Environmental taxes

From Statistics Explained

Data from April 2013. Most recent data: Further Eurostat information, Main tables and Database.

This article provides an overview of environmental taxes in the European Union (EU). An environmental tax is one whose tax base is a physical unit (or a proxy of it) of something that has a proven, specific negative impact on the environment. European statistics distinguish four different types of environmental taxes relating to: energy, transport, pollution and resources; note that value added tax (VAT) is excluded from the definitions employed in this article.

Table 1: Total environmental tax revenue by type of tax, EU-27, 2011 - Source: Eurostat (env_ac_tax)

Figure 1: Total environmental tax revenue by type of tax, EU-27, 2000-2011 (EUR 1 000 million) - Source: Eurostat (env_ac_tax)

Figure 2: Total environmental tax revenue, EU-27, 2000-2011 (%) - Source: Eurostat (env_ac_tax)

Figure 3: Environmental taxes as % of GDP and as % of total taxes and social contributions, 2011 - Source: Eurostat (env_ac_tax)

Figure 4: Environmental taxes by tax category, 2011 (% of total environmental taxes) - Source: Eurostat (env_ac_tax)

Figure 5: Energy taxes by economic activity, 2010 (1) (% of energy tax revenue) - Source: Eurostat (env_ac_taxind) and (env_ac_taxind2)

Figure 6: Transport taxes by economic activity, 2010 (1) (% of transport tax revenue) - Source: Eurostat (env_ac_taxind) and (env_ac_taxind2)

Figure 7: Implicit tax rate on energy (deflated), EU-27 - Source: Eurostat (tsdcc360)

Environmental taxes have been increasingly used to influence the behaviour of economic operators, whether producers or consumers, since these taxes generate revenue that can potentially be used to promote further environmental protection.

Main statistical findings

Environmental taxes in the EU

Table 1 shows that the total revenue from environmental taxes in the EU-27 in 2011 was about EUR 302 900 million; this figure equates to 2.4 % of gross domestic product (GDP) and to 6.2 % of the total revenues derived from all taxes and social contributions.

As can be seen in Figure 1, environmental tax revenue in the EU-27 increased during the period between 2000 and 2007 before the effects of the financial and economic crisis caused a reduction in economic activity, leading to falling tax revenues in 2008 and 2009. The decrease in revenues during the crisis only offset to some degree the general development of rising environmental tax revenues and in 2010 environmental tax revenues returned to an upward path. \by 2011, the level of environmental tax revenues was some EUR 5 000 million higher than their peak in 2007.

While EU-27 environmental tax revenues increased in value terms between 2000 and 2007 as well as in 2010 and 2011, the size of these taxes relative to GDP and relative to the total revenue from all taxes and social contributions did not follow the same pattern (see Figure 2). Environmental tax revenues relative to GDP stayed almost constant between 2000 and 2003, decreased from 2003 to 2008 (as environmental tax revenues rose at a slower pace than overall economic growth), before increasing marginally in 2009, decreasing slightly in 2010 and reaching again the same level in 2011 as in 2009.

The level and rate of environmental taxation varies across European countries. Comparisons should be made with caution: for instance, low revenues from environmental taxes could signal relatively low environmental tax rates, or could result from higher tax rates that have had the effect of changing behavioural patterns among producers and consumers. Higher levels of environmental tax revenue could be linked to individuals or businesses purchasing taxed products outside of their country of residence if the tax rates abroad are lower than in their domestic market (for example, crossing a border to purchase petrol or diesel).

Figure 2 shows tax revenues both in relation to GDP and in relation to total revenues from all taxes and social contributions (TSC). The general trend for tax revenues in relation to GDP is decreasing reaching a minimum of 2.39 in 2011 and in 2009. From 2003 up to 2008 and then again in 2010 and 2011 the tax revenues decreased as % of TSC.

For both of these ratios, the importance of environmental taxes was high in the Netherlands, Slovenia and Malta (Figure 3). In 2011, as well as in 2010, Bulgaria had the biggest share as % of total taxes and social contributions. Although Being on the fifth place in the top 5 ranking, Latvia also has a relatively big share as % of TSC. Denmark headed the top 5 ranking in environmental taxes as % of GDP. Estonia Finland stayed on the fifth place in tax revenues in relation to GDP. At the other end of the scale, France, Spain, Belgium and to a lesser extent Belgium France recorded relatively low levels of revenue derived from environmental taxes, as did Iceland.

Environmental taxes by type

Energy taxes (which include taxes on transport fuels) represented, by far, the highest share of overall environmental tax revenue – accounting for 74.7 % of the EU-27 total in 2011 (see Figure 4). These taxes were particularly prominent in Lithuania, Luxembourg, the Czech Republic and Romania, where they accounted for upwards of 90 % of environmental tax revenues. In contrast, energy taxes represented less than 60 % of the revenues from environmental taxes in Denmark, Ireland, and 51 % in Malta and the Netherlands.

Transport taxes made the second most important contribution to total revenues from environmental taxes, some 20.9 % of the EU-27 total in 2011. However, their relative significance was considerably higher in Malta, Denmark and Ireland, accounting for a share between 44.4 % and 35.5 % of all revenues from environmental taxes; the smallest share of transport taxes in total revenues from environmental taxes (less than 3%)were in Lithuania and Estonia.

Pollution and resource taxes represented a relatively small share (4.4 %) of total environmental tax revenues in the EU-27 in 2011. This pattern was repeated across most of the EU Member States, as only the Netherlands and, Estonia reported that in excess of 10% of their total environmental tax revenue was raised from taxes on pollution and resources. Less than 1 % of environmental tax revenues were raised from pollution and resource taxes in Austria, Romania, Luxembourg and Portugal and the Netherlands while Greece and Cyprus did not raise any revenue from this type of tax.

Environmental taxes by economic activity

Across those EU Member States for which data are available in 2010 (see Figure 5), households paid an average of just under half (47.1 %) of all energy taxes that were collected by governments, while 46.4 % of the total was paid by businesses (in agriculture, fishing, mining, manufacturing, electricity supply, construction and services) and some 3.3 % by non-residents. Luxembourg stood out, insofar as 37.5 % of its energy tax revenues were paid by non-residents (largely due to non-residents purchasing petrol and diesel).

The contribution of agriculture, forestry and fishing to total energy taxes by paying activities was lower than 3 % in all of the EU Member States (and Norway), aside from Lithuania (2009), Hungary and Austria. For most European countries mining, manufacturing, electricity supply, construction and services (excluding transportation activities) contributed between 25 % and 45 % of total energy taxes by economic activities, with only Luxembourg and Spain below 25 %, Malta (2008) above 40 % and Greece, the Czech Republic and Bulgaria above 50 %.

Generally the highest share of energy tax revenues from businesses came from the largest activity grouping shown in Figure 5 – namely, that covering mining, manufacturing, electricity supply, construction and services other than those related to transportation and storage. This was particularly true in Greece, Bulgaria, Denmark (2008), Germany (2007), Italy, the Czech Republic, Netherlands and the United Kingdom where these activities accounted for upwards of 50 % of all energy tax revenues from businesses.

In nine out of the 20 Member States for which data are available in 2010, in excess of 30 % of energy tax revenues from enterprises came from transportation and storage activities; this was also the case in Norway. This activity’s share was particularly high in Spain, Luxembourg and Belgium (2007), where more than half of all energy tax revenues from businesses came from the transportation and storage sector.

On average, 66 % of the transport tax revenues collected by governments in those EU Member States for which data are available (see Figure 6) were paid by households, 18.2 % by businesses (agriculture, fishing, industry, construction and services other than those related to transportation and storage), 11.6 % were non-allocated; the share paid by transport and storage businesses was 3.4 %, while that paid by non-residents was negligible (0.1%). The relative importance of households as contributors to transport tax revenues fell to below one fifth of the total in Bulgaria and the Czech Republic.

Implicit tax rate on energy

The implicit tax rate (ITR) on energy is defined as the ratio between energy tax revenues and final energy consumption calculated for a calendar year. Energy tax revenues are measured in EUR (deflated with the final demand deflator) and the final energy consumption as TOE (tonne of oil equivalent) therefore ITR on energy is measured in EUR per TOE. The ITR on energy is not influenced by the size of the tax base and provides a measure of the effective level of energy taxation. Data show that in real terms taxation on energy had a downward trend in the 2002-2008 period and that the fall has been sharpest towards the end of that period (see Figure 7). During the crisis, the indicator shows considerable variation. After a sharp increase in 2009, the real ITR on energy for EU-27 (GDP weighted) decreased sharply in 2010 reaching its 2005-2007 levels but bounced back in 2011 to its 2003-2004 levels.

Data sources and availability

The European Commission’s Directorate-General for Taxation and Customs Union, using Table 9 from the ESA 95 transmission programme, gathers data on environmental taxes for four categories of environmental taxes (energy, transport, pollution and resources); Eurostat validates and publishes these data.

Eurostat collects data on environmental taxes at a more detailed level, by economic activity; this data is also published. A Eurostat publication titled, ‘Environmental taxes - a statistical guide’ constitutes the methodological basis for completing a questionnaire on environmental taxes; this annual collection of data is currently based on a gentlemen’s agreement.

Among the four main categories of environmental taxes, energy taxes include taxes on energy products used for both transport (for example, petrol and diesel) and stationary purposes (for example, fuel oil, natural gas, coal and electricity); in addition, carbon dioxide taxes are included under energy taxes rather than under pollution taxes. Transport taxes include taxes relating to the ownership and use of motor vehicles; these taxes may be one-off purchase taxes (for example, related to the engine size or the emissions of a particular vehicle) or recurrent taxes (such as an annual road tax). Pollution taxes include taxes for: emissions into the air (except for carbon dioxide taxes) and water; the management of waste; and noise. Taxes on resources cover taxes on the extraction of raw materials (with the exception of oil and gas). Pollution and resource taxes are generally quite small and so they are often grouped together for the purpose of analysis.

Data relating to environmental taxes can be used to analyse the revenue stream from such taxes, as well as providing a relative measure of the importance of these taxes through the calculation of ratios relative to GDP or the total revenue from all taxes and social contributions. In the first case, the comparison helps to provide an understanding of the tax burden and identifies those activities which ‘impact’ the environment. In the second case, the comparison helps assess whether or not there is a (potential) shift towards ‘greener’ taxes, in other words, shifting the tax burden from other taxes (for example, on labour income) towards taxes which penalise the most polluting behaviours.

Environmental tax revenue can also be allocated according to the different economic activities paying the tax. Eurostat collects data on environmental taxes using a breakdown by economic activity (using the NACE Rev. 1.1 and NACE Rev. 2 classifications supplemented by information for households, non-residents and a category not allocated).

Increasing revenues from environmental taxes should be interpreted with caution. The increases may be caused by the introduction of new taxes or an increase in tax rates, or alternatively may be linked to an increase in the tax base.

Satellite accounts are a set of accounts that can be used to supplement national accounts; they exist/are in the process of being developed in a range of areas (for example, health accounts, tourism accounts or environmental accounts). An important feature of satellite accounts is that the basic concepts and classifications of the national accounts framework are retained (ESA 95, paragraph 1.20). Regulation (691/2011) on European environmental economic accounts was adopted on 6 July 2011; this will make the collection and delivery of data obligatory from 2013 onwards. This Regulation provides a framework for the development of various types of environmental accounts (also referred to as modules). Environmental taxes by economic activity are one of the three modules included in the Regulation (Annex II). As such, statistics on environmental taxes by economic activity, as stipulated in the Regulation, will, in the future, record and present data in a way that is fully compatible with the data reported under ESA 95.

Context

Economic instruments for pollution control and natural resource management are an increasingly important part of environmental policy in the EU Member States. The range of instruments that are available includes, among others, environmental taxes, fees and charges, tradable permits, deposit-refund systems and subsidies.

Environmental taxes have been increasingly used to influence the behaviour of economic operators, whether producers or consumers. The EU has increasingly favoured these instruments because they provide a flexible and cost-effective means for reinforcing the polluter-pays principle and for reaching environmental policy objectives. The use of economic tools for the benefit of the environment is promoted in the 6th environment action programme (EAP), the renewed EU sustainable development strategy and the Europe 2020 strategy.