives to continue ecologically damaging behavior."

"We also need to look again at how we plan and decide upon public investments. Being locked into old technologies in areas such as energy transmission and transport logistics can prevent change even if market prices are clear. For example, if we want to allow distributed power generation then we must be prepared to make the necessary investments to develop a 'smart grid'," he further recommended.

"These types of measure should be attractive to finance ministers. Taxes are never popular – but if they are understood as a tax on pollution then there is a higher chance that they will be accepted. What is more, the money saved from removing environmentally harmful subsidies can be used to help plug the deficits that are now found in many public budgets."

"To conclude, if we want to move to a new economy then we will need to change the way that our economies work. To do this, finance ministers and prime ministers will need to be convinced that we must move beyond business as usual. But since business as usual has led us to economic crisis and is leading to ecological crisis I am convinced that this is an argument that can be won."

Switzerland played a major role in the discussions, in particular on carbon taxation and the EU Emissions Trading Scheme. During the course of the meeting, the Swiss government underlined its willingness to accede to the European trading system.

In a statement, the Swiss government noted that with the planned amalgamation of the trading schemes, Switzerland would reap several benefits, including increasing the flexibility of Swiss companies to buy and sell emission certificates. With the revision of the CO2 law, the existing Swiss emissions trading scheme will be broadly comparable with that of the EU, its statement added.

Building on technical discussions which began in 2005, the EU and Switzerland will discuss in December 2009, after the UN Conference on Climate Change in Copenhagen, an agreement under international law for the implementation of a combined system. Discussions on pan-European carbon taxation are ongoing between the parties.

Recommended