Ort, Datum Autor Tax Relief for energy-intensive business in the framework of the ecological tax...
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Transcript of Ort, Datum Autor Tax Relief for energy-intensive business in the framework of the ecological tax...
Ort, DatumAutor
Tax Relief for energy-intensive business in the framework of the
ecological tax reform and the climate change levy
Michael Kohlhaas
Presented at
ECOTAXES IN GERMANY AND THE UNITED KINGDOM - A BUSINESS VIEW
Berlin, 25 June 2004
M. Kohlhaas18.04.23
Outline
• Ecological Tax Reform in Germany• What are special provisions / tax concessions?• Motives for tax concessions• Criteria and constraints for special provisions• Design of special provisions• Tax concessions in Germany and the UK • Perspectives for Germany
M. Kohlhaas18.04.23
Ecological tax reform in Germany– Revenue-neutral tax reform – 5 steps between 1999 and 2003– Energy taxation
• Increase of taxes on petroleum products
• New tax on electricity
• Special provisions for energy-intensive production
• Additional revenue about € 18.6 milliard (billion)
– Revenue recycling• Reduction of social security contributions
M. Kohlhaas18.04.23
What are special provisions?
– Economic theory: uniform taxes induce efficient reduction of energy use or emissions
– Special provisions: deviations from a uniform taxation
– Tax differentiation between • energy carriers• users and • usage
M. Kohlhaas18.04.23
Motives for special provisions
Fear of adverse effects of taxes
– Economic Effects• International competitiveness • Premature retirement of capital (physical, human)• Distributive effects• Principle of “protection of confidence”
– Environmental Effects• Carbon leakage: reduction of emissions in one country may be (partially or
(over-)compensated by increase of emissions in other countries
Political acceptance
M. Kohlhaas18.04.23
Criteria and constraints for special provisions
– Avoid negative economic effects– Avoid carbon leakage– Preserve incentive effect of eco-tax– Legal constraints (national, European, international)– Administrative constraints– Market-based instrument, not discretionary– Conflicting objectives: weighting necessary
M. Kohlhaas18.04.23
Demarcation of beneficiaries
– The more precise the demarcation of the beneficiaries, the smaller will be the loss of incentive to reduce emissions and the loss of tax revenue.
– However, the necessary administrative procedures would be very complicated, be subject to substantial uncertainties and require ample scope of discretion.
Discretionary special provisions should be kept to a minimum if the idea of environmental taxes as a market-oriented instrument is taken seriously.
M. Kohlhaas18.04.23
Special provisions in Germany
– Do not apply to road fuels
– Broad and rules-based system:• Tax rates differentiated by energy carriers
• Reduced rates for broad-based categories
• Firm-specific tax rebates
M. Kohlhaas18.04.23
Tax rates (Euro per ton CO2)
0 50 100 150 200 250 300
Gasoline, unleaded
Diesel fuel
Electricity 1)
Natural gas
Heating oil
Heavy fuel oil
Coal
Euro per ton CO2
tax rate before April '99
Tax increase 1999 to 2003
1) Average CO2 emissions (0.56 kg per kWh)
M. Kohlhaas18.04.23
Germany 1 (draft law - not implemented)
– Reduced tax rates of 25% for all producers of the goods and materials sectors
– Tax exemption for producers which belong to an “energy-intensive” sector (energy-intensity > 2%
– Criticism:• energy intensity inappropriate indicator• statistical categories imply unequal treatment• reduction of net tax burden for energy-intensive activities
(perverse incentive effect)
M. Kohlhaas18.04.23
Germany 2 (1999 - 2002)
– Reduced tax rates of 20% (of the regular rates) for all producers of the goods and materials sectors
– Individual compensation for all tax payments exceeding reduction of pension contributions by more than 20% (tax cap)
M. Kohlhaas18.04.23
Germany 2: Criticism
– No perverse incentive effect – Individual firm data and not statistical
categories important for tax rebates– Restriction to goods and materials sectors
may imply unequal treatment – No incentive to improve energy efficiency
for energy-intensive enterprises
M. Kohlhaas18.04.23
Germany 3
– Reduced tax rates of 60% for all producers of the goods and materials sectors
– Tax rebates of all 95% of tax payments exceeding the reduction of pension contributions (effective marginal tax rate: 3% of regular rate)
M. Kohlhaas18.04.23
Germany 2 and 3: Comparison
– Incentive effect is higher for some enterprises, but lower for others: net effect ambiguous
– Average tax burden is higher for most enterprises: positive revenue effect
– Danger: revenue raising may dominate environmental objectives
M. Kohlhaas18.04.23
Climate Change Levy
– Non-domestic users only– Taxable commodities
• Electricity• Natural gas• Coal and lignite• Coke, semi-coke and petroleum coke• LPG
– Not taxable commodities• Oil, gas oil, kerosene (subject to excise duties) • Road fuel gas (subject to fuel price escalator)• Heat• Steam
M. Kohlhaas18.04.23
Special provisions in UK
– Tax exemptions• Energy supplied in small quantities• Electricity used in electrolysis processes
- primary aluminum smelting- chlor-alkali processes
• Others:- Electricity from “new” renewables - good quality CHP
– Tax reductions: -80%• Energy-intensive sectors (as defined in PPC Regulations)• that are covered by Climate Change Agreements
M. Kohlhaas18.04.23
Some stylised differences
Germany– Broad rules-based system with little scope
and need for discretionary decisions– Weak incentive effect in industry
UK– CCL integrated with CCA and ET from the
beginning