Part of Our EU-27 Green Tax Wiki

Environmental taxes, also known as green taxes, function as a means to reduce emissions and the consumption of environmental resources by making these resources more expensive for consumers to use. While governments across Europe are taking initiative to reduce their carbon footprints in defense of the planet, these economic charges often produce financial repercussions for citizens who are low-income, and thus, in a lower tax bracket. As observed in the case of Gilets Jaunes, or the Yellow Vest Protests, citizens from rural areas of France mobilized to protest the implementation of fuel tax policies that have generated disproportionate financial impacts on citizens with lower incomes. Utilizing a case study of the United Kingdom’s environmental consumption and green tax policies, the following assessment will summarize the ways in which the countries across Europe can enforce green taxes in a manner that reduces the financial repercussions of these tax policies on low-income citizens in their respective territories.

Case Study: The United Kingdom

In the United Kingdom, environmental policy makers are researching the impact of green taxes on low-income households in four primary areas of environmental consumption: energy use, water use, transport, and generation of waste. In the UK, the average low-income household’s utilization in these four areas is found to be disproportionate to the overall household income. Research indicates, however, that the consumption of environmental resources varies from household to household, and thus, some low-income households will experience a net loss with the onset of any green tax. As such, a flat rate tax, as observed in the case of Gilets Jaunes, would be regressive and detrimental to low-income households. In substitution of a flat rate tax, policy makers have offered solutions in the four key areas of environmental consumption that will aid in reducing negative impacts on low-income households.

Household Energy Use

Research indicates that the variation in household energy use and the production of carbon emissions varies greatly. In addition, many low-income households in the United Kingdom experience fuel poverty, which necessitates spending more than 10% of earned income in order to achieve a suitable amount of warmth. In exploring a multitude of policy solutions including means-tested benefits, child benefit, adjustments to the Winter Fund Allowance, and varying the carbon rate tax, policymakers have determined that the most politically feasible and beneficial green tax policy is to incentivize cost-effective-energy-efficiency measures for non-fuel low-income households. As such, households (beginning with the highest-valued houses in each region) would be asked to have an energy audit of their home conducted, and those households who have not successfully implemented cost-effective-energy-efficient standards by the end of the audit year would be subject to a ‘climate change surcharge.’ Policymakers purport that this policy measure could eliminate fuel poverty, produce carbon savings of four million tons of carbon over the span of ten years, and save households upwards of 20 billion pounds net present value for an investment of 6.4 billion pounds. In addition, this green tax policy could pave the way for the imposition of a non-regressive carbon tax, which would ultimately reduce household carbon emissions in the future.

Household Water Use

An assessment of international water usage and costs found that current policies in the UK are more regressive and oppressive for low-income households than in any other industrial country included in the research investigation. Policymakers have suggested the implementation of universal water metering through the variation of different taxes. The examination of eleven different tariff alternatives revealed that enforcing a lower tax on water for households receiving government benefits, allocating ‘free’ allowance of water for some households, and the variation of tariffs regulated in accordance to figures outlined by the Council Tax, would all result in reduced regressivity in comparison to current tax policies.

Household Transport Use

In assessing the distributional effects of potential tax policies that could reduce the increase of transport related emissions, researchers examined the following strategies: increasing fuel duties and abolishing vehicle excise duty (VED), increasing fuel duties and using the money to subsidise public transport, increasing fuel duties and using the money to increase benefits, reform of graduated vehicle excise duty (VED), introducing a graduated car purchase tax, congestion charging, and introducing domestic tradable quotas (DTQs). Research determined that the best measures for reducing transport related emissions and the disproportionate impact on low-income drivers at the onset would be an abolishment of VED, or alternatively, the introduction of a progressive car purchase tax which would serve to replace a graduated VED. In terms of reducing fuel usage, the best policy strategy would be the introduction of domestic tradable quotas that monitored motor and aviation carbon emissions. With this strategy, every adult citizen would receive an equivalent amount of carbon units to encompass their annual carbon emissions, which would include private transport. Citizens who utilize less units than their given amount would have then have the opportunity to sell their surplus units to those who need more.

Household Waste

The examination of recycling and waste disposal rates across the EU found that on average, the UK recycles at a lower rate, and produces larger amounts of waste that are sent for disposal at landfills. At present, households must pay for waste collection and disposal through the Council Tax, however, this practice is regressive and thus disproportionately impacts low-income households. Current potential measures to reduce household waste suggest the introduction and increase of variable waste charging, which would only serve to further negatively impact low-income households. Alternatively, policymakers have suggested the introduction of a ‘revenue-neutral, variable, weight based’ charge for all households, in which adequate compensation would be allocated to those receiving means-tested benefits to offset the additional costs of waste disposal. This would serve to ultimately reduce the regressive effects of a waste-disposal charge implemented by the Council Tax.