GREEN TAX REFORM, TIPPING POINT FOR ENERGY USE: THE PORTUGUESE CASE

The need for a lower energy profile has been repeatedly called for, with little progress: we have lacked the collective will and the economic tools to “walk the talk”. Tax reform has long been recognised as a powerful mean... [ view full abstract ]

The need for a lower energy profile has been repeatedly called for, with little progress: we have lacked the collective will and the economic tools to “walk the talk”. Tax reform has long been recognised as a powerful mean to change behaviour of economic agents; it has been on the political agenda for decades, since the 1993 Delors Report on Growth and Employment, but has seen limited application.
The paper reports research on the potential of tax reform to change the energy system, with significant socio-economic and environmental gains, focusing on the Portuguese case study.
The theoretical concept explored is the “environmental tax reform”. The idea was first proposed by Pigou in 1920, defending the transfer of tax burden from labour to natural resources with a “double dividend”: gains in both resources management and employment. Later research indicates that a careful design of the fiscal tools is key to positive or negative economic outcomes. Our research couples macroeconomic concepts and policy goals with energy efficiency potential and economics at company level, collating abundant but dispersed information from scientific, official and business sources.
The Portuguese energy and transportation system suffers from 4 000 million Euros per year of market distortions: 2% of Portuguese GDP and 20 times the amount of a tentative “green tax reform” recently initiated. Elimination of distortions could finance savings in energy use and GHG emissions up to 20%. Improvements involve more equitable taxation, tax incentives for energy efficiency and public transportation, and elimination of harmful subsidies.
Tax reform is a change of paradigm and a powerful tool to change the behaviour of economic agents. In the present economic and budgetary crisis, it may be the best tool to improve energy efficiency of the economy. The concept may be extended to other domains such as water, land use and resource management.