The Ecological Tax Reform in Germany
spite of enormous successes in reducing environmental damage,
industrial societies are still living beyond their means and,
therefore, at the expense of future generations. In a world of a
population seeking an ever-increasing standard of living, excessive
amounts of raw materials are transformed into waste in too short a
time. Today our environment is faced with this enormous burden of
pollution and there is consensus about our eco-system being on the
brink of breakdown. Obviously, we are carrying out a global experiment
and hardly anyone seems to care about its long-term outcome.
from environmental problems many industrial countries find themselves
confronted with rising unemployment rates. People are bereaved of their
chances to secure their social existence. The economic damage is
twofold. There are mounting social expenditures such as welfare and
unemployment benefit. At the same time the national income is
through losses in taxes and social security contributions.
idea of raising or implementing environmental taxes, as well as the
idea of relieving the strain of employment costs, are both closely
related to the idea of an ecological tax reform.
from “Jetzt und Morgen” have been intensely involved in promoting a
“green” tax reform giving special consideration to ecological
effectiveness and economical efficiency. The results are summarized by
ensure the greatest ecological effectiveness with minimal economical
expense, environmental taxes are ideally to be placed on pollutants.
Placing taxes on energy results in lesser utility because
is necessary to establish quantified and ecologically justified
environmental goals and to apply these as the foundation for
environmental taxation. An environmental goal must include at least the
all significant pollutants can be noticeably reduced by energy
intensive processes do not necessarily result in the greatest pollution;
is no motivation to reduce pollution through environmentally friendlier
various ways of producing energy (e.g. nuclear, fossil fuel, or
renewable energy sources) have varying potential for danger, which are
not discerned by energy taxes.
environmental tax is ideally focused on one specific pollutant.
Conversely, if an environmental tax serves multiple goals, this can
lead to economic and ecological inefficiency.
quantified goal of reduction, and
timeframe which the goal should be attained.
height of an environmental tax, which in the form of a guidance tax is
supposed to reduce the emission of a pollutant, is measured ideally on
the quantity of the pollutant emitted.
rate of an environmental tax is - at least approximately - to be set
taking price elasticity into account, while benefiting the
environmental goal. Price elasticity is here to be understood as the
effect which (for instance) the environmental tax has on the amount of
emission. If price elasticity is not given its due attention,
ecological and economical inefficiency is the result. There is also the
danger of the rate of the environmental tax being set arbitrarily or
through lobby interests.
the loss of economic and ecological efficiency, an environmental tax
that is supposed to reduce the emission of a pollutant as a guidance
tax can be set on energy (for instance, an energy tax towards the
reduction of CO2 emissions). However, the following must be given:
taxes are set on energy without pursuing a quantified,
pollutant-oriented emission goal, at least a quantified goal to save
energy must be fixed. Additionally, the rates of taxation must be
ascertained with as much consideration for price elasticity as
possible. However, the economic and ecological efficiency will still be
relatively low as long as the same rate of taxation applies to all
types of energy independant from the potential for ecological damage.
must be a quantified and ecologically justified goal to reduce the
rate of taxation must be determined to the largest possible extent by
price elasticity, as well as by pollution equivalence of the individual
rates of taxation must be high enough for an ecological effect to be be
international competitivness of the affected industry must be
taken into consideration.
rate of taxation must not result in overtaxation of the economy.
entire volume of taxes should not be raised through environmental
taxes: tax hikes and the introduction of new taxes must be balanced by
the reduction of other taxes.
and businesses should not be expected to submit to a higher overall
tax- and expenditure burden after the introduction of environmental
taxes (principle of revenue neutrality).
value-added tax which is raised on environmental taxes must be included
in the contemplation of revenue neutrality and given back to the
citizens and businesses.
function of guidance, not the chance to produce income, must be the
point of focus of an environmental tax. If the rates of taxation are
determined without the benefit of quantified environmental goals, the
income function will prevail.
revenue from an environmental tax should not be used for pre-specified
purposes. Instead, it should be included in the general revenue. That
way, the government’s scope for bargaining and decision making will
remain intact. If the revenue from environmental taxes is instead used
for specific purposes, the tax income will have to remain on a high
level. The resulting reduction of environmental damage would then be
counter-productive concerning the national tax income.
volume of subventions should not be increased through the return of
revenue from an environmental tax. Nevertheless, the conventional model
of ecological tax reform want to transfer environmental tax revenues to
social security. Thus, social security would be subsidized. Even though
subsidies can be useful in stimulating development, if granted for too
long, they run the risk of leading to misdirected developments. Because
of subventions, cost allocations accounting for the causality in social
security would no longer be possible. In order to use the socially
available resources efficiently (here: pension scheme resources), the
demand of environmental protectors for realistic prices must prevail:
For natural goods, for public benefits as well as for the social
security system, genuine prices must be applied. For social security,
health-, and unemployment insurance, the insured persons should pay the
genuine prices. This would reveal structural problems within the social
security system, encumber losses through federal misuse of resources
(benefits other than social security) and gives a feel for the value of
benefits. Instead of subsidizing entire systems, those who cannot
manage the true expense of elementary social benefits should be
supported by the state through reduced tax rates or through transfer
payments.These measures correspond to the basic rule that citizens
should be taxed and supported according to their competitiveness. (Read
our account on Subject Relieving).
lack of cost transparency in social security does not promote unwanted
developments by itself. Shortsightedness concerning the problems of
high employment expenses contributes as well. Without a doubt, the
acknowedgement that the efficient use of energy does not take place,
because energy nowadays is too cheap, is correct. The fact that new
jobs are not being created in Germany because employment is too
expensive also remains undisputed. However, to conclude that social
security ought to be subsidized with the revenue from ecological taxes
indicates shortsightedness. In the end, the high costs of employment
could be the result of various causes. To focus on merely one issue
(and to do this through subvention as well) holds the risk of being
counterproductive and promoting misdirected developments.
principle of cause should not be violated by the return of revenue
obtained from an environmental tax. Should social security be
subsidized with tax income, the following problem will result: the
workers’ and salaried employees’ social security will be financed
through environmental taxes by housewives and -husbands, students,
retirees, civil servants, the self-employeed, etc. These groups do not
benefit in any manner from the subvention of social security and
unemployment insurance. Indeed, they must finance their own old age
returning the revenues of an environmental tax, the principle of
equality should not be violated. Long-term tax-breaks for the industry
or individual branches or businesses are an equivalent to subventions
and should thus be avoided.
state has to bear the financial risk that the revenue from an
environmental tax doesn’t reach the height of financial compensation to
citizens and businesses.
ecological tax reform must be announced within an appropriate time
before its introduction.
details of an ecological tax reform, including components of the
individual stages, are to be published with the announcement of the
political acceptance should ideally underlie concepts for an ecological
Ecological Tax Reform in GermanyOn
the German government’s initiative, the Bundestag (the parliament)
settled on a far-reaching law concerning the introduction of an
ecological tax reform. It went into effect on 1 April, 1999, and lays
increase of mineral oil tax on fuel
Pfennige/liter = roughly 0.125 $/gallon), heating oil (4 Pfennige/liter
= roughly 0.084 $/gallon) and gas (0.32 Pfennige/kilowatt hour =
roughly 0.178 $/kilowatt hour).
introduction of an electricity tax of 2 Pfennige/kilowatt hour
tax rates of 20% for industry; many other exceptions.
revenue from environmental taxes will be used to subsidize the
governmental social security. The contributions of employers and
employees, which are measured on salary, will be reduced in this manner
in order to decrease the costs of employment (employers and employees
contribute 50% each to the social security of the German worker).
for which the burden of environmental taxes is 20 % greater than their
relief through lower social security contributions, will be reimbursed
by the federal government.
the meantime, four further stages of the reform have been established;
they concern the years 2000 to 2003. The most important developments
tax on gasolinie and diesel will be raised annually 6 Pfennige per
tax on electricity will be raised 0.5 Pfennige per kilowatt hour
current tax for heating oil and gas will remain the same.
ecological tax reform in Germany appears to have only slight positive
effects on the environment, while being economcial dubious. Indications
for this are (refer to the 22 criteria):
are no quantified and ecologically based environmental goals.
tax rates were therefore not determined according to justifiable
security will be subsidized.
volume of subvention is thereby increased.
entire tax volume will be raised, because no taxes were lowered
parallel to the introduction and/or increase of taxes.
principle of cause is violated, because those not employeed must
contribute to the social security of salaried employees.
dilemma arises that high energy consumption will become the basis for
assurable social security financing. The reduction of energy
consumption (intention of energy taxes) will lead to financial problems
in the social security system.