4

APPLYING green fiscal

reform in key sectors
applying
green fiscal reform
in key sectors

Copyright © UNITAR, United Nations Institute for Training and Research, 2016,
on behalf of PAGE.

This publication may be reproduced in whole or in part and in any form for educational or non-profit
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commercial purpose whatsoever without prior permission in writing from the PAGE Secretariat.

Course authors:
Giuliano Montanari, Maya Valcheva, Amrei Horstbrink (UNITAR); Philip Gass (IISD)

Contributors:
Jason Dion (IISD); Sirini Withana (UN Environment); Sarwat Chowdhury, Massimiliano Riva
(UNDP).

Creative Concept:
Arturo Rago (UNITAR)

Graphic Design:
Pilar Lagos (UNITAR)

Photo credits
Unless stated otherwise, the photos used in the journal are under a Creative Commons license.
TABLE OF CONTENTS
introduction 5

1 the energy sector 6

OVERVIEW 6
OPPORTUNITIES AND CHALLENGES FOR GREENING THE ENERGY SECTOR 6
EXAMPLES OF SECTOR-SPECIFIC INITIATIVES 9

2 The transport sector 14

OVERVIEW 14
OPPORTUNITIES AND CHALLENGES FOR GREENING TRANSPORTATION 15
EXAMPLES OF SECTOR-SPECIFIC INITIATIVES 17

3 waste reduction 22
OVERVIEW 22
OPPORTUNITIES, AND CHALLENGES FOR MANAGING POLLUTION AND WASTE 23
EXAMPLES OF MEASURES RELATED TO SUSTAINABLE CONSUMPTION 25

4 Natural resources 28

OVERVIEW 28
BENEFITS AND CHALLENGES RELATED TO NATURAL RESOURCES 29
EXAMPLES OF NATURAL RESOURCE-RELATED INITIATIVES 30

5 key learning points 34

6 References 36

ABBREVIATIONS 39
4
 5

Introduction
Previous modules looked at some of the For example, fiscal reform in the transport
tools available to policymakers to undertake sector (Lesson 2) can reduce use of
fiscal reform (Module 2), as well as the policy fossil fuel-based road transportation, or
development and implementation process incentivize the purchase of cleaner vehicles.
for effective fiscal reform (Module 3). This Investments in public transportation can
module focusses on applying these lessons promote social inclusion and economic
to specific sectors and providing examples of competitiveness by improving the
fiscal reform implemented around the world. affordability and effectiveness of public
The four thematic areas reviewed in this transport.
Module are energy (and by extension After completing the module, participants
industrial development), transportation, will be able to:
waste reduction, and natural resource • List key economic sectors with
management. These themes have been significant potential benefits from fiscal
selected on the basis of: measures
• The significant potential for advancing • Distinguish specific sectoral challenges
sustainable, economic and social and opportunities
development by greening those sectors. • Indicate sectoral options and tools for
• The diverse array of fiscal measures fiscal intervention
that are suitable for application in these • Provide examples of successful green
thematic areas. fiscal initiatives in the discussed
economic sectors.
 6

the energy sector

Energy transformation is a cornerstone of the green economy transition and
can be supported by fiscal instruments that set a price on greenhouse gas
emissions and/or support renewable energy development.

OVERVIEW
The energy sector poses particular challenges At the same time, expanding access to energy
in the context of a green economy due to its is a central challenge for developing countries.
size and potential transformational effects for The scale of the challenge is massive with
the development of other economic sectors. 1.3 billion people currently lacking access
The global system is highly dependent on to electricity, and 2.6 billion depending on
fossil fuels (accounting for 84% of GHG traditional biomass for cooking (IEA 2013).
emissions in 2009).
The need to reduce GHG emissions and
Electricity and heat production account combat climate change, ensure energy
for roughly 35 percent of global GHG security and access to electricity, as well as
emissions and are driving factors of climate reduce pollution and public-health hazards
change (IPCC 2014). There are numerous make the energy sector a primary target
other environmental and social challenges for green fiscal reform. Section 1.2 covers
associated with fossil fuel-based energy, opportunities and challenges for reforming
including impacts on fresh water resources the sector, while section 1.3 provides concrete
(McDiarmid 2013) and air quality (The examples of applying fiscal policies for
Economist 2013). greening energy use.

OPPORTUNITIES AND CHALLENGES FOR GREENING THE

ENERGY SECTOR
Advancing renewable energy production, and use. Furthermore, estimations show that
distribution and use, as well as improving it is cheaper in the long-run, as it helps avoid
energy efficiency are the two main approaches future costs associated with GHG reduction
to improving sustainability of the energy (IEA 2011).
sector.
An integrated strategy for energy
transformation can provide new sources
Renewable Energy of economic growth and employment
opportunities and compensate for jobs that
Renewable energy can make a major will disappear due to the reduced use of
contribution to the twin challenges of other sources of energy (e.g. fossil fuels). In
responding to a growing global demand for 2014, the renewable energy sector provided
energy services, while reducing the negative employment to 7.7 million people worldwide
impacts associated with current production (IRENA 2015).
 7

Energy Efficiency
Improvements in energy efficiency alone have in fossil fuel pricing. In addition, public funds
the potential to reduce, in a very cost-efficient can be invested in technology and policies that
way, up to 57% of global CO2 emissions until reduce emissions.
2030 (IEA 2009). In addition, investment • Enabling access to renewable/clean energy:
in energy efficiency is extremely attractive as Green fiscal reforms can level the playing
the costs are mostly recovered, due to energy field between fossil and clean energy sources
savings and improved productivity. For example, through a process of subsidizing non-polluting
a switch from an incandescent bulb to energy- energy sources and introducing economic
saving light bulb provides an opportunity to divide dis-incentives for fossil fuel energy sources.
the electricity consumption by a factor of four Advancing clean energy offers substantive
without any compromise in the quality of service. opportunities for increasing access to energy
Similar opportunities exist in the areas of heat for a larger number of people.
production, manufacturing, agricultural processes, • Associated environmental and social benefits:
and transportation. Moreover, energy efficiency Burning of coal is a “leading cause of smog,
generally does not have adverse environmental acid rain, and toxic air pollution” and “takes
impacts and can be considered a “low hanging a major toll on public health“ (Union of
fruit” for policy-makers, businessmen, and citizens Concerned Scientists n.d.). Fiscal policies that
alike. aim improvements in air and water quality can
significantly improve public health and reduce
pollution.
Key benefits • Economic benefits: Fiscal policies aiming
to improve energy efficiency can create
In sum, the global community and national significant economic benefits for companies
governments can benefit from green fiscal reform and private consumers to reduce energy use
in the energy sector in the following ways: (U.S. EPA 2015). Moreover, fossil fuel subsidy
• Reducing greenhouse emissions: This can be reform can free up resources which may be
done for example by eliminating fossil fuel reallocated toward other purposes.
subsidies and incorporating environmental and
social externalities (such as carbon emissions)
 8

REFLECTION POINT
Is the energy sector in your country particularly pollution intensive? How would polluting
industries likely react to an increase in energy prices?

key challenges
Some of the key challenges associated with Lower segments of the population may
green fiscal reform in the energy sector also have limited ability to adjust to
include: increased energy prices (e.g. by installing
• Political economy: Implementing fiscal better insulation in their homes, limited
mechanisms may require significant access to alternatives). Policymakers
political capital from governments due can take action to mitigate such adverse
to entrenched corporate interests and impacts where necessary through
perceived energy insecurity. A case study targeted compensation measures for
in South Africa shows that efforts to vulnerable groups.
gain support for a carbon tax have been • Impact on industrial competitiveness:
“enormously difficult” for the political Concerns that carbon pricing and
elite (Nakhooda 2014). other fiscal measures may render some
• Impact on low-income families: Fiscal industries uncompetitive compared
reform can result in negative impacts on to similar industries in other countries
low-income families due to direct and should also be considered (Box 1). To
indirect price effects, e.g. if their energy enable the industrial transition and gain
primarily comes from fossil fuel sources. support from companies, governments
Similarly, other goods that depend on can design the reform process in such a
fossil fuel may become more expensive, way to increase support from industry
e.g. transportation services. stakeholders, for example through the use
of targeted compensation measures.

BOX 1:
WHAT IS CARBON LEAKAGE?

Carbon leakage is the situation where “for emissions rise in a country without carbon
reasons of costs related to climate policies, pricing. To address leakages, governments
businesses (…) transfer production to other can make an effort to lower the
countries that have laxer constraints on implications of carbon pricing for industries
GHG emissions.” This essentially means exposed to this type of competition.
that while emissions are reduced in the (European Commission 2016)
state that is subject to carbon pricing,

1 However, industries need not to be opposed by nature, a growing set of leaders are actually calling
for a rapid and universal deployment of carbon pricing.
 9

EXAMPLES OF SECTOR-SPECIFIC INITIATIVES

The following examples highlight how fiscal The main goal of a carbon tax is to place an
mechanisms can be used in the energy sector. economic cost on the externalities associated
Some early results in terms of addressing the with the use of the fuel. Secondary goals may
challenges listed above are highlighted. include re-using the revenue raised to fund
additional green measures (e.g. subsidies for
renewable energy)or increasing fiscal space
CARBON TAXES for governments.
A carbon tax, as described in detail in Module As exemplified by Figure 1, carbon taxes
2, places an economic cost on the use of have proven effective in reducing the use
fossil fuels. Often this cost is reflected in its of fossil fuels in the Canadian Province of
most general terms as a per-tonne charge on British Columbia. The carbon tax introduced
emissions for the use of any energy sources in 2008 contributed to a downward trend in
that contribute to GHG emissions. sales of fuels subject to the tax in the province
compared to the rest of the country.
This price can then be translated into a point
of sale charge based on the emissions intensity
of the fuel and the typical unit it is sold by (e.g.
cubic meter of natural gas, tonne of coal, etc.).

0.25

The rest of Canada

0.2

Carbon Tax Starts

0.15
Carbon Tax Freeze

0.1 British Columbia

0.05
2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012-
2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- 2 0 1 3

Source: Statistics Canada/Author Calculations

fig.1: Impact of the BC Carbon tax on sale of fuels (http://blogs.worldbank.org/climatechange/

british-columbia-s-carbon-tax-shift-environmental-and-economic-success)
 10

Carbon taxes have been introduced in The case study below presents the
a number of developed and developing background, objectives and key
countries including: Chile, Costa Rica, characteristics in the design and
Denmark, Finland, Ireland, Iceland, Japan, implementation of the carbon tax in
Mexico, Norway, Portugal, Sweden, South Mexico.
Africa, Switzerland and United Kingdom.

CASE STUDY 1:
CARBON TAX IN MEXICO

BACKGROUND The tax covers sales and imports of fossil fuels.

Natural gas is set at zero cost while other
In 2013 Mexico set the following targets to
fuels are charged depending on their carbon
reduce GHG emissions:
density.
• 2030: 22% reduction compared to
business-as-usual (BAU) scenario and 36%
conditional reduction, subject to a global
RESULTS AND COMPLEMENTARY
mitigation agreement (Mexico, NDC
MEASURES
Submission).
Stated revenue from the tax was 870 million
• 2050: 50% reduction from 2020 GHG
USD in 2014. National carbon emissions were
levels
down 1.8% between 2014-2015, however
one should be careful to attribute this effect
A number of legal strategies and laws support
exclusively to the tax. Complementary to
low-carbon development in Mexico, including:
the carbon tax, Mexico also took steps to
General Climate Change Law (2012), National
implement a series of policy measures aiming
Strategy on Climate Change (2013), and
to promote cleaner and efficient use of
Special Climate Change Program (2014-
energy, including:
2018).
• Liberalization of the energy sector to both
domestic and foreign private investment
OBJECTIVES • Development of a market for Clean
The carbon tax on the use of fossil fuels was Energy Certificates promoting the use of
introduced in 2014. According to SEMARNAT renewables
(the Mexican Ministry of Environment and • Mandatory reporting system for both
Natural Resources) the motivation of the tax direct and indirect GHG emissions for
was threefold: facilities with annual emissions above
1. create awareness of CO2 emissions, 25,000 tCO2e was established.
2. put a price on these emissions,
3. promote the use of cleaner fuels. In parallel, several legislative attempts to
introduce an emission trading scheme (ETS)
for the electricity sector have been made.
DESIGN OF THE TAX
(SEMARNAT 2014), (ICAP 2016), (Carl
The initial rate of the tax was set at 5 USD per 2016), (globalcarbonatlas.org)
tCO2e, which was later revised to 3.5 USD by
the Congress. However, firms are allowed to
use offset credits (from domestic CDM offset
projects only) to fulfill their tax liability.
 11

RENEWABLE ENERGY SUBSIDIES/FEED-

IN TARIFFS
While carbon taxes are focused on raising The long-term price contract provides a
prices of an energy source, energy subsidies guaranteed rate of return for developers to
are designed to lower costs. One type of encourage renewable energy generation.
renewable energy subsidy is a feed-in tariff.
The case study below provides an example of a
A feed-in tariff typically guarantees a certain feed-in tariff implemented in Uganda.
set price to renewable energy developers for
feeding in renewable energy into the national
or subnational energy grid.

CASE STUDY 2:
RENEWABLE ENERGY FEED IN TARIFFS IN UGANDA

BACKGROUND
In the mid-2000s the Ugandan electricity
system was facing a number of challenges due DESIGN OF INSTRUMENT
to decreased water levels in Lake Victoria which
had reduced hydroelectric output from 230 Part of renewable energy policy is a feed-
MW in 2005 to 138 MW by 2010 (Byakola in tariff (FiT) for small scale renewables.
n.d.). At the same time, demand for electricity This approach was reviewed in 2010 and
was growing. Looking to address this challenge, expanded in 2012. Uganda’s FiT targets
Uganda enacted a Renewable Energy Policy in projects smaller than 20 MW and covers a
2007. number of different technologies including
wind, geothermal, bagasse and hydro. Rates
OBJECTIVES for 2011-2012 ranged roughly between USD
$0.08 and $0.12 per kWh.
The policy’s goal is to increase Uganda’s energy
production by up to 20% from a 600 MW RESULTS AND COMPLEMENTARY
base (Tsagas 2013). Uganda also claims that MEASURES
the program will leverage “more than €300
million of private capital into renewable energy There is some evidence that the FiT
development, fast-tracking a portfolio of up contributed to diversifying and increasing
to 15 small-scale (1 MW-20 MW) projects the energy production. However, more
promoted by private developers” systematic data collection and analysis is
needed to evaluate the overall impact of the
policy reform.

(Bayar 2013) (Tsagas 2013)

 12

EMISSIONS TRADING
An emissions trading system (ETS) in the If demand for credits exceeds the number
energy sector is a more complex tool than of credits, the price rises to reflect the
carbon taxes or subsidies. Without getting into increased demand. Entities (such as electricity
details on the technical aspects of emissions utilities) may be expected to cover 100% of
trading (this is covered in Module 2), the their emissions through credit purchase or
implication of this type of fiscal reform in the trading, or if they are considered vulnerable
energy sector has some unique characteristics. governments, may lower the amount of
credits that have to be purchased, or allocate
In short, ETS set an emission cap, within which some credits for free.
companies buy and sell allowances/credits,
thereby influencing supply and demand, and For credits purchased at auction, revenues
thus ultimately the price of an allowance. go to the government and can be used for
whatever purpose they see fit.
To guarantee a minimum price – and thus China has been testing an ETS, their specific
a minimal incentive – governments may system is examined in Case Study 3. A map of
determine a price floor for emission credits. their pilot system is provided in Figure 2.

fig. 2: Location of Chinese ETS Pilot Schemes (Davis 2012)

 13

CASE STUDY 3:
CHINESE ETS PILOT PROJECTS

DESIGN OF THE INSTRUMENT

BACKGROUND
All of the systems cover power and industrial
China’s emissions have more than doubled emissions and use a major amount of free
over the last decade. It now contributes allocation for allowances, in some cases 100
about a third of global GHG emissions and percent. An offset system was also adopted
has per capita CO2 emissions comparable to similar in approach to the CDM. Monitoring,
the European Union. China is taking climate Reporting and Verification systems have also
actions on many levels and committed to been set up on an annual basis with third-
peaking GHG emissions around 2030. China party verification required.
made a voluntary pledge under the UNFCCC
to lower CO2 per unit of GDP by 40-45% in
2020 compared to 2005 levels. RESULTS
OBJECTIVES By the end of October 2014 trading volume
reached 13.75 million tonnes of CO2e with
China’s 12th Five Year Plan laid out plans to a turnover of 500 million yuan. Building on
“gradually develop a carbon trading market”. these pilot projects’ insights into how trading
China implemented seven pilot ETSs, which can work in China, the national system now
served as testing ground for a national ETS covers these same sectors on a country-wide
launched in 2017. The seven ETS regulated level.
between 0.8 -1 GtCO2e. The seven pilots were
chosen in part to understand how emissions (IETA/CDC Climat 2015), (ICAP 2016),
trading would impact different economic, social (carbonmarketwatch.org)
and geographical criteria.
 14

the transport sector

Fiscal reform in transportation must address mobile entities (e.g. cars, trucks,
airplanes) as opposed to large, immobile operations (e.g. electricity utilities).
This often means tackling fuel use and vehicle purchase.

Overview
Like energy, transport emissions represent developing world (Figure 4) there is also
a significant portion of global GHG a concerted effort to use fiscal reform to
emissions, roughly 14 percent (IPCC reduce the number amount of vehicles on
2014). As cities become more congested the road and promote alternative modes of
(Figure 3) and face increasing air pollution transportation.
related to traffic, particularly in the

fig. 3: Global Traffic Congestion (http://www.ibtimes.co.uk/worlds-worst-cities-traffic-congestion-

istanbul-mexico-city-moscow-more-1496922)
 15

fig. 4: Cities with highest ambient PM 2.5 pollution (2009-2013) (http://www.wri.org/blog/2015/02/reforming-3-

systems-can-create-new-climate-economy-india)

Opportunities and challenges for greening transportation

The use of green fiscal reforms in the
transport sector presents a number of the road, and depending on other
positive opportunities including: factors (e.g. accessibility, infrastructure,
• Reducing pollution: Increasing the price affordability) encourages public transport
of gasoline, and using funds for public use or pooling measures. Less congestion
transit, clean vehicles can have significant has considerable benefits resulting from
benefits such as positive impacts on time saved and lower accident rates.
human health and reduced premature • Spurring clean technologies: Fiscal
deaths. instruments raise additional public
• Reducing congestion: Increasing funding which can be invested in cleaner
the operating cost of personal and technology (electric vehicles) or more
commercial vehicles creates an incentive sustainable transport options.
to reduce the number of vehicles on

REFLECTION POINT
If you were looking to implement fiscal reform in the transport sector, what might be the
best selling point to your population? Would it be reducing pollution, reducing congestion,
or is there some other benefit you would promote?
 16

REFLECTION POINT
What is the urban/rural split in your country? What are the unique concerns of each
group with respect to transportation?

There are associated challenges with green are shorter. In rural areas often public
fiscal reforms in the transport sector that transport does not exist or is significantly
include: reduced and driving distances are longer.
• Ensuring alternative options to personal Transportation fuel use can also be
transport are available: If the goal is to closely tied to livelihoods, for instance
have people drive less, there needs to getting agricultural products to markets.
be alternate public transport options Ensuring that rural considerations are
in place. Using revenues raised from taken into account is essential.
transport-related fiscal measures • International impacts: Differences in
to invest in public transport could fuel taxes between bordering countries
contribute to the development of these may encourage fuel tourism as motorists
alternative options. travel across borders to re-fuel. Similarly,
• Multi-jurisdictional systems: Transport, national taxes on kerosene or maritime
particularly public transport, is a shared fuels can put a significant burden on
area of responsibility between national industries competing in global markets.
governments and cities. As a result, it These impacts call for concerted
is imperative that cities and national multilateral action to balance out risks
governments work together on the and benefits in an equitable manner.
implementation of fiscal measures
in transport that will require shared
responsibility and enforcement.
• Differing rural/urban dynamics: In urban
centers, public transport options are
usually available and driving distances
 17

Examples of sector-specific initiatives

The UN Environment Green Economy
Report (UNEP 2011) highlights the Application of congestion charges in London
importance of fiscal mechanisms to drive is said to have reduced vehicle volume by 15
transition to a green transport sector. percent in 2003-2004 (UNEP 2011).
Accordingly, fiscal instruments can be applied
to vehicle purchase, ownership, or use. These charges are intended to reduce the
prevalence of vehicle use and with that
CONGESTION CHARGES a reduction in harmful emissions as well
as making public transport options more
A congestion charge is a fee paid to enter an attractive (and better funded).
area that is prone to high congestion.
 18

A congestion charge can be applied in the Any congestion charge system would have
same way that highway tolls are applied. At to be accompanied with enforcement. In
certain entry points to a city center, toll London, enforcement is ensured through a
booths can be set up where users pay the fee system where, if payment is not received,
to enter the city center. Monthly or annual a penalty notice is mailed. If this is not
passes can also be made available that can paid, enforcement agents can be sent to
be scanned (in person or electronically). The collect penalties in person, with the power
London system is more advanced, relying to impound vehicles (Transport for London
on camera systems and electronic payment 2015). Other effective models include
options to reduce interference with traffic Singapore and Stockholm (Case Study 4).
(Transport for London 2015).

CASE STUDY 4:
STOCKHOLM CONGESTION CHARGE

BACKGROUND owners receive a monthly invoice. Tolls are

time-differentiated, costing 1-2 EUR per
A triple trend – increasing population, car
passing of a charging point. Nights, weekends
ownership and trip lengths – combined with
and holidays are toll-free. In parallel,
a difficult topology resulted in considerable
authorities invested in expansion of public
traffic volume growth in Stockholm between
transport in an effort to i) absorb expected
1970-2000. As road capacity and space in
modal shifts and ii) to provide not only
central urban areas gradually reached their
“sticks” but also “carrots”.
limits, city authorities looked at road pricing
measures to provide a solution to the pressing
problem.
RESULTS AND COMPLEMENTARY
MEASURES
OBJECTIVES After facing strong initial hostility, today the
The agreed congestion charge seeks to reduce congestion charge enjoys broad acceptance
overall traffic volume during weekdays in among residents and political parties.
a designated zone. The policy also aims to Major indicators suggest that the measure
improve the urban environment for pedestrians is effective. Traffic volumes stabilized at
and cyclists through increased road safety, a level 20% below the pre-charge-era.
better air quality and reduced noise. Correspondingly, vehicle emissions decreased
10-15% in the cordon, resulting in health
benefits for the population. Delays in travel
DESIGN OF THE INSTRUMENT time are down 33-50%. Furthermore,
no significant effect on business could be
The policy defines a so-called “cordon” measured, as was feared by opponents of the
around the city, with charging points at main charge. Until 2009, alternative-fuel cars
bottlenecks to enter or leave it. Vehicles are were exempted. Studies suggest that the
registered automatically by cameras, and exemption largely contributed to facilitating
their market introduction, which made the
exemption superfluous.

(Eliasson 2014)
19
 20

ADJUSTED TRANSPORT FUEL PRICING

AND SUBSIDY REFORM
The World Bank notes that “raising fuel prices Indonesia meanwhile reformed fuel prices to
can provide significant revenues, save energy remove some subsidies for fossil fuels used for
and reduce harmful emissions”. transport (GIZ 2013).

It can be applied progressive, i.e. the population All of these reforms are implemented through
segments with higher income would be charged taxation or subsidies with the basic goal of
more, while the poor might be subsidized raising the price of polluting activities and
(World Bank 2005). lowering the price of non- (or less) polluting
behaviour.
The alternative to this is also to reduce the
price of cleaner fuels, thereby creating the If an environmental fuel tax is to be collected
same incentive to reduce use of polluting fuels. one way is to model the way that other
fuel taxes are collected, rather than setting
There are several ways to adjust fuel pricing. up entirely new administrative systems.
Thailand, for instance, placed a subsidy Subsidies can be provided directly to
on unleaded gasoline of roughly 1.2 USD consumers or producers.
cents per litre to lower the price and make
it a more attractive product against more An associated question is how revenues raised
environmentally harmful leaded gasoline (GIZ through fuel price adjustments are spent.
2013). British Columbia uses this revenue to offset
business and income tax reductions whereas
Alternatively, the British Columbia carbon the City of Oslo uses revenues strictly to
tax places a tax on clear gasoline of 6.67 CAD invest in sector development (e.g. road
cents per litre (Ministry of Finance 2015). infrastructure and public transport).
 21

BONUS/MALUS PROGRAMMES
The two aforementioned mechanisms are Such programmes can be implemented
both fiscal mechanisms that focus on vehicle into the purchase price through taxation
use. A bonus/malus programme2 focuses on increases or breaks, or integrated into the
ownership of vehicles. This is put in practice by, registration process for the vehicle after
one the one hand, reducing the cost of vehicles purchase. In the former case, it is a one-time
that are efficient or use clean energy (e.g. interaction, while in the latter case it could
electric vehicles), thereby giving a bonus, and, be integrated into annual vehicle registration
on the other, by raising the cost of ownership fees. A feebate programme introduced in
of vehicles that are fuel-inefficient. Singapore is highlighted in Box 2.

BOX 2:
SINGAPORE CARBON EMISSIONS-BASED VEHICLE SCHEME

There are several examples of feebates which typically have much higher usage
being introduced as one element of green rates, face rebates or surcharges that are
fiscal reform in transportation. Singapore 50 percent higher.
applied the Carbon Emissions-Based
Vehicle Scheme in 2013. Their system The program was recently extended into
is based on grams carbon emission per 2017 with the gram per kilometer rates
kilometer whereby vehicles under 160 g/ made more stringent, thus strengthening
km qualify for rebates of 5.000-30.000 the incentive to choose more efficient
USD while vehicles over 186 g/km pay vehicles.
surcharges of 5.000-30.000 USD. The (GFEI 2015)
rates are for personal vehicles, while taxis,

2 This approach is sometimes referred to as so-called “feebate”. The term is a combination of the words fee
and rebate, pointing towards to the parallel use of bonuses and maluses.
 22

Waste Reduction
Fiscal instruments can be applied to reduce waste and overconsumption,
thus fostering sustainable lifestyles and responsible management of valuable
materials.

Overview
Ensuring sustainable consumption and The push for sustainable consumption
production (SCP) is Goal 12 of the emerges from patterns that are currently
Sustainable Development Goals. The 2030 trending in the wrong direction, including
Agenda for Sustainable Development the volume of solid waste being produced
commits countries to: annually, estimated at 11.2 billion tonnes
(UNEP 2011). Projections for growth
fundamental changes in the way that our between 2012 and 2025 are outlined in
societies produce and consume goods Figure 5.
and services. Governments, international
organizations, the business sector and other All of this points to a need for concerted
non-state actors and individuals must contribute waste reduction, avoidance and reuse.
to changing unsustainable consumption and
production patterns, including through the
mobilization, from all sources, of financial and
technical assistance to strengthen developing
countries’ scientific, technological and innovative
capacities to move towards more sustainable
patterns of consumption and production (UN
DESA 2015).

fig. 5: Daily waste generation projection by 2025 (UNEP 2011)

 23

OPPORTUNITIES, AND CHALLENGES FOR MANAGING POLLUTION AND WASTE

There are some opportunities for green fiscal Environment (Figure 6). It is estimated that
mechanisms to drive positive changes in the the global waste market from collection
sector, all falling within the general waste to recycling is 410 billion USD per year
management hierarchy outlined by UN (UNEP 2011).

fig. 6: Waste Management Hierarchy (UNEP 2011)

• Developing a circular economy: UN The same industries can benefit from

Environment’s long-term vision of dealing potential cost advantages versus those
with waste is the development of a circular that have higher waste production
economy (Figure 7) where the use of profiles (UNEP 2001).
materials and generation of waste are • Poverty alleviation and social inclusion:
minimized in a regenerative system that SCP can also contribute to poverty
treats outputs (e.g. waste) as inputs (e.g. alleviation, for example by promoting
a production resource). Beyond this, any the development of markets in new
remaining, unrecyclable waste is processed sectors such as organic food and fair
in the least damaging manner to the trade (UNEP 2010).
environment.
• Economic gains: Efforts to encourage SCP
can promote industrial competitiveness
for firms that optimize resource efficiency.
 24

fig. 7: Illustration of Linear and Circular Economy (Source: http://www.weforum.org)

In conjunction with these opportunities are and Fullerton 1999). As a result,

several challenges that have to be overcome enforcement of fiscal mechanisms
when implementing fiscal reform for is an absolute must to ensure that
sustainable consumption and production. Some waste is not simply being diverted to
of these include (UNEP 2011): informal dumping sites.
• Balancing the need to drive change
• Volume and complexity of waste: As a while not inversely affecting the
country grows in income level its waste poor: It is noted (OECD 2008) that
sources diversify and become more often fiscal mechanisms designed
complex to manage. Lack of information to promote SCP are not set at a
on potential toxic pollutants, coupled sufficiently ambitious level to drive
with potentially economically valuable change. At the same time, if prices
components for waste makes managing are high this can disadvantage the
such waste challenging and risky for those poor. As a result there is a need for
involved. measures such as graduated tax rates
• Enforcement: Studies have shown that (OECD 2008) or compensatory
the implementation of dumping or tipping measures (Withana 2015) that can
fees for waste, as a way to incentivize mitigate the impact on particularly
reduced waste generation, may lead to vulnerable groups.
increased illegal waste disposal (Kinnaman
 25

Examples of measures related to sustainable consumption

Dumping fees, deposit-refund schemes and or other drop-off site. For larger loads, scales
product taxes or charges are three options for can be installed at landfill sights that weigh
green fiscal reform in this area. vehicles or trailers entering and exiting where
the difference in weight of the trailer or
vehicle represents the weight of the waste
DUMPING FEES dumped.

Dumping, landfill or tipping fees are a way For cities or other jurisdictions that manage
of discouraging waste generation by raising consolidated waste pickup services, the
the cost of waste disposal (UNEP 2011). The charge can be placed on the amount of waste
basic principle is that a fee is paid for disposal collected. Box 3 outlines how tipping fees are
for waste. Moreover, fines for deterring illegal administrated in the Philippines.
dumping may also be applied.
A similar scheme is Pay-As-You-Throw
This type of fiscal mechanism can be (PAYT) whereby households are charged for
implemented in a number of ways. For small solid waste collection based on the amount of
volumes of waste disposed at a landfill a flat waste that they throw away.
fee can be charged at the entry of a landfill

BOX 3:
TIPPING FEES IN THE PHILIPPINES

Tipping fees have been implemented in the Philippines were not part of the
successfully in many countries. In the operational budget for the landfill. Malaysia
Philippines example each municipality and Indonesia also charge at specific
charges a basic tax for every load of landfills at the entrance to the landfill, both
incoming waste. at flat fee rates.

San Mateo charges based on size of truck (Johannessen et Boyer 1999)

(e.g. a four-wheeled truck costs less than a
six-wheeled truck), while Carmona charges
a flat fee per incoming truck. Metro Manila
charges by weight disposed. Taxes charges
 26

DEPOSIT-REFUNDS SCHEMES
Deposit-refund schemes are intended to address The refund may not be equal to the deposit, with the
the end of life of products by developing strategies difference being allocated for handing, recycling, and/
for proper end-waste management and by or disposal of the product.
incentivizing recycling through refund schemes.
European countries have seen very effective return
These schemes require the payment of a deposit rates under these schemes as high as 95 percent or
when purchasing a product (e.g. incorporated more (European Environment Agency 2005). In a
in purchase price) that may contribute to different regional context, Taiwan implemented a fairly
pollution (e.g. aluminum cans or plastic bottles) successful PET deposit-refund scheme (Box 4).
and then receiving a refund of this deposit when
the product is returned for recycling or proper
disposal at pre-determined sites (European
Environment Agency 2005).

BOX 4:
DEPOSIT-REFUND FOR PET IN TAIWAN

Taiwan implemented recycling applicable to other jurisdictions included:

requirements for PET plastic products in • designation of convenient drop-off
1989. Under the system, manufacturers collection points,
and importers pay fees that are collected • good cooperation with and incentive
in a fund, and consumers are then given a advantage creation for retailers (which
refund out of this fund for returning PET are often a drop-off spot)
bottles to designated collection sites. The • enough financial incentives for end
fund is administered by a foundation that users, in combination with other
manages collections and disbursements deposit-refund systems (for instance,
of fees and refunds. Returns became so aluminum cans)
prevalent that a resulting deficit in the • clear labeling, and
fund was created, leading to revisions in • controlling measures for free riders.
the amount of refund paid. The recycling
rate of these products quickly rose to 80 PET bottles have been recycled into
percent. numerous products, including football
Lessons learned for Taiwan through the jerseys.
implementation of this system, that can be
(APEIS n.d.)

REFLECTION POINT
A major issue for successful green fiscal mechanisms for sustainable consumption is
enforcement – can you think of some ways that your country could tackle this issue?
 27

PRODUCT TAXES/CHARGES
Like a deposit-refund scheme, product taxes The second purpose is that the revenue from
and charges are placed on items that have the taxes or charges can be used to reduce
potentially harmful impacts. environmental impacts of the products.

A common example of this is placing an The simplest way to implement these types
environmental levy or tax on plastic bags at of mechanisms is as a tax at point of sale, in
grocery stores. In this case the item has a the same manner general sales or value-added
notable environmental harm and in many taxes are implemented.
cases improper disposal is an issue.
Fees collected can go to general budget
These charges serve two purposes, the first revenues or can be earmarked for specific
is to incentivize better alternatives (e.g. by purposes. Ireland implemented a plastic bag
charging a few cents per bag, people are levy (Case Study 5) that has been successful
incentivized to use reusable bags). in meeting desired outcomes.

CASE STUDY 5:
IRISH PLASTIC BAG LEVY
EMPOWER

BACKGROUND RESULTS AND COMPLEMENTARY

MEASURES
Plastic bag littering constituted a big problem
in Ireland in the 1990s, countering the The measure proved highly effective
country’s “clean and green” image. At its peak, in changing consumer behavior while
plastic bag consumption reached 328 bags per maintaining great popularity among the
head annually, and the impact became ever public. Crucially, plastic bag consumption
more visible. dropped to 18 per head annually. In a survey,
90% of respondents reported to use reusable/
OBJECTIVES long life bags. As a result, areas littered with
plastic bags shrank significantly and visibly to
The levy seeks to change consumer behavior the public eye. The focus on consumers rather
through an environmental tax discouraging the than retailers appears to be a key success
use of plastic bags. factor. Until 2010, the levy raised 166 million
EUR. Due to the desired changed behavior
DESIGN OF THE INSTRUMENT however, annual revenue has been decreasing
accordingly.
Following public consultations which showed
strong public support and opposition from
industry and some retailers, the tax was
(IBGE 2011)
designed as a point-of-sale levy to be applied
directly on consumers. Introduced in 2002,
the levy was initially set at 0.15 EUR per bag
and raised to 0.22 EUR in 2007. Revenue flow
to the Environment Fund which supports a
variety of environmental programmes.
 28

Natural resources
Despite their diversity, natural resources can be preserved with adequate
pricing mechanisms to reflect their long-term value for society.

Overview
Successful environmental fiscal reform in The sustainability challenges in natural
the natural resource sector involves building resources are immense. Estimates suggest
strategic partnerships between pro-reform that “30 percent of global forest cover has
stakeholders (World Bank 2005). been cleared, while another 20 percent has
been degraded” (WRI 2016).
Over one billion people depend on forest
goods and services for their economic Meanwhile, the rate of over-exploited and
livelihoods, and on fisheries for food security crashed fisheries is increasing (Figure 8).
and protein (UNEP 2011).
With vested economic interests and
The resources of water and agriculture have livelihoods depending on natural resource
even bigger influence groups. access, implementation of fiscal reform can
face significant challenges in terms of social
acceptance.

fig. 8: Fish stock exploitation (UNEP 2006).

 29

BENEFITS AND CHALLENGES

RELATED TO NATURAL RESOURCES
Looking at green fiscal measures and natural Challenges that deserve consideration in
resources, the following positive outcomes can implementing reform include:
be obtained. • Difficulties in monetarizing the
• Economic benefits: If well managed, value of nature: There are significant
with the proper incentives and ecosystem services that are not
distinguishing between resources that captured in markets, and therefore
can be economically developed and those entrenched interests have little
that must be protected for the social economic incentive to take ecosystem
benefits that they provide to communities services into account under existing
(especially the poorest population systems. These market failures must be
segment), sustainable management can addressed through cost internalization
lead to long term economic benefit and –a key aspect of fiscal reform.
poverty alleviation (World Bank 2005). • Inefficient and/or perverse economic
• Changing incentive structures: incentives: There are numerous
Reforming subsidies can not only assist cases where government policy or
in transitioning to a green economy, but intervention increase the benefits of
also ensuring that current investments unsustainable practices. For example,
are being made effectively. WWF notes deforestation has been closely linked
that worldwide fishing capacity is above to subsidies for cattle ranching in the
sustainable levels and current subsidies Brazilian Amazon in the 1980s and
contribute to exacerbating the problem 1990s, (Binswanger 1991) or more
(WWF 2011). recently for palm oil production in
• Assigning a monetary value to ecosystem Indonesia (UNEP 2016). Cameroonian
services: Fiscal measures for natural incentives for plantation agriculture
resource management can boost the led to forest clearing for commercial
provision of the ecological service agriculture (UNEP 2011). Crucially,
because providers of the service would over time these incentives can “become
be economically incentivized. Thus fiscal entitlements, which makes them
measures can “put a price on previously politically difficult to remove” (UNEP
un-priced ecosystem services (…) and, 2011).
in doing so, bring them into the wider
economy” (URS 2013).
 30

EXAMPLES OF NATURAL RESOURCE-RELATED INITIATIVES

Fiscal mechanisms applied to non- subsidies only to producers that source their
depletable natural resources can create inputs sustainably. Thus, subsidies would
economic incentives to contribute to their be focused on increasing productivity in a
regeneration, thus preserving them for sustainable way, e.g. by realizing efficiencies in
infinite use. the use of water and land, diversifying crops or
introducing dough-resistant seeds. Nigeria has
TARGETED SUBSIDY REFORM attempted reform to fertilizer subsidies (Grow
Africa 2014).
Subsidies for natural resource exploitation
have the potential to encourage over- MARKET MECHANISMS: PAYMENT FOR
production and inefficiency and may
become politically entrenched, all of which ECOSYSTEM SERVICES AND OFFSETTING
run counter to the principles of the green
economy transition. However, there are Payments for ecosystem services (PES)
ways in which inefficient subsidies can be involve making payments to managers of land
reformed. or resources in exchange for the provision of
ecosystem services, which are over-and-above
WRI formulated principles for successful what they would earn from this land or resource
subsidy reform in the agricultural sector in the absence of these payments (URS 2013)
(2006): (Forest Trends/The Katoomba Group/UNEP
• Empower small-scale farmers to use 2008).
natural resources sustainably and
strengthen their ability to negotiate with Contrary to polluter-pays principle, in PES
other actors in the market; schemes the beneficiary of the service make
• Mainstream poverty alleviation and the payments. In some cases the payment can
environmental considerations into be made by governments/public institutions,
sectoral plans; however there are also schemes that require
• Promote ecosystem health for human payments be made by individuals, communities
well-being, in particular ecosystems’ or businesses (URS 2013). The beneficiary and
ability to provide essential services; the land or resource manager enter into PES
• Promote best practices. agreements that ensure the beneficiary that
the land manager will undertake practices that
ODI further suggests that making subsidies ensure the provision of the ecosystem services.
conditional with environmental criteria
(McFarland, Whitley and Kissinger 2015). The Costa Rica example of PES is highlighted
One example of this would be granting below in Case Study 6, and the general principle
of PES systems is outlined in Figure 9.
 31

fig. 9: How Payments for Ecosystem Services Work (http://news.mongabay.com/2013/01/over-8-billion-invested-in-watersheds-

in-2011/)

CASE STUDY 6:
COSTA RICA’S PES
sequestration, iii) biodiversity conservation
BACKGROUND and iv) preservation of scenic areas. Initially,
the system worked on a first-come first-serve
Naturally endowed with lush flora and fauna, basis but was amended to address priority
the country experienced one of Latin America’s areas that have been neglected. Contracts
fastest deforestation rates until the mid-1980s, range between 5-10 years. Funding is raised
with forest cover declining from 70% to 20%. from earmarked sources, e.g. fossil fuel and
This development was on the one hand induced water taxes, reaching approx. 12 million USD/
by the government’s aspiration to colonise new year.
land and high commodity prices of beef, coffee
and bananas on the other. RESULTS AND COMPLEMENTARY
MEASURES
OBJECTIVES
The PES is considered a lighthouse in
The PES was created to complement the public conservation policy by many observers. In
conservation system by improving protective fact, since its introduction in 1996, nearly 1
and restorative measures on privately- million hectares of forest enjoyed protection
held land. The two main objectives include or regeneration in a relatively small country.
protecting existing forests (and eliminate 4.4 million trees were planted and the
conservation gaps, i.e. areas with no protection forest cover is stabilizing at 52%. The PES
status) and regenerating degraded or secondary complements stricter regulatory measures
forests. such as prohibitions and national parks. The
system underwent review and is supposed
DESIGN OF THE INSTRUMENT improve its data-collection to account more
comprehensively for social impacts beyond
The law specifies for ecosystem services
financial transactions.
for which direct payments are provided to
(Porras, et al. 2013)
land owners: i) water protection, ii) carbon
 32

Linking GHG emission reduction, water program where entities can purchase credits
quality, or biodiversity improvements in the in a natural resource sector from a person or
natural resource sectors to offset schemes organization that is undertaking a project that
can be a cost-efficient way of reducing leads to reducing pollution.
pollution and transitioning to sustainable use
of natural resources. Natural resource projects may vary greatly, from
fertilizer management, to rice management
To set up an offset scheme, governments systems and soil carbon building (Koper 2014).
need to establish a voluntary or mandatory

BOX 5:
ALBERTA CARBON OFFSET SYSTEM

The province of Alberta, Canada has a A number of protocols related to natural

domestic offset system that includes the resources have been approved including
agriculture sector. Large emitters with projects on agricultural nitrous oxide
a requirement to reduce emissions can reduction, anaerobic decomposition
purchase credits from entities that have of agricultural materials, conservation
made voluntary reductions in agricultural cropping, changes in livestock practices,
emissions. and changes in forest harvesting practices.

Project must follow government approved From 2007 to 2012 agricultural offsets
protocols that ensure emissions reductions generated an estimated 132 million CAD
are “real, demonstrable, and quantifiable, for farmers and aggregators, representing
additional to what would have occurred roughly 11 million tons of GHG emissions
otherwise”. Once projects are registered reduced.
offset credits can be sold to entities with
a provincially mandated GHG reduction (Alberta Environment and Parks, 2015)
target. (Nolan 2015)

The price of credits is driven by the market

and varies based on supply and demand.
 33

The Province of Alberta, Canada developed a carbon offset system explained in Box 5 and Figure 10.

fig. 10: How the Alberta offset system works

 34

key
learning points
1
For greater reform impact, revenues raised through fiscal measures can be reinvested to
achieve additional improvements and raise social acceptance.

2
Green fiscal reform approaches can be applied across sectors. Moreover, reform in one sector
can support efforts in other domains, e.g. reforms in fossil fuel subsidies can be redirected to
supporting sustainable management of natural resources.

3
Choice and design of a fiscal instrument should consider concerns of stakeholders, particularly
their vulnerability to price changes, and other impacts (e.g. re-bound effects, availability of
alternatives etc.).

4
Well-designed fiscal instruments promote behavioural change in both producers and
consumers, thus influencing supply and demand.
 36

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Abbreviations
BAU Business-as-usual
CAD Canadian Dollar
CDM Clean Development Mechanism
ETS Emissions Trading System
EUR Euro
FiT Feed-in Tariff
GDP Gross Domestic Product
GFEI Global Fuel Economy Initiative
GHG Greenhouse Gas
GIZ German Development Cooperation
ICAP International Carbon Action Partnership
IEA International Energy Agency
IETA International Emissions Trading Association
IPCC Intergovernmental Panel on Climate Change
IRENA International Renewable Energy Agency
kWh Kilowatthour
MW Megawatt
NDC Nationally Determined Contribution
OECD Organisation for Economic Co-operation and Development
PAYT Pay-As-You-Throw
PET Polyethylene Terephthalate
PM Particulate Matter
SCP Sustainable Consumption and Production
SEMARNAT Mexican Ministry of Environment and Natural Resources
tCO2e Ton of Carbon Dioxide Equivalent
UNDESA United Nations Department of Economic and Social Affairs
UNEP United Nations Environment Programme
US EPA United States Environmental Protection Agency
USD United States Dollar
WRI World Resources Institute
WWF World Wide Fund for Nature