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Reforming environmental taxes and harmful subsidies: challenges and opportunities

AUTHORS: Leonardo Mazza – Patrick ten Brink

The financial and economic crisis has drawn new attention to environmental fiscal reform (EFR) including the reform of environmental taxes and environmentally harmful subsidies. However, progress across the EU remains variable and numerous opportunities for improving economic incentives remain. Environmental fiscal reform (EFR) offers numerous benefits including inter alia raising additional tax revenues, helping to balance budgets and meet the ambitions for sustainability in times of austerity. Where well designed and implemented, it can not only avoid negative competitiveness impacts, but also help catalyse the transition to a resource efficient, green economy that supports jobs and fosters growth and innovation. A 7th EAP that includes a focus on EFR could help to stimulate further progress in this area.

This paper was prepared to inform discussions on the 7th Environmental Action Programme under the IEEP project on ‘Charting Europe’s environmental policy future’. It provides a brief introduction and overview to the issues of environmental tax reform and environmentally harmful subsidies and outlines recent developments in the EU. It also outlines the remaining challenges in these areas and the potential role of the 7th EAP in helping to deliver the ETR and EHS agendas.

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