War against plastics
Director, E3G, Third Generation Environmentalism
Can a tax on plastics and carbon fund the European Union?
n January 2018, EU Budget Commissioner Günter Oettinger floated a big idea: to fund the EU’s budget through taxes on plastic and carbon pollution, rather than only through member state contributions. The proposals speak to the biggest challenges of our age. Avoiding the most catastrophic climate change scenarios and keeping global warming to well below 2 degrees requires full decarbonisation of the economy by the middle of the century. The accumulation of plastic waste in the ocean is rightly recognised as a crisis with severe consequences for both wildlife and the food system. The need to move from a throw-away society to a ‘circular economy’ is the widely cited aim of both businesses and governments alike. There are strong reasons to support the proposals. Pollution from plastics and carbon are classic ‘environmental externalities’. They cause costs to the environment and society that are not fully reflected in market prices. Taxation of plastics consumption and of carbon pollution are making these hidden costs more visible. Shifting the burden of taxation from labour to pollution can support productivity gains and also address environmental problems. Fundamentally, it is sensible to take a European approach to these issues. Goods, services and energy are traded across the EU. A proliferation of www.governmentgazette.eu | 10
national and local schemes makes trade more complex for both businesses and consumers. Coordinated European action can prevent a race to the bottom of environmental standards. Conventional wisdom suggests the politics of the initiative will be difficult to navigate. EU member states traditionally tend to prefer to keep direct control
of taxation issuesand are wary of handing over revenue streams. The European Commission has proposed various means for raising its own revenues in the past, including retaining revenues from carbon taxation, but has hardly been successful.
The EU has only recently completed a drawn-out reform of its Emissions Trading Scheme, so appetites for reopening the legislation will be limited. Meanwhile, the response of the plastics industry has been predictably dismissive.
It is also unclear how much support these ideas have within the European Commission itself. The flagship EU plastics strategy contained merely a fleeting reference to exploring the possibility of a plastics tax.
But we are not living in normal political times. The UK’s departure from the EU leaves a multi-billion euro hole in the EU budget that has to be filled. New demands on the EU budget, such as migration, security and disaster response, will also need to be funded. Faced with a choice of increasing national contributions to the EU budget or allowing an EU levy on plastics and carbon, national finance ministers may prefer the latter. As a result, this is the right time to put forward big ideas on EU budget reform, and the proposals stand a considerably greater chance of success than in previous budget cycles. If political backing can be secured, there are substantial policy design challenges that will need to be addressed. The price of carbon allowances in the EU’s Emissions Trading Scheme has fluctuated wildly since it was first introduced, from €30 to below €4 per tonne. This makes it very difficult to predict the potential revenues from the scheme over a sevenyear period. Current prices remain far too low to incentivise low carbon investment. A carbon ‘floor price’may be needed to stabilise revenues and ensure