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Developing and Managing a Global Environmental Tax Regime

by admin — last modified 2011-11-09 18:15

Enviornmental Tax, Global Taxation

BY
PALLAVI DUTTA
nalsar university of law, hyderabad

Global taxation on its own has been criticised by many an economist. Initial research indicated that the imposition of a global tax would result in serious economic hazard to the world’s financial system.[1] Conversely however the imposition of a global tax of any kind would do much to aid in the fulfilment of MDGs or Millenium Development Goals, i.e. objectives adopted by the United Nations, the most important one being the need to halve poverty by 2015.[2] There is much public support in favour of a global tax, the reason being a simple one, it seeks to fund an international aim by imposing a duty on a global problem, pollution being among the likes of international financial speculation and the arms trade.[3] While countries like Belgium, France and Chile ardently advocate the need for a global tax regime, the USA has seen much legislative disapproval. Belgium in July 2004 adopted legislation on a Currency Transaction Tax to help finance an EU fund.[4] The tax is devised to impede currency speculation in times of high market fluctuation.[5] The USA has a bone to pick with the establishment of a global tax, having a history of splendid isolation and lasseiz faire economy, the Americans are opposed to becoming part of a global community as in the words of letter addressed to George Bush by the Republican Senate leadership which read the world will not be served by creating new international bureaucracies and financing them through global taxes and other so-called ’innovate sources’ of funding.[6] The U.N keeping to its role as universal mediator and humanitarian institution has become a key player in the vacillations that characterise a global tax, the income is required to fund its aforementioned ambitious millennium goals. If such global taxes were to emerge, carbon emissions will be the first to be taxed, which will put the world’s superpower in an uncomfortable position. And it is a well known fact that seventeen of the twenty two richest countries in the world pay less than the U.N. demarcated 0.7% of their Gross National Product (GNP) for the purpose of Overseas Development Assistance (ODA). The U.S pays less than its designated 0.1%.[7]

Global Environmental Taxes: Taxing the Bad for the Good

Environmental damages are negative externalities[8] i.e. they incur costs that consumers do not pay for, imposition of tax on such entities would internalise the same since environmental goods are global public goods[9], thereby bringing the same under the wing of Pigovian taxes[10] Such a construct however directly contravenes the Kyoto Protocol to the United Nations Framework Convention on Climate Change[11] , Kyoto’s underlying principal being that enhanced emission Rights are granted to those nations whose GDP is higher, a notion that is unacceptable to most developing countries.[12]

i Carbon

It is an understood and archaic notion of economics that when an entity is taxed less of it is obtained. Carbon dioxide is the main perpetrator of the global warming conundrum. Taxation of the same provides an economic incentive to ameliorate the efficiency of energy and becomes part of a fiscal policy by providing an alternative method of taxation.[13] Such a tax enforces a price with respect to the emissions as generated by the fossil fuels during the production of energy itself, thereby decreasing the price of other sources of energy, renewable ones.[14] A carbon tax initiative would be diametrically opposite to the cap and trade system that exists. The same would commoditize emissions trading resulting in credits, that would do little to mitigate the effects of global warming. The imposition of a carbon tax however comes with its own set of issues. First and foremost, should such a tax be an international or a national one? The proposal for the former is nowhere in sight but an organisation like the European Union which functions with a Community budget may look into the introduction such a tax.[15] The double dividend hypothesis proposes that taxing activities that cause pollution have a two fold benefit, firstly that it brings about a positive change in the environment and secondly have a reducing effect on other taxes that warp labour supply and interfere with saving plans.[16] However given the scenario of sustainable development carbon taxation may have multiple dividends which contravenes the notion that one particular policy instrument should have just one objective, thereby making such an argument a political and not an economic one.[17]

II AIR TRAFFIC TAXES

The Kyoto Protocol is silent on the issue of air traffic, and the predicaments that arise from the same range from depletion of the ozone layer by highflying aircraft, noise emissions in areas proximate to airports to dangerous emissions and use of kerosene.[18] Therefore taxation of kerosene, air tickets and the utilisation of air traffic corridors is on the cards.[19] The European Union is especially keen to impose such taxes with France taking the initiative by implementing air traffic taxes in 2006 itself.[20] Joining the aforementioned are Brazil and Chile, the rationale behind taxing airlines being that the sector pays low tax rates and airline passengers are not amongst the world’s poor citizens.[21] The idea of an air traffic tax was first thrashed out at The Brasilia Conference on Innovative Financing Mechanisms held in Brasilia from July 6-7 where the International Drug Purchasing Facility[22] would benefit directly from such a tax to combat diseases such as HIV, malaria and tuberculosis. Countries like Japan and Netherlands are already taxing aviation fuel[23], keeping in mind the Landau Commission Report which said that environmental damage resulting from air transportation amounts to 32 billion Euros a year. Countries sometimes enter into bilateral agreements themselves, thereby negating the possibility of imposing a tax on jet fuel, and therefore ensuring that the VAT paid on air tickets is less than that paid on rail or road tickets.[24]

III taxation of maritime shipping

Maritime trade has emerged as one of the chief beneficiaries of the process of globalisation.[25] However like aviation it does not come under the purview of the Kyoto Protocol and despite the non existence of any international norms, this sector is yet to be taxed.[26] The Landau Report classifies the pollution caused by shipping to be of two kinds, the first, the emission of greenhouse gases which ultimately morph into acid rain and oil spills. The latter, being the second kind of pollutant is confined only to the shipping sector and needless to say has many a time caused irreparable damage to the marine environment. In order to mitigate the effect of the same, taxes may be levied on various parameters like the toxicity of the cargo and the skill of the crew on board the vessel, and public opinion can be used to legitimise such a tax. The same taxes can be deposited in the International Oil Pollution Compensation Fund or the IOPC, which seeks to indemnify oil spill victims, since individual polluter liability can sometimes be exorbitant.[27]

Iv conclusion

The essential problem of a global tax, is that of voluntary involvement. Countries of the world cannot be compelled to be part of the greater movement as expecting them to forsake vested national interests would be ridiculous. A clear illustration would be oil companies refusing to see eye to eye with the imposition of a carbon tax, the US, the world superpower currently rejects any form of global governance and multilateralism[28]. Such a tax would be subject to obstacles from the powerful financial cliques whose monopoly would be under threat because of the same, the notion would also be subject to constant scrutiny by academics, media persons and politicians, but it is important to remember that public opinion is ever changing, the awareness of the citizens of the world about the environment, the growing need to protect and sustain it is slowly making its way to the ranks of the priorities of the world forum. In such a scenario it would be appropriate to quote the conclusion of the Landau Report which says

“…there is a need to forge a civil and political momentum, aimed at building enduring coalitions. It is worth noting in this respect, that successful campaigns to mobilize public opinion often depend on the breadth and innovative character of the visions they project. This should serve as a reminder not to jettison major taxation ambitions in the name of short-term political realism. The best strategy is not to eschew grand visions, but rather to move toward them step by step.” [29]

[1]Nasci Tolga Saruc, Application of Global Environmental Tax and Currency Transaction Tax for Development: Can we be optimistic ?at www.unwe.acad.bg/.../016Saruc_GlobalEnvironmentalTaxes.doc

[2] See http://www.un.org/millenniumgoals/

[3]See http://www.oecdobserver.org/news/fullstory.php/aid/1387/Funding_the_fight_against_global_poverty.html

[4]Katarina Wahlberg, Progress on Global Taxes?, World Policy Forum December 2005 at http://www.globalpolicy.org/social-and-economic-policy/global-taxes-1-79/general-analysis-on-global-taxes/46020.html

[5] Chamber of Representatives of Belgium(July 15^th 2003)

[6] Johnathon Rickman, U.N. Struggles to find Voice on Global Taxation, Tax Notes International, August 21 2006

[7] Thalif Deen, Fraction of Oil Profits sought for Poorest Nations, Inter Press Service, August 24, 2006; See also Anuradha Mittal, The Mirage of Development Through Trade, Inter Press Service, January 2005

[8] Peter Wahl, International Taxation Regulating Globalisation – Financing Development, available at http://www.globalpolicy.org/images/pdfs/05weed.pdf (last visited 23-09-09)

[9] Ibid.

[10] A tax imposed to bring negative externalities into the price system.

[11] Hereinafter referred to as Kyoto Protocol.

[12] Joseph Stiglitz, Carbon-Taxing the Rich, Guardian, December 7, 2007

[13] Nadine Gouzée and Stephane Wilems, A CARBON/ENERGY TAX FOR SUSTAINABLE DEVELOPMENT, in ENVIRONMENTAL POLICY AND SOCIETAL AIMS 44, 45 (Denis Requier-Desjardins et al. eds. 1999)

[14] Bernard P. Herber and Jose T. Raga, An International Tax To Combat Global Warming: An Economic and Political Analysis of the European Union Proposal, 54 Amer. J. Econ. Sociology 258 (1995)

[15] Emilio Padilla and Jordi Roca, The Proposals for a European Tax on CO₂and Their Implications for Intercountry Distribution,27Environmental and Resource Economics 275 (2004)

[16] Don Fullerton and Gilbert E. Metcalf, Environmental Taxes and the Double-Dividend Hypothesis: Did You Really Expect Something for Nothing? (September 1997). NBER Working Paper No. W6199. available at SSRN: http://ssrn.com/abstract=225957 (last visited 23-09-09)

[17] Supra n. 13, p. 45

[18] Peter Wahl, International Taxation Regulating Globalisation – Financing Development, World Economy, Ecology and Development e.V. (WEED), available at http://www.globalpolicy.org/images/pdfs/05weed.pdf

[19] Ibid.

[20] Frank Schroeder, Innovative Sources of Finance after the Paris Conference-The concept is gaining currency but major obstacles remain, 3 (Friedrich Ebert Siftung New York, Briefing Paper April 2006)

[21] Edith M. Lederer, Nations Call for Tax to Help Fight Poverty, Associated Press, June 28, 2005

[22] Hereinafter referred to as IDPF.

[23] Commission Staff Working Paper on New Sources of Finance for Development: A Review of Options (April 2005), available at http://www.globalpolicy.org/images/pdfs/0504euro.pdf (last visited 06-10-09)

[24] The Landau Commission Report on Innovative Development Funding (2004), English translation

[25] Supra n.18, p. 33

[26] Supra n. 24, p. 65

[27] Supra n. 18, p. 33

[28] Supra n. 18, p. 49

[29] Landau (2004), cited from English translation p. 82