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  • Series: Critical Issues in Environmental Taxation series x
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Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor

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Edited by Natalie P. Stoianoff, Larry Kreiser, Bill Butcher, Janet E. Milne and Hope Ashiabor

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Cristina Brandimarte

The global degree of carbon dioxide (CO2) concentration in the atmosphere has reached worryinglevels, continuing to rise along a steep upward trend.Stabilizing or even reducing CO2 concentration would require drastic global emissions abatement, considerably above 50 per cent. Such a great reduction, difficult to attain within a reasonable time horizon, would entailhuge costsfordevelopingcountries. Most recent guidelines suggest large-scale integrated approaches, combining measures to both strengthen efforts to reduce emissions and boost carbon sequestration.Among market-based instruments, literature indicates that carbon taxes are one of the most cost-effective for emissions reduction,in particular, upstream (or production-based) CO2 taxation,a tax levied the point of source, as it has low administrative costs and ensures great coverage. If imposed unilaterally,however, this kind of tax could entail significant economic costs, mainly through competitiveness losses, and could become environmentally ineffective due to carbon leakage phenomena.Literature then suggests as a viable alternative, the CAT (carbon-added tax), a downstream, or consumption-based, carbon tax. It has the advantage ofprotecting competitiveness of domestic producers, as it is levied on imports and reimbursed on exports. In this chapter, the implementation of a fuel-added carbon tax (FACT), a duty levied on fossil fuel embodied in goods and services and modelled after value-added tax (VAT), is considered and compared with the tax on fossil fuel purchases (FCT), the simplest and most common upstream carbon tax. In particular, macroeconomic effects of both taxes are estimated for Italy. The chapter also briefly reviews characteristics and implications of production-based carbon taxes; examines downstream taxation and describes the FACT; deals with differences between FCT and FACT both from a theoretical and empirical point of view. In particular, the effects of their implementation in Italy are analysed and compared. A technical appendix on FACT simulation follows the conclusion.

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Lorenzo del Federico and Silvia Giorgi

The chapter first aims to analyse the legal nature of the EU Emissions Trading System (ETS) and, in particular, the hypothesis that considers taxes as obligations to acquire allowances for a valuable consideration. It is worth specifyingthat an intangible ‘allowance’ is one thing, but quite another is the obligation to buy a certain number of allowances corresponding to the polluting emissions. The ETS seems to be a hybrid and multipurpose instrument, with a fiscal function that is neither exclusive, nor prevalent. There is, in fact, a combination of priority environmental aims and energy efficiency promotion aims.Against this background, the ETS should be coordinated with CO2 taxation in order to avoid overlaps between the ETS on the one hand, and taxation serving the same purpose on the other. Indeed, although the ETS allocation system has changed over the course of time, moving from the original criterion of free allocationto the auctioning allocation, derogations from the general rule of auction are still provided. It is clear that only allowances allocated through auction are in line with environmental principles. The cap represents the acceptable risk: the amount of emissions included in the cap follows the polluter-pays-principle as economic compensation for the emitted tonnes of CO2. Beyond such a limit, further allowances cannot be emitted and, as a consequence, no further emissionsare tolerable, according to the prevention principle. The cap itself is the measure identified ex ante to reduce the risk of environmental damage. From this assumption, the allowances allocated for free seem, at first sight, to run contrary to environmental principles and aims. Their ratio is inspired by principles outside environmental ones and, first of all, by the aim to prevent a loss of competitiveness in certain production sectors and a possible diminution of economic development and employment. Therefore the measures to coordinate ETS with energy taxation –such as exemptions or tax credits –must be tested in order to identify the most environment-oriented solution.In the last part of the study in fact, the proposal of a tax credit as a method of coordination will be analysed.

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Evgeny Guglyuvatyy and Natalie P. Stoianoff

Australia had actively participated in the 1992 Earth Summit in Rio de Janeiro, endorsing the Summit goals that were formed by the desire for sustainable development. Australia also joined the United Nations Framework Convention on Climate Change and much later signed the Kyoto Protocol, enthusiastically supporting greenhouse gas reduction. A range of measures aimed at reducing Australia’s greenhouse gas emissions have been on the agenda at the federal and state level for the last two decades. Until recently, successive Australian governments have been committed to the introduction of a carbon tax or an emissions trading scheme designed to mitigate climate change. This chapter examines the historical progress of Australian climate change policy including the implementation of the present Australian government’s Direct Action Plan. The chapter in particularobserves several interesting and significant aspects of Australian climate law, highlighting governmental approaches and processes leading to the introduction of those laws.The historical perspective is necessary to identify most common features of the climate law implementation procedures and to identify what political factors influence these processes in Australia. Examination of the Australian climate change regime indicates how different actors influence policy proposals to achieve their own goals, rather than to cooperate in a process of generating the best overall legal option. This chapter concludes that the development of climate law in Australia required some innovative and responsive law initiatives. However, the practical implementation of various climate change laws had been constantly impacted by various economic and political factors.

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Aya Naito and Yuko Motoki

In recent years, Japan has implemented various measures on taxation, including the introduction of the Tax forClimate Change Mitigation (the so-called ‘carbon tax’) in 2012 and greening vehicle taxation. However,Japan’s CO2 emissions from energy use reached a record 1.224 billion tonnes in FY2013. The Japanesegovernment is expected to mobilize every possible means in order to reduce CO2 emissions, and taxationpolicy is one of the tools effective for this purpose. Therefore, to suggest future directionsin greeningJapan’s taxation system, we compare environmental taxes in Japan and four EU countries (Finland,Denmark, Germany and the UK), which are environmentallyadvanced countries on taxation. Wesummarize the latest trend of environmental taxes in Japan then compare it with experiences in EUcountries. For energy taxes, tax rates on fuels in Japan are lower than those of EU countries and, in all thefour EU countries, tax rates on fuels have been raised year by year, but in Japan, for example, the gasoline taxrate has not been increased since 1993. When it comes to carbon taxes, differences between Japan and EUcountries are tax rates and use of revenues. In Japan, carbon tax rates are relatively lower than EUcountries and tax revenue goes into a special account and the revenue is used for promoting renewable energy. In Japan, the emissions reduction effect of taxing carbon is relatively lower than the effect of revenueuse, which is –0.2 per cent and –0.4 to –2.1 per cent respectively. For vehicle taxes, tax bases of Japan’s vehicle taxesare acquisition price, weight of vehicles, and so on, which is different from EU countries’ fuel efficiency. ThusJapan’s vehicle taxes are not functioning as a driver to promote purchasing more energy-efficientvehicles. Based on the results of these comparisons, we expect the Japanese government to put a higher tax on fuel consumption to track the international trend of carbon pricing and thus reduce energyconsumption, and to introduce CO2-based vehicle taxes to increase the share of environmentallyfriendly vehicles in Japan.

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Agime Gerbeti

The EU Emissions Trading Scheme (EU ETS), launched in 2005,has not achieved its goals. It has not been attractive to other geographic areas and global emissions have increased. Leaving aside the recession, Europe did not consume less but produced less, importing goods from emerging countries with high carbon intensity. In addition, CO2 permits reached a price level that has been insufficient to encourage research and investment. The ETS has become a kind of (low) negotiable energy tax burden on EU business competitiveness in a global market. The World Trade Organization (WTO) (and international policy opportunities) does not allow the imposition of an unjustified carbon border tax. For trading within the European market, the proposal in this chapter is to consider CO2 as a raw material used in the production of goods, regardless of where they are produced and enhance it in the quantity ‘contained’ in a single product as a result of the energy mix. The CO2 cost would be administered as a charge converging in value-added tax (VAT). This approach allows an enhancement of CO2, to be free from market fluctuations and from recession, if the CO2 cost is set at an appropriate level to encourage research and low-carbon investments in EU and non-EU territories. Because of the greater efficiency of the European energy mix it would also create competitiveness in the energy costs of production. This approach –adopted unilaterally by Europe – complies with WTO rules, as long as it allows industries outside the EU to demonstrate their production energy mix. If European standards are respected, industries would be exempted from the additional charge on emissions within the VAT. In the extremely complicated context of energy and industry – the United States moving towards energy independence thanks to shale gas; China and India increasing their market shares; Organization of the Petroleum Exporting Countries (OPEC) countries adopting ‘strong’ international policies on the cost of crude oil – Europe needs to take advantage of the low carbon intensity of its industrial system, especially now that the abandonment of free CO2 permits will inevitably increase production costs. This could be a way to create conditions for lower global emissions and increase environmental benefits faster than any global agreement.The aim is not to lower EU environmental objectives but to urge the rest of the world to follow Europe.

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Sally-Ann Joseph

It is now more than 20 years since the first call for action on climate change at the Earth Summit butthe scale of progress to date has been uninspiring. Numerous attempts have been made by the international community to negotiate a cooperative approach to tackling not only climate-related issues but also the funding to achieve these. It has been reiterated again and again that this needs to be viewed as both fair and feasible while consistent with the principle of ‘common but differentiated responsibilities and respective capacities’. The focus has remained solely and consistently on greenhouse gas emissions, particularly carbonrelated. Proposals to date have predominantly relied on pledges, that is, voluntary contributions or targets, which are also voluntary. Yet the issue is acknowledged to be broader than this, affecting ecosystems and biodiversity, land use changes and land management activities. Initiatives regarding international payments for ecosystem services are increasingly being adopted. The reduced emissions from deforestation and forest degradation (REDD) scheme is an example of an incentivized system but its focus is nevertheless still on reducing emissions. The concept of a ‘global natural resource consumption tax’, which we explore in this chapter, takes a holistic view of the environment and makes all nations accountable for their use of environmental resources.

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Seck L. Tan

‘It is perfectly possible for a nation to secure sustainable development –in the sense of not depleting its own stock of capital assets – at the cost of procuring unsustainable development in another country’ (Pearceand Warford, 1993). This quote serves to remind us that a nation’s sustainable development achieved at the expense of environmental degradation in another nationis not true sustainable development. This chapter aims to investigate the impacts of trade liberalization on Australia’s ecosystem using a macroeconomic analysis of environmental utilization, and providing policy options available to protect the natural resources in Australia. Such a strategy allows natural resources to realize its full economic potential (whilst being maintained in a closed-loop arrangement) and offers recognition to the ecosystem as an essential player in sustainable trade development. Using an empirical approach, this chapter offers an explanation of the utilization of Australia’s environmental capital and trade (exports and imports) trends with South Korea (FTA partner), as well as contrasting the observed relationship with South Korea. The chapter makes the case that while the expected outcomes from FTA agreement with South Korea will benefit the Australian economy, it is highly recommended that there be initiatives in place to ensure that trade will be just as beneficial to Australia’s environment. Should free trade result in environmental degradation, the anticipated outcomes will not be a true representation of the benefits from free trade. Although the study is based on historical data from 1996 to 2013, it seeks to establish a relationship for Australia’s environmental utilization and trade trends with South Korea and offers a prediction during the FTA tenure.

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Jian Wu, Xiao Wang and Zhe Yang

Environmental tax reform is now accelerating in China. Most existing studies on environmental tax policy design focus on national- and regional-level impacts, but it is crucial to understand the impact of different policy designs at the enterprise and industry level, since their choice and behavior change has a fundamental impact. This chapter uses enterprises’ relative efficiency as the proxy for enterprise competitiveness, and estimates the potential change of enterprise competitiveness under different policy scenarios using the DEA-RAM model. By observing these changes and their directions, we are able to work out enterprises’ behavior choices under the policy scenarios.This chapter creates a combination of three scenarios of environmental tax, production and emissions, to analyze the impact of environmental tax on enterprises’ production and emissions behavior. This chapter uses the DEA-RAM model to estimate the change of relative efficiency of enterprises. This model allows us to involve negative output (e.g., emissions), and give more flexibility on the sample size, so it is more applicable to achieve the objectives of this study. The chapter presents the following findings. (1) The current pollution fee policy is inefficient; its poor enforcement weakens the incentive for enterprises to adjust their behavior. (2) Enterprises with different ownership and scales perform with great discrepancy in different industries. (3) Carbon tax demonstrates a strong incentive to stimulate the production behavior change of enterprises while for companies with good potential of fuel substitution emissions tax may stimulate more pollutant reduction. In light of these findings we provide somerecommendations for policy reform.