See also Book II of the Waves of the Future Series
8. Structural Change
The Current Incentive Structure
circumstances, you would expect governments, and certainly more so
an economic system, to reward good behaviors and deter bad ones.
Not doing so would lead to a very dysfunctional society and
have harmful consequences. This is exactly what is happening with
The way the current
economic system is set up makes it more profitable to consume
carbon-intensive fossil fuels than renewable energy, to use cheaper
toxic compounds in manufacturing processes, and to mine greater
quantities of metals as it creates jobs and increases profits. In
other words, current economics actually rewards the production of
greenhouse gases and the wanton destruction of resources and the
environment. Why is it so surprising that the planet is in a
total mess? It is just the direct result of the current incentive
structure of the economy.
The market system on
which the entire world economy currently depends is configured into
a destructive mode. It is setup to do exactly what it is doing now!
The Green Economic Environment (GEE)
The only approach
capable of bringing change on the scale that is needed to turn
things around for the environment would have to involve the economic
system. One way to do this is to change the incentive structure
that drives it, and the easiest and most obvious means to make that
happen is to modify taxation to create a green economic
environment in which non-polluting and conservational behaviors
would be rewarded and their opposites, deterred.
This could easily be
achieved by shifting the income and retail taxes that governments
collect to environmental levies on non-renewable resources,
pollutants, and fossil fuels. The changes would be done in such a
way as to not increase overall taxation, hence, be revenue neutral.
This strategy will be referred to as the Green Economic Environment
(GEE). For the sake of clarity, the acronym “GEE” will apply
specifically to the approach as opposed to a or any
green economic environment.
A Brief Overview of the GEE
Our current taxation
system can be characterized as a politically-driven shotgun approach
to filling the tax coffers. It is dysfunctional economically
and disastrous for the environment. At this point, not much thought
is being given to the fact that taxation is the very incentive
structure that shapes our lives and the economy of our countries.
The lack of emphasis
on the environmental component of taxation leads to behaviors
that make us pollute the planet and deplete and waste non-renewable
resources as if there were no tomorrow. Current environmental
problems are in large part caused by the improper structuring of the
economic system in which we live.
That can be changed
by altering the tax incentive structure of economies to reward
environmental and conservational behaviors and punish their
opposites. Under such a system, a significant part of government
revenues would come from taxes on non-renewable resources,
contaminants, and fossil fuels.
The GEE strategy
proposed in this book would be revenue neutral. As such, a
government would collect the same total amount of taxes after its
implementation, but it would come from different sources. For
example, if 60% of taxes came from income, 38% from retail sales,
and 2% from environmental levies, the implementation of the GEE
could result in a new distribution looking like this: 40%
coming from income, 10% from sales (a total of 48% reduction for the
two), and 50% from the environment (a 48% increase).
The new incentive
structure would create a green economic environment and a new
consumer landscape in which the price of non-renewable resources,
pollutants, and all the products made with them would increase. The
goods made with renewable and non-toxic materials would become
cheaper and gain a competitive advantage.
As a result,
consumption would naturally and effortlessly shift to greener
products and sectors of the economy. Good citizenship would be
rewarded rather than punished as it is now, and the destruction of
the planet would be deterred rather than encouraged as is currently
the case. The GEE would create a greening effect
that would conserve resources, reduce contaminants, and decrease
greenhouse gas emissions.
As a general rule, the
GEE would involve taxing non-renewable resources—such as metals—at
the source to promote conservation and create natural markets for
recyclables. These would replace or make profitable the municipal
recycling programs that are currently funded by taxpayers. Simple
higher input costs would be more easily understood and managed by
businesses compared to a haphazard collection of regulations.
Substances that are
damaging to the environment (toxic compounds, carcinogens, etc.)
would be taxed, whether they are inputs in manufacturing processes
or consumer goods.
Oil and other fossil
fuels would have levies assessed not only to decrease usage and
greenhouse gases but also to create a stable and profitable
renewable energy sector. This would be the simple mechanism by
which countries would reduce their carbon emissions and reach
their Kyoto targets. It could entirely replace the more complex and
costly cap-and-trade system although both strategies could work
Regulations would be
used in the packaging industry. In conjunction with GEE taxes, they
would create natural markets for container reuse. This would serve
to replace most of the existing refundable-deposit systems and
result in efficiencies and a drop in costs for the consumer.
Of course, all of
these new taxes would be compensated for by a drop in existing ones
on income and retail sales since the system is revenue neutral.
The shift to a green
economic environment would be fully scalable. That is, the GEE
could be implemented as fast or as slowly as people desire. This
would enable countries to make the transition to the new system as
quickly as possible without creating economic havoc or unnecessary
human suffering. Scalability would allow governments to start with
lower taxation levels—giving consumers and the industry time to
adjust—and progressively increase them over time. It would also
make it possible for countries to give different weights to each of
the components of the GEE according to their own goals and political
For companies, the GEE
environment would make it more profitable to preserve resources
than waste them. The opposite would be true for the use of toxic
materials and contaminants in the production process and the
emission of greenhouse gases.
policies are inefficient and expensive to administer. They are
cumbersome to the business sector as they require that staff keep up
to date on compliance and regulations. It is usually much easier
for companies to make decisions based on the price of the resources
needed to manufacture a product (the cost of inputs) than have to
deal with a maze of government rules. It is a language readily
understood and simpler for planning and decision-making. It is
already part of normal business practices and expertise. This
is the language that the GEE also speaks.
taxation would raise the cost of an input in a predictable way.
Businesses would make decisions on that simple parameter. Current
environmental policy is cumbersome to governments because
regulations need to be monitored and enforced, often necessitating
additional costs and bureaucracy.
A second aspect of
efficiency has to do with the total number of tax collection points.
That is, all of the individuals and businesses that governments
collect from. Removing part of the taxes people pay on income would
eliminate the need for many individuals to submit tax returns or, at
least, would make those much simpler. That could mean thousands
fewer or easier filings to be processed.
However, much more
interesting is the effect on retail levies. Many governments
currently collect retail taxes from just about every single business
selling goods or providing services to consumers. This represents
thousands of corporate taxpayers and means a lot of unnecessary
As you go up the
production chain—from primary resource extractors, to input
producers, to manufacturers, to retailers—the number of
individuals from whom governments have to collect taxes grows. For
example, a copper mining company might sell its products to 10 part
makers. Each of these in turn might sell parts to 10 manufacturers.
At this level, 100 businesses would have to be collected from.
Each of them might sell to 10 retailers. Collecting taxes at that
level would then involve 1000 companies. In other words, the higher
up you collect, the more costly it is not only for governments but
also for businesses and the economy as a whole.
The GEE would collect
taxes mostly at primary levels, therefore minimizing the number of
players involved. Furthermore, it would do so only on target items:
non-renewable resources, contaminants, fossil fuels, etc. Green
sectors would generally see taxes disappear from their products.
There are two main
types of planning in the environmental arena, the general (or macro)
and intricate (or micro). Governments are responsible for planning
at the general level. This is where they state what they want and
establish plans of action to achieve certain goals. The difficulty
with many environmental issues is that they are very complex to
manage at the micro level. Problems are often just too intricate in
the day-to-day reality of markets and business operations even for
the best specialists in governments.
It is not really a
matter of failure. For example, even with today's technology, we
still cannot predict the weather with any degree of accuracy for
more than a few days ahead of time. Currently, government
regulations and programs are the main planning mechanisms used
to address environmental issues. They fail to do the job.
Furthermore, when they do not work, the taxpayer ends up footing the
bill. A successful green strategy would need to have appropriate
expertise at the micro level while retaining the ability to operate
within general government guidelines.
The market has a
multitude of agents—business people—each an expert in a given
field. Nobody else can better estimate the effect of higher input
costs on the final price of a product or the bottom line. All
planning on their part is based on familiar market decisions and
comes free of charge to the taxpayer. The private sector represents
a massive wealth of expertise at the micro level. If unqualified
for planning at the general level, the business community possesses
the detailed knowledge necessary to make the best economic decisions
in regard to their own markets. Governments cannot hope to
emulate or even approach that kind of expertise.
The GEE would rely on
governments for general directions and on the market for decisions
at the micro level. Setting tax levels would enable countries to
guide the economy where they want it to go and allow market
expertise to make things happen in the most cost-effective way
possible. This would provide perhaps the best combination of
planning and a much more powerful and effective strategy for the
Business-Friendly Green Policy
The GEE would reduce
the regulation and tax collection burden on industry. It would also
provide for much simpler decision-making for businesses. The fact
that the system would be highly flexible, fully scalable, and
comprised of several components that could be implemented
independently would allow for a smoother implementation for
New Approaches to World Development
implementation of the GEE would give rise to several new mechanisms
for world development. Since the 1970s, the developing world has
been hit by several oil crises, preventing many countries from
gaining significant ground on poverty. As renewable energies are
diversified and can be produced nationally, developing countries
would benefit from the GEE in terms of balance sheet and job
conservation would increase the international price of most metals.
Developing countries would get better prices for their commodities
and could be allowed to have lower GEE tax levels to increase their
international competitiveness and gain market shares, boosting their
own economy and promoting their industrial development.
regulations have always been an issue of contention in international
markets. The developing world has historically been perceived as
having an unfair competitive advantage over developed countries
because of lower environmental standards. The world cannot afford a
race to the bottom.
GEE-based international agreements could raise standards across the
board to benefit the entire world community while not affecting
competitiveness. Conversely, a unilateral increase of environmental
standards in the developed world could be used as a means to
increase the competitive advantage of developing countries.
The former would benefit from a cleaner environment while the
latter would get an economic boost from a greater share of markets.
In more ways than one,
the GEE would provide a simple and effective framework for
To some extent, most
social and economic systems are prone to fraud. The fact that the
GEE would be levied at the manufacturer level would significantly
decrease the number of collection points. As such, the system would
be not only more efficient but also less prone to fraud than current
widespread retail taxes.
Black market or
undeclared work is a problem around the world. The bill for the
underground economy can add up to hundreds of millions of
dollars every year in a medium-size country. In Canada, for
example, people do not pay income tax on their first $10,000 of
income (the basic deduction). As such, black-market fraud up to
that amount is mostly meaningless; no one pays income tax on it
anyway. The GEE could shift up to the first tier of income tax
($30,000 in Canada) over to the environment. This would mean that
$40,000 dollars of a person's income would no longer be taxable and
subject to fraud. This could have a significant impact on
government revenue and result in lower overall taxes.
A New Future
The GEE is a strategy
that could bring about the large-scale change that is needed for the
environment. The new incentive structure would create an economic
environment that would turn a highly destructive market system into
a powerful force for positive change.
The strategy would
take advantage of the dual effect of levies—one that is wasted by
income and indiscriminate retail sales taxes. With no overall
increase in taxation, it would transform the economic system in
which we live into a mean green machine and make environmental
change possible to occur at a speed so far unanticipated and not
even dreamed of.
The implementation of
the GEE would change the incentive structure of capitalism from a
system that essentially destroys the planet and punishes people for
working (income tax) and consuming (sales taxes) to one that
rewards them for doing the right thing and promotes resource
conservation and environmental responsibility. The new
incentive structure would foster this in both the industry and
The GEE would also be
highly efficient. Its administration would be much less costly than
our current patchwork of regulations as it would make use of
simple and well-understood systems. It would speak a universal
language, one understood by workers, business people, consumers, and
voters: money. Once the new rules are set, societies would
progressively refashion themselves around green economics and
The scalability of
the GEE would allow for choice in speed of implementation and help
soften its impact on specific economic sectors. Its various
components could be implemented together or independently as
approach to environmental issues would not be anti-business or
anti-economic. It would work in concert with the main components of
the current market system. Overall, companies would not be
stuck with the costs of this green transformation anymore than
taxpayers. On the contrary, the GEE would make it profitable for
companies to invest in green practices and environmental
research and development (ER&D).
opportunities would arise following the implementation of this
new tax structure. The current catering to green market niches
would become a stampede for opportunities in an exploding new
economic frontier. Countries and corporations at the forefront of
ER&D would find themselves in a race to capture the new 21st
century world markets. Wasters, polluters, and those who do not
care for the environment or are unable to adapt would only fall
behind and see the fate of the dinosaurs.
The GEE would give
rise to a new overall mechanism for world development.
General Issues Relating to the GEE
taxes from a number of sources, for example, income, retail sales,
the environment (levies), and profits. In addition, specific
products such as cigarettes and alcohol are often taxed for
For the sake of
simplicity, the following discussion will concern mainly the first
three types. Of those, income is probably the main source of
revenue for most governments, with sales coming in second and
environmental taxation being minimal. The GEE would progressively
shift the tax burden from income and sales to the environment.
Keeping Taxation Progressive
Most Western countries
have a progressive taxation system. That is, people contribute
according to their ability to pay. For example, in Canada the tax
rate on the first $30,000 of net income is about 30%. It is the
first bracket. If that were the only one, we would have a flat tax
system. That is, everybody would pay the same rate, no matter the
income level. This first bracket is actually a flat component in a
progressive tax system.
As one's net income
rises above that, a higher rate is paid. For example, Canadians are
taxed at 45% in the second $30,000 bracket. For the next two tiers
above that, they pay respectively 55% and 60%. In order to keep
taxation progressive under a
GEE system, only the flat portion of
income tax would be suitable for a shift to the environment. In
Canada, that would be the first bracket, or the tax on the first
$30,000 of net income after the basic deduction.
In addition, we also
have to be careful with respect to how we go about eliminating that
bracket. Simply increasing the basic deduction (about $10,000
in Canada at the moment) to reduce the total taxable income would be
regressive because it would lower taxable incomes at the top where
people pay the highest tax rate. That would be regressively cutting
If a government chose
to increase the basic personal deduction as a means of implementing
a GEE system, the tax bracket thresholds would need to be
adjusted lower by the same amount to avoid changing the existing
distribution of incomes. Alternatively, a government may simply set
the tax rate in the first bracket to 0%.
The GEE would imply a
large reduction in income tax for everybody. Authorities have
to make sure that it is done in a way that maintains the status quo
with respect to progressiveness.
Most countries have
retail sales taxes. This is what people pay on top of the purchase
price of items bought in stores. This type of sales levy is not
progressive as the same rate is charged equally to everybody. As it
is a flat tax, it would fully qualify for a shift to environmental
taxation. Any state or provincial sales taxes of the kind would be
equally suitable for the shift.
Compensation for Lower Income Earners
The increase in
environmental levies would have to be compensated for in social
support programs as their recipients generally do not pay tax on the
financial assistance they receive and would otherwise see their real
taxation increase. Lower income earners may face a similar problem
because their basic deductions are large compared to their taxable
income. Governments may have to look into making appropriate
adjustments to the system so that their total taxation remains the
same and the shift to the GEE is fair to all.
In the late 1980s,
Canada went through a tax shift. The manufacturers' sales
tax—a levy collected at the manufacturing level—was replaced by
the GST, a retail tax. The federal government then opted to
compensate lower income Canadians by issuing checks on a quarterly
basis to millions of people in the country. It is still writing
these to this day, some 20 years later. This is not exactly the
most efficient way to do things. Adjustments need to be made
directly to social support programs and the taxation system so that
the benefits received and take-home pay compensate directly for the
Revenue Neutrality and Transparency
The transition to a
green economic environment needs to be as voter friendly as
possible. To that purpose, the cornerstone of the GEE is its
revenue neutrality. For every green dollar collected, taxpayers
would see their income or sales taxes reduced by one dollar. On
average, the same total amount of taxes (income, sales, and
environmental) would be paid by taxpayers before and after the
implementation of a GEE system.
Revenue neutrality is
a fundamental aspect of the GEE and is key to its political
viability and implementability. Although voters may be willing to
pay taxes differently, they would not be so easily convinced to give
more. To ensure proper and continued political support, governments
would have to be highly transparent with respect to revenue
neutrality and report on it regularly.
9. Implementation Issues and Scenarios
The next few chapters
will take the GEE from general principles to specifics of
implementation. Concrete examples will be looked at in order to
demonstrate its feasibility and dispel misconceptions. The new
system will be explored from various angles and in real situations
in order to get people used to the idea of being taxed differently
(but not more) and show that a transition to the GEE would be much
easier than it appears.
The Silent Scenario
This scenario will
serve as a benchmark to assess to what extent the GEE would help
achieve our goals for the environment. First, let us silence or
remove the financial aspect from the green debate and see what needs
to happen for the environment. Then, let us assume that we are in a
perfectly planned world and that we have to draw a comprehensive
plan to address environmental issues.
non-renewable resources for future generations, mineral extraction
would have to be reduced. This would mean that the mining industry
would decrease in size. Unfortunately, this is a necessary evil;
resources cannot be conserved if we keep digging them out of the
ground as fast as we currently do.
It would also mean
that we would need to consume less of them. Aluminum soft drink
containers would likely be phased out and replaced by glass. In
many cases, tin cans for food storage would disappear from store
shelves and be substituted for by more environment-friendly
alternatives. Metal components in various products would be
more strategically used and replaced whenever possible.
would see many transformations. The automobile industry would
start building vehicles that are conservational, i.e. that use
non-renewable resources much more sparingly. That would likely be
achieved by replacing metals with substitutes wherever possible and
decreasing car sizes.
have much longer lifespans. The used car industry would thrive as
resale values would be higher and people would buy fewer new
automobiles and get them fixed more extensively as a means to
conserve metals. The production of new vehicles would decrease
slowly in the short term as new generations of conservational,
fuel-efficient, and alternative-energy cars and trucks would be
needed. In the medium and long term, it would progressively grow
smaller in size.
Automobiles and other
vehicles would need to become more fuel efficient as well as switch
to alternative energies. That has already started to happen. As
time goes on, we will consume less gasoline. We will pump less oil
from wells and rely more and more on biofuels and electricity.
New jobs would be
created in green sectors of the economy, including renewable energy,
as the demand for their products would increase. The wood and
renewable resource industries would thrive and need to be properly
managed to prevent their collapse as has already happened in some
One of the main
concerns with respect to economic changes is the uncertainty they
can create. Scholars are still looking for the perfect theoretical
solution to environmental problems, but there can be a huge gap
between theory and practice, especially if the changes involved are
of significant magnitude.
Brand new, maverick
solutions usually face a lot of resistance. Many are never
implemented simply because of the large amount of uncertainty they
involve. This is a significant concern when searching for answers
to environmental problems: the old ways have not worked; the new
ones often present too many unanswered questions.
Although the GEE is
new and sweeping in magnitude—as it needs to be, given the size of
the problems at hand—it relies on an age old system. The strategy
would only involve a shift between different components of
government taxation. Environmental and deterrence levies are
already in place in many countries. Along with income and retail
sales taxes, they are all components of total taxation.
As expressed earlier,
in the late 1980s, Canada had a major shift in taxation. It
eliminated the manufacturers' sales tax and replaced it with one
collected at the retail level. The new levy was about 7% and
applied to most goods and services sold in the country. It was the
first time that the latter were taxed in Canada. The transition
went relatively smoothly despite being met by initial distrust and
opposition. As such, we know that a taxation shift can be done.
GEE strategy would be revenue neutral
and should not change the overall amount of taxation collected in a
country. For this reason, the shift would not put recessionary
pressures on the economy. Consumer spending on goods and
services would remain essentially the same.
For example, people
in a typical country might pay $1 billion more in environmental
taxes under a GEE system, but their income and retail taxes would be
reduced by the same amount. As a result, their purchasing power
would remain the same. In other words, things would generally be
more expensive, but consumers would have more money to spend and
come out even in the end. As long as the consumption level remains
the same—which would be the case under the GEE—the shift should
not result in a net loss of jobs.
environmentalists see consumption itself as the problem.
They are correct to some extent, but there is more than one way to
reduce our environmental impact: we can reduce consumption or make
it greener. Opting for the former would mean a slowdown in economic
growth, and few are ready to support that at the moment. Ideally,
both should be done, but in the short term a greater impact can be
achieved by focusing on the latter as it is much more politically
viable than a reduction in consumption and the unemployment that it
The GEE would
progressively make existing levels of consumption greener and
greener without threatening to send economies into recession. For
that reason, it is currently the best viable option we have. Under
the system, growth would shift to green products. Polluting
industries and the consumption of their goods would progressively
change or have to shrink.
The green sector is
an emerging market in which there is not a huge amount of
competition at the moment. Implementing the GEE in a country would
give it a significant competitive advantage in what will be a strong
growth sector of the future. Export markets are likely to grow and
result in a lot of job creation.
The GEE is essentially
based on established and well-understood economic practices. All
countries around the world have lived with the ins and outs of
taxation for a long time. The strategy is readily implementable and
has a relatively low level of uncertainty, given the magnitude of
the changes that would result from its implementation.
The ups and downs in
the price of oil over the last few decades have given us some
insights on the geopolitical implications the depletion of resources
can have for modern economies. The conditions created by
shrinking supplies increase poverty and the cost of living and can
trigger recessions as well as deadly conflicts.
A global move to
resource conservation could significantly extend reserves and slow
down the depletion process, easing up the pressure for potentially
chaotic events in the future. Mineral resources other than oil have
been less a concern to most countries because their supply has
remained largely uncartelized and unpoliticized. They are also less
massively used compared to energy.
However, metals are
much less replaceable than oil. Alternatives to petroleum do
exist and are actually plentiful. They are just more expensive.
That is not the case for other mineral resources. What will happen
when their supplies begin shrinking like petroleum? They are a
major component of the infrastructure of most countries, and our
lifestyle depends on them.
At the current rate
of depletion, shortages will soon begin to occur, and the economics
of metals could resemble those of oil. Power could shift to
mineral-rich countries just as it did for the Middle East with
respect to energy. Countries that import much of their mineral
resources will see power shift away from them, their wealth quickly
That would likely be
the case for the U.S. The question is, do we want to accelerate
this process with high rates of depletion and precipitate economic
decline and more global crises, or do we want to conserve resources
worldwide and decrease the potential for problems developing as a
result of scarcity?
There are only two
choices available to us. We can do nothing and let the process
occur haphazardly and end up with a repeat of the Middle East power
shift and related human suffering, or we can make it happen within a
global framework that would provide for sanity, prevent
cartelization, and ensure continued supply to all countries.
self-interest of all countries lies in starting the conservation of
resources immediately and in supporting international efforts
in the same direction. Europe and the U.S. will be especially
vulnerable to future crises because their economies and predominant
lifestyles result in the use and waste of a lot of resources and
they have already exhausted much of their own local supplies.
Countries will want
to cut back production and use of metals by a fair amount in the
medium term. Significant changes are needed. The reality of
non-renewable resources is one of impending crises that can be
softened and delayed, perhaps avoided, with the proper global
Rate of Implementation
Two of the issues
regarding the conservation of non-renewable resources are how far
and at what rate we should cut back their extraction. No single
person can determine that. In the long term, we would have to be
looking at extended sustainability levels. In the immediate future,
the answer will likely come as a result of a political and social
process. A couple of considerations will be useful in helping with
the decision process.
The potential job
losses resulting from the implementation of a new tax structure is a
legitimate social issue. Large-scale unemployment is not
expected to result from this as the total level of taxation would
not increase and countries' money supply would not change. Overall,
the same amount of consumption and investment would be around, but
it would shift from one sector to another, for example, from oil to
should therefore remain relatively stable, but work would not
transfer directly from one sector to another. If you lose your job
as an oil worker, you may not get one in the new wind turbine
industry or get in at the same pay rate as you had before. So, just
how fast should we go?
Attrition has been
used in the past as a worker-friendly approach to change and is
usually one of the better alternatives whenever possible. The way
it works is that rather than laying off people, companies do not
hire new employees as older ones retire or quit for one reason or
another. Alternatively, they offer bonuses to workers willing to
take early retirement. These are undeniably the best possible
options when companies can afford them.
system is perfect. When a business closes down, there is no money
for early retirement and everybody gets laid off, old and young.
Even when planned, a closure by attrition or early retirement leaves
How long would it
take to fully implement the GEE if we did it by attrition? New
entrants into the workforce may average about 20 years of age.
Let's assume that most will retire at age 60. That leaves an
average career span of about 40 years. Add another 10 years as a
measure of security. As such, someone starting work today would
technically retire in 50 years.
Consequently, at the
best possible speed, we would need about 50 years to bring down
production amounts of non-renewable resources from 100% (current
levels) to 0% if we were to totally stop the extraction of minerals.
Obviously, that is not what we are trying to do. If we were to
bring them down to 50% of current levels in the medium term, it
would take us about 25 years through attrition.
The above is not to
suggest that we should reach that specific target in that span of
time, but it is a benchmark that can help us see more clearly into
the future and minimize potential socio-economic disruptions from a
GEE implementation. We may choose to go faster for environmental
expediency and especially at the beginning, or more slowly.
Ultimately, the socio-political process will determine the exact
speed of implementation of the GEE.
If half of one
attrition span (25 years) is deemed both a reasonable and
responsible time line to reach medium-term resource conservation
targets, by 2035 we will have cut by 50% our consumption of
non-renewable resources. Another half-span would take us to 25% of
current consumption levels by 2060.
countries will chose for the very long term is uncertain at
this point. What we know for sure is that we should start early.
Our current rate of use is highly harmful to the environment and
severely depletes resources for future generations. The sooner we
start, the better.
Taxation Management Concerns and Solutions
Environmental initiatives can pose a number of problems if not
designed appropriately. Alain Verbeke (Solvay Business School, Free
University Brussels, Belgium) and Chris Coeck (Faculty of Applied
Economics, University Centre of Antwerp, Belgium) expressed concerns
that poorly managed environmental levies may result in a backlash in
the business community, a decrease of their support for
environmental taxation and the general impression that environmental
taxes have become “arbitrary measures to stabilize government
income” (Verbeke and Coeck, 1997, p. 510). In other words,
politicians could abuse the system to raise total taxation.
The GEE is
specifically designed to be revenue neutral. The proposed system is
a shift and not additional taxation. As such, it is meant to not be
used to arbitrarily increase government income. Revenue neutrality
is a large part of its political viability. Open disclosure and a
high level of transparency would be part and parcel of the new
system and would easily prevent abuse.
Concerns have also
been raised that green taxation is often used to fund environmental
programs (for example, taxing contaminants and using the proceeds to
fund water improvement programs) and that the environment would get
disproportionate amounts of funding while other programs would
come up short.
This is not the case
with the Green Economic Environment. All new levies would be
directed to general revenue as is the case with current income and
retail taxes. This would prevent the arbitrary financing of certain
programs over others and ensure that government spending on
social programs and services remains the same. The GEE is not about
increasing funding for the environment at the expense of other
programs. It is about creating a green incentive structure for
raised in literature with respect to taxation is its dynamism.
Verbeke and Coeck (1997) warn that using taxation as a source of
income for governments or as funding for environmental programs
may not yield the intended benefits for a number of reasons. Green
taxation revenues tend to be dynamic and may not provide as stable a
source of government income as desired. Let us look at an example
Suppose that a
government implements a carbon tax that is expected to generate a
billion dollars in revenue annually. The resulting increase in
gasoline prices would generate positive environmental behaviors
as expected—the purchase of more energy-efficient cars, increased
use of public transportation, a switch to alternative energies, etc.
Because this would
result in a decrease in oil consumption, over time the tax would
bring in less than the expected revenue target. Governments would
then have to increase it further to generate the originally desired
one billion dollars. This action would presumably lead to
lower consumption yet. The environmental tax would have to be
raised again. Dynamism could result in a kind of treadmill
effect which would eventually
create a number of problems. Let's address these issues.
The problem that
Verbeke and Coeck describe is a very legitimate concern.
Continuously increasing levels of environmental taxation could
seriously undermine the strategy as well as a country's
international competitiveness. However, the dynamism of
environmental levies is a very good thing in itself. It would spur
us on to continue year after year to improve on resource
conservation and environmental protection. We want the economy to
become more and more environmental over time. Dynamism is actually
the chisel which would make society and the planet greener and
greener year after year. But it needs to be controlled.
The implementation of
the GEE would be progressive. This implies that initial taxation
levels would be lower and need to increase in order to reach
long-term target levels. As such, there would be room for raising
tax rates without creating problems, and dynamism would therefore be
an integral part of the implementation process.
Once desirable levels
of conservation and protection are achieved, or international
competitiveness ceilings have been reached, we can reverse the
process and raise income tax if the government take from
environmental levies falls. Of course, that would have to be done
without increasing total taxation. As such, the dynamic effect of
the GEE is perfectly and easily controllable. We just have to
remain aware that the issue will need to be managed.
Note that under the
current system, government revenue varies from year to year
depending on economic cycles, profits, personal earnings,
unemployment rates, national retail sales, etc. It decreases in
times of recession and increases in periods of growth.
Varying revenue is
not a new issue for governments; gaps in income have historically
been made up by temporarily borrowing money or through budget cuts.
The GEE would only continue that, not change it.
National and International Issues
competitiveness is probably the most difficult issue concerning the
implementation of a green economic environment. Although most
countries could readily initiate and gradually put in place such
a system, few would be able to quickly
proceed with a full-scale implementation because of the effect on
their ability to compete internationally.
The GEE is not unique
in this respect. Minimum wage levels, interest rates, productivity,
social programs, greenhouse gas reduction targets, and a number
of other factors also affect international competitiveness. The GEE
would be just one of a range of variables in that respect.
Any resource tax
would by necessity be collected prior to export and make a country's
goods more expensive and less competitive in foreign markets.
Although exceptions could be made, a rebate on exports would not be
a realistic solution as a resource tax would become diffused in
For example, while a
bar of steel may see a full increase in price from a given levy, a
product with a 30% content of the metal would see only a partial
rise in price. For that reason, it would be far too complex to try
to estimate the percentage of non-renewable resources in every item
to be exported and compensate for the levy with a rebate.
would therefore be limited in their ability to tax resources past a
certain level as it would overly decrease their international
competitiveness. As such, most should be able to carry out the
initial phase of the GEE as it involves lower tax rates, but
trade-bloc or international accords would likely be needed to
support a high level of implementation of the system.
That being said, even
a milder variant of the Green Economic Environment would sill yield
substantial benefits. There are obviously the positive effects
with respect to carbon emissions, contaminants, non-renewable
resources, the green energy sector, etc. However, there are other
advantages to the system as well.
For example, it would
mean that fewer non-renewable resources would be exported to be
wasted overseas, therefore preserved for future generations.
Countries would not want to conserve and tax resources in home
markets but export them cheaply to places where there are no
conservation efforts being made.
As well, the GEE
would affect primary resources more strongly than final goods, as
seen in the bar of steel example above. This would prompt
countries to transform them more extensively into finished products
and develop their local manufacturing industry—which would create
jobs—rather than export them as raw materials.
Keep in mind that
countries could choose to not fully tax the export of raw materials
in order to lower the impact of the GEE on their international
market shares. To soften the effect of resource levies on certain
industries, governments would also have the option of initially
imposing import taxes on big ticket items so as to maintain local
manufacturers' competitive advantage within a country. As more
and more countries get involved in conservation programs, import
taxes could be progressively phased out.
international competitiveness is an issue with greenhouse gases
as well. The establishment of common carbon emission targets
(within groups of countries) in the Kyoto Accord addresses the
problem. The same solution could simply be applied to the GEE.
The Green Economic
Environment strategy could work with already established emission
targets and, as stated earlier, alongside cap-and-trade. It would
simply act as a mechanism (which neither the latter nor Kyoto
provides) to reduce greenhouse gases and enable countries to meet
their carbon reduction commitments.
An emission trading
system is only a flexibility component which allows companies that
exceed the caps agreed under Kyoto to buy credits from businesses
that have done better than their reduction limits. You do the math!
Plus one thousand units minus one thousand units equals zero. As a
whole, no net carbon reduction is achieved by the system.
Incentives and decreases in emissions are the result of the
Kyoto Accord's caps.
When you look at it
closely, most countries do not have a mechanism that would
foster or help the industry and consumers to reduce carbon
emissions. The GEE does provide one. As discussed later on, the
Green Economic Environment could replace both the Kyoto Accord and
cap-and-trade and deliver a simpler, less costly but much more
powerful market-based approach for carbon emission reduction whether
at the local or the international level in the form of a new global
The long-term and most
efficient solution to the problem of competitiveness differentials
is the negotiation of international accords. Under such agreements,
countries would see their taxation levels increase at the same
agreed upon rate just as they do with carbon emission levels under
the Kyoto Accord.
Because of its
scalability, the GEE would be readily implementable on a national
basis in most countries around the world. The first ones to
implement the system would also be the first to shift their
economies towards cutting-edge sectors of the future (metal
substitutes, conservational techniques and designs, alternative
energies, electric and fuel-cell vehicles, etc.) and would therefore
gain a huge competitive advantage in wide-open emerging markets.
agreements would remedy to competitiveness problems between
countries and make it possible to shift into high gear the fight
against global warming and the worldwide conservation of resources
and preservation of the environment.
Burden of Change
all too often the cost of social advancement, the burden of change,
has been borne by those who lose their means of living as a result
of economic events or industrial and social shifts. To a large
extent, this is a choice. If society as a whole benefits from
certain changes, why should a few be responsible for the costs
associated with them? Why should we not compensate them for these?
Clearly, some of the
costs of change cannot be avoided, but we, at least, can mitigate
them. It is not only an issue of social justice; the absence of
compensation is often counter-productive. The higher the
unmitigated costs, the more reluctance to change is created in a
In a constant race
for economic positioning, a nation which resists change loses its
edge and quickly falls behind. Tomorrow's innovative societies are
those which will be best able to quickly adapt to new and changing
environments. Removing blocks to change is becoming an increasingly
important factor in this rapidly evolving world.
particular sectors or for specific people is often a direct cost of
change. Improving the way we deal with this problem would
ensure that certain individuals do not unduly bear the burden for
changes that benefit an entire country. In fact, it is the
responsibility of a fair society to make certain that they do not.
It would also help remove resistance to change, making a country
much more innovative and successful in a competitive world
already have unemployment insurance programs or other types of
support systems along that line. If we are serious about
environmental change—we know that the needs are massive—these
social safety nets have to be given a second look so that they act
more in concert with the changes that need to happen in society and
target more closely the sectors that may be affected by new
Better support would
make the implementation of a green economic environment easier and
benefit countries in the long run.