Total environmental tax revenues as a share of total tax revenues and as share of GDP (23.1)

Indicator definition

The indicator illustrates the evolution of the relative importance of environmental taxes (as share of GDP and total taxes and social contributions). An environmental tax is defined by Eurostat metadata as“a tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific negative impact on the environment”. Data on environmental taxes revenue are broken down in taxes on transport, energy, pollution, and resources.

Units

Environment tax revenues are presented as a share of total tax revenues (Figure 1) and as a share of GDP (Figure 2).

Policy context and targets

Context description

Green Paper on Market-Based Instruments of March 2007 (COM(2007)0140 final) launched a broad public consultation on advancing the use of market-based instruments for environment and related policy purposes in the Community. In the Green Paper, the Commission explores a wide range of areas where the use of market-based instruments, such as taxes, charges and tradable permit schemes, could be promoted further, either at Community orMemberState level. This includes energy consumption, the environmental impact of transport as well as the sustainable management of water, waste management, protection of biodiversity and reduction of conventional air pollution.

The Sixth Community Environment Action Programme (2002-2012) makes several explicit references to the use of economic and voluntary instruments. In particular:

• The need for a review of the impact of subsidies relating to natural resources and waste;  the development and implementation of a broad range of instruments including research, technology transfer, market-based and economic instruments; etc. (Article 8.2).
• The environmental efficiency of tradable environmental permits as a generic instrument and of emission trading, with a view to promoting and implementing their use where feasible; and promoting and encouraging the use of fiscal measures such as environmentally related taxes and incentives, at the appropriate national and Community level.

The OECD and the European Environment Agency (EEA) have, in co-operation with the European Commission, developed a database on the use of market-based instruments for environmental policy and natural resource management (environmentally-related taxes, fees and charges, environmentally-motivated subsidies, tradable permits systems, deposit-refund systems) in Member countries which includes all Member States of the EU as well as non-EU members of the EEA. It also covers voluntary approaches.

A 2007 study by the European Commission presented information on the definitions of environmentally harmful subsidies, their quantification, and arguments for the reform of environmentally harmful subsidies.

A 2009 study developed a methodology for identification, assessment and quantification of environmentally harmful subsidies. The study tested the tools developed previously by the OECD on six case studies of subsidies in energy, transport and water sector. The study developed the "EHS Reform tool" for screening, integrated assessment and reform of environmentally harmful subsidies.

The OECD works on environmentally harmful subsidies since the 1990s and published several documents on the matter.

Other EU studies on the use of market-based instruments in environmental policy include:

• The use of market-based instruments for biodiversity protection - the case of Habitat Banking (2010)
• The Potential Benefits of using Differential VAT for Environmental Purposes (2008)
• Economic and Environmental Implications of the Use of Environmental Taxes and Charges in the European Union and itsMemberStates(2001)
• Study on the relationship between environmental/energy taxation and employment creation (2000);
• Study on a European wide regulatory framework for levies on pesticides (1999).

Targets

• The Green Paper on Market-Based Instruments is aimed at launching a discussion on advancing the use of market-based instruments for environment and related policy purposes in the Community;
• A more intensive use of market based instruments has been advocated in the EU Sixth Environment Action Programme (6EAP);
• The European Union Greenhouse Gas Emissions Trading System (EU ETS) is the first and biggest international scheme for the trading of greenhouse gas emission allowances. It is a cornerstone of the European Union's policy to combat climate change and achieve the Kyoto target and its key tool for reducing industrial greenhouse gas emissions cost-effectively.
• EC’s Roadmap towards a Resource Efficient Europe advocates a shift from taxation of labour towards environmental taxation…leading to a substantial increase in the share of environmental taxes in public revenues in line with the best practice of Member States.

Related policy documents

No related policy documents have been specified

Methodology

Methodology for indicator calculation

Figure 1  presents environmental taxes revenue (energy taxes, transport taxes, taxes on pollution/resources and total environmental taxes) as a share of total tax revenues in EU-27 between 1998-2009. These data are sourced directly from Eurostat.

Figure 2 presents environmental taxes revenue (energy taxes, transport taxes, taxes on pollution/resources and total environmental taxes) as a share of GDP in EU-27 between 1998-2009 . Also these data are sourced directly from Eurostat.

Methodology for gap filling

No gap filling was necessary for producing this indicator from the source data.

Methodology references

No methodology references available.

Uncertainties

Methodology uncertainty

No uncertainty has been identified in the methodology used by the EEA to process the source data.

Data sets uncertainty

No uncertainty information has been provided by the publishers of the source data.

Rationale uncertainty

The indicator on environmental taxes (absolute level and shares) is largely and structurally dominated by energy taxation compared to taxes on resources and taxes on pollution. Taxes on energy are not always specifically designed to environmental objectives and instead are often used as source of tax revenues for the general budget, i.e. even the destination of tax revenues is not necessarily aimed at the environment.

In addition, reductions in the share of total tax revenue or GDP may also indicate that environmental taxes are being used effectively and leading to a reduction in consumption or production of the taxed resource or emission, rather than indicating a reduction in use of economic instruments.

Finally, the indicator only partially covers the question – environmentally harmful subsidies are not addressed.