There is scope to increase environmental taxation in the Spanish State, according to a study sponsored by the IEB
Wednesday, 08 October 2014

 A report on environmental taxation commissioned by the Barcelona Institute of Economics (IEB) to professors from the Aarhus University (Denmark) and from the University of Vigo shows that in Spain there is scope for increasing environmental taxes, from a different distribution from the current tax burden. The document notes that Spain is the country of the European Union (EU) where environmental taxation has a lower percentage of relationship between environmental taxes and GDP: 1.6% compared to the EU average of 2.4%. A change in the tax distribution would mean that taxes related to energy, transport, pollution and resource replace those related to work. This fiscal exchange can contribute to greater economic competitiveness, reducing labour costs and introducing a more efficient use of resources and energy. 

The authors of the paper are professor Soku Mikael Andersen, from University of Aarhus (Denmark), and Xavier Labandeira, Alberto Gago and Xosé C. Alvarez, from the University of Vigo. José María Duran IEB -investigator and professor at the UB-  coordinates the work and recalls in the preface that the Lagares Report from July 2014 (commissioned by the central government to a committee of experts) makes clear that the green tax reform is pending in Spain and poses 16 concrete measures to encourage. However, the tax reform implemented by the central government does not apply any of these measures. 

New environmental taxes 

Professor Andersen argues that if Spain is placed at the European average, environmental taxes would provide an additional 5 or 6,000 million euros. In accordance with this statement, Alvarez, Gago and Labandeira claim that "environmental taxation in Spain may be key to progress in fiscal consolidation and, in turn, reinforce the binomial growth - competitiveness, ensure the viability of policies of climate change, renewable energy and move towards a low carbon economy efficiency”. 

These taxes can affect the competitiveness of some sectors and the distribution of income. Therefore, teachers from Vigo point out that "it must be integrated into instruments of environmental and energy policy to avoid the paradox of recording energy productions that have previously received bonuses". They also highlight that environmental taxation in Spain has had a regional level and it needs a gradual process of agreement, to reach a proper allocation of taxes between governments. 

The energy tax, the new protagonist 

Professors Alvarez, Labandeira and Gago explain that energy taxes is the area where there’s the largest margin in environmental taxation in Spain. The country is at the bottom of a basic indicator: the percentage that the tax on the final price of energy. According to the professors, "it is possible that the energy-environmental taxation will become a key instrument of the Spanish tax system to maintain fiscal consolidation strategy." The proposed directive on energy taxation means acting on fuel, gas and electricity in two ways: in terms of emissions and with the intensity of energy consumption. 

On the other hand, Mikel Soku Andersen proposes supporting renewables recording air pollution. According to him, these taxes "contribute to not be as necessary in tariffs for renewable energy priority, as they have a natural advantage for their little or no pollution." 

International Recommendations 

The Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF) and the EU have confirmed that taxes on consumption, property and environment are more favourable than the impositions on rent, labour (especially) economic growth and societies. As a result, the recommendation of these three institutions is having great influence worldwide. In the case of Spain, the OECD and the EU suggest applying environmental taxation in a fiscal devaluation strategy, in order to promote growth. Specifically, the EU advises Spain to "reorient the tax burden from labour to consumption and activities harmful to the environment."