Global implications of a European environmental tax reform

Giljum, S., Lutz, C. & Polzin, C. (2010)

European production and consumption activities are increasingly dependent on material and energy resources from abroad and imply significant economic and environmental consequences in other regions around the world. While the overall level of resource use in Europe has stabilised over the past 20 years, the source of these resources has shifted abroad. Altogether, around one third of material and energy resources used by Europe are imported. This substitution of domestic material extraction through international trade of physical imports has also shifted part of Europe’s environmental burden abroad and extends the responsibility for environmental as well as social impacts from the local to the global level. The reserves of the most important resources, especially fossil fuels and metal ores, are located outside of Europe, causing a critical dependence of Europe on other countries and regions. For example, the EU-27 countries only possess 3% of global iron ore reserves, 1% of global oil reserves, and 1% of global uranium reserves. Consequently, for many rare metal ores a very high dependency on imports can be observed. For platinum and tantalum the import rate is 100%, for iron ores 83%, and for bauxite 74%.

In light of Europe’s high and growing dependence on resource imports, the European Union has taken a number of policy measures to address resource security and productivity as well as related environmental concerns. They all highlight access to resources and resource security as key issues for the future success of the European economy. Recognising the impacts that the production and consumption activities within the EU have on other world regions, the European Commission has called for a more sustainable management of natural resources along with a de-coupling of resource consumption and related negative environmental impacts from economic growth in Europe. This strategy should diminish the environmental impact the Union has on the rest of the world and thus contribute to global sustainable development.

With resource security, efficiency and related environmental concerns high on the EU’s agenda, environmental tax reform (ETR) and other market-based instruments to stimulate sustainable and responsible production and consumption have gained widespread interest because they can help address social (mainly employment) and environmental goals.

This paper builds on the results of the project “Resource Productivity, Environmental Tax Reform and Sustainable Growth in Europe” (PETRE), funded by the Anglo-German Foundation. The project aimed at investigating the major economic and environmental implications of improved resource productivity and environmental tax reform (ETR) at different levels, both within the EU and in the global economy. The paper discusses some of the main results of the investigation on the global dimensions of sustainable growth in Europe. The main research questions which guided this analysis included:

  • What are the global consequences of the implementation of an ETR (and thus resource productivity increases) in Europe in terms of world-wide patterns of natural resource extraction, production, trade and consumption?
  • What are the differences between a business-as-usual scenario, a unilateral EU ETR scenario, and a European ETR in combination with wider commitments to emission reductions in other developed countries and economically more advanced developing countries?
  • Which European industries would be most negatively affected in their international competitiveness by the implementation of an ETR in Europe?
  • What are the policy implications of the global effects of an ETR?

The relevance of these questions is underlined by the current discussions at international climate conferences about the impacts of unilateral vs. multilateral policy strategies and on the precise interpretation of ‘common but differentiated responsibilities’, a principle agreed to in the Kyoto Protocol. This paper contributes to the discussion on the roles of the industrialised, emerging and developing countries in dealing with climate change and, more precisely, on the policy impacts of EU vs. international environmental tax reforms.

The main policy conclusion from this paper is that strong concerted action from the EU and emerging countries is needed in order to slow the current growth rate of global CO2 emissions and resource use in order to achieve more environmentally sustainable economic growth.

The paper is structured as follows: Section 2 provides a description of the Global Inter-industry Forecasting System (GINFORS), the integrated simulation model which was used to simulate the scenarios and analyse current and future economic and environmental indicators. Section 3 describes the scenarios. Detailed results are presented and discussed in Section 4. Policy conclusions are derived in Section 5. Section 6 concludes.

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