To this Letters Main Page

To this Letters Features

To this Letters Diary

To the Index







    Eco-Tax Reform
    Job creation by going green

    by the editors of The Jobs Letter
    from The Jobs Letter No. 60 / 19 May 1997

    ECO-TAX REFORM is the name given to proposals to shift the burden of taxation away from economic "goods" such as employment including employer contributions to social security and health care towards environmental and social "bads", such as energy and resource extraction, transport, waste and pollution. As well as creating conditions for cleaning up the environment, research into these proposals show the reforms would also create a substantial number of new jobs.

    Taxes make something more expensive to buy, while subsidies artificially lower prices. Eco-tax reform is about stopping taxing behaviour that we do want (income and work) and also stopping subsidising behaviour that we don't want (resource depletion and pollution).

    Environmental economist David Korten explains that eco-taxes would cascade up through the system and discourage the use of socially and environmentally harmful products. His examples: a tax at the source on coal, oil, gas and nuclear energy would increase end-user prices and encourage conservation and conversion to solar energy sources, such as solar heating, wind, hydro, photovoltaic and biomass. Resulting increases in transportation costs would provide a non-discriminatory natural tariff to encourage the localisation of markets. The added cost of automobile commuting would encourage investment in public transport and shifting your home closer to your work. A tax on the extraction of virgin materials would encourage conversion to less polluting, less materials-intensive product designs and modes of production and greater reliance on recycled materials.

    Paul Hawken, author of the forthcoming book "Natural Capitalism" argues that taxes and subsidies are information that everybody, whether rich or poor, acts on every day. Taxes make something more expensive to buy, while subsidies artificially lower prices. Eco-tax reform is about stopping taxing behaviour that we do want (income and work) and also stopping subsidising behaviour that we don't want (resource depletion and pollution) .

    He points out that in the US, environmental exploitation, cars, and big corporations are generally subsidised, often indirectly. Hawken: "A tax system should integrate cost with price. Currently, we dissociate the two. We know the price of everything but the cost of nothing. Price is what the buyer pays. Cost is what society pays. For example, Americans pay about $1.50 per gallon at the gas pump, but gasoline actually costs up to $7 a gallon when you factor in all the costs. Middle Eastern oil, for instance, costs nearly $100 a barrel: $25 to buy and $75 a barrel for the Pentagon to keep shipping lanes open to tanker traffic. Similarly, a pesticide may be priced at $35 per gallon, but what does it cost society as the pesticide makes its way into wells, rivers, and bloodstreams? "

    Terry Barker of the Dept of Applied Economics at Cambridge University has simulated various eco-tax reform packages for the British economy. In his first scenario, a gradually increasing carbon/energy tax is introduced over a five year period, rising to $10 a barrel. This extra revenue is exactly compensated by reductions in the UK employers' National Insurance contributions. The tax is accompanied by a £1.1 billion domestic energy-saving programme to protect the poor. The projected economic results of the reform package is compared to a `reference' scenario in which no reforms are introduced.

    By 2005 the results are : GDP growth is 0.1% higher than in the reference scenario; 278,000 extra jobs are created and unemployment falls by 200,000 people; inflation is slightly higher (0.2% pa); the balance of payments (as a proportion of GDP in 2005) is slightly lower (0.2%); and there is no significant effect on international competitiveness (the higher cost of energy is off-set by the lower cost of labour).

    The European Union recently commissioned a major modelling study of eco-tax reform for the six largest European economies. The policy package includes additional taxes on energy, traffic congestion charges and charges on water effluents, along with various other environmental incentive measures and expenditures on research and development. Revenue from the new environmental taxes is used to finance a reduction in social security payments by employers.

    The environmental results are significant: In 2010, carbon dioxide emissions are projected to stabilise at 1990 levels, air pollutants to fall by 70-80%, water pollution by 50, and solid waste by 40%.

    The economic results are as follows: By 2010, GDP in the six countries as a whole is 0.06% higher than in the unchanged reference scenario. Employment is 0.15% higher, translating into a gain of 2,187,000 jobs in the six countries 400,000 jobs in the UK alone.

    Sources "Taxing Pollution Instead of Employment: Greenhouse gas abatement through fiscal policy in the UK" by Terry Barker in Energy and Employment Vol 6 No.1 1995; "Potential Benefits of Integration of Environmental and Economic policies" by DRI et al (London:Graham and Trottman/CEC, 1994); "Tax Shifting" by David C. Korten, in chapter "Agenda for Change" in his book "When Corporations Rule the World" (Earthscan 1995); Paul Hawken from his forthcoming book "natural Capitalism" as excerpted in Mother Jones magazine March 1997.

    Top of Page
    This Letter's Main Page
    Stats | Subscribe | Index |
    The Jobs Letter Home Page | The Website Home Page
    The Jobs Research Trust -- a not-for-profit Charitable Trust
    constituted in 1994
    We publish The Jobs Letter