Green Taxes: Employment and Trade in the EU

Yesterday’s BNA Daily Tax Report included a story on the new EU “Green Paper”, which was issued on March 28. The text of the paper can be found here:

http://ec.europa.eu/taxation_customs/resources/documents/common/whats_new/COM(2007)140_en.pdf

The Green Paper is a policy discussion on the matter of taxing energy, landfills, water, and packaging materials in order to effectuate environmental policies. Of course, “climate change” is weighing heavily on these policies. The paper pitches these taxes as being designed to require actors to internalize the full costs of their activities. But whether costs are truly incurred is a significant issue. To the extent that CO2 output is really not that significant a factor in climate change, the users of fossil fuels are overtaxed. Even more importantly, to the extent that others in the global marketplace do not impose similar taxes, the results for the economy can be significant and negative.

The particular nature of these taxes is not laid out in detail. However, some basic concerns are evident. First, to the extent domestic businesses in the EU face these costs, and their foreign competitors do not, there will be trade disadvantages for the EU establishments. The Green Paper notes that some adjustment in border taxes may be required. (p. 9). In other words, if trading partners do not play along, tariffs are effectively imposed in order to make outside goods more expensive. Thus, there are clearly trade implications here.

Without tariff adjustments, the problem would clearly be reflected in job losses as manufacturing and other energy-using activities move elsewhere. The same may be true of other industries affected by the need for water or landfill uses. In some cases, one may conclude that the country is better off if that usage is shifted elsewhere, where costs can be borne by those who do not value the environment in the same way. However, there are always tradeoffs involved. You can have a pure environment, but no money to spend. That is not so popular.

Global trade and employment considerations are definitely at play where environmental regulations are being considered. Problems of competitive disadvantages will not easily be avoided, especially where developed and developing countries have significant value differences to consider when it comes to environmental protection.

Happy Friday.

EAM