SAT0042

 

Written evidence submitted by the Society for the Environment

 

Summary

The Society provides a commentary on green growth and economy to provide a background for the Committee’s deliberations. In doing so it makes a number of suggestions to the Committee. We suggest that the opportunity should be taken for a radical rethink of environmental taxes; an inspection of what is included now suggests a reflection of a collection of historical and separate initiatives rather than a consistent approach. Some natural resources are paid for in different ways such as abstraction charges for water which are paid to the appropriate regulators. We suggest that there should be broader integrated approach and that there should be, instead, a natural resources or future generation’s tax and incentive framework, which has the twin objectives of behavioural change and paying to use resources. Furthermore, the ambiguity of there being environmental elements in general taxes should be clarified and this should have a clear natural resources element as a subset. This should include a good understanding of how natural resources research and development should be included in tax allowances .There should be clear articulation of hypothecation. This change should be about better focussing management of resources and improving the environment and must not render the UK less competitive 

 

Context

  1. The Society welcomes the opportunity to comment on the issues surrounding the relationship between fiscal, economic and environmental matters.  It focuses more on the last question posed by the committee on green growth and in doing so it hopes that it will provide some insight into answers to the other questions.
     
  2. There are many concepts underpinning green growth. We are not convinced that there is clarity around the understanding of the meaning of some phrases and the concepts behind them and how they all fit together. Examples include:
     

 

Green growth which the Committee is focussing on

 

  1. Green growth is about fostering economic growth, development and social inclusion while ensuring that the natural assets provide the resources and environmental services on which our well-being relies. To do this, the Government must stimulate investment and innovation which will underpin sustained growth and give rise to new economic opportunities, human capital formation and skills building, and redistribute the proceeds of growth.
     
  2. We refer to categories of green growth recommended by the OECD in 2010. But this does not address the overarching issue of what a green economy is, or the implications for the UK Government to be ‘the greenest’.  There are many and diverse views.  There is widely used concept on the use of natural capital which is defined as the stock of natural resources which creates a long term supply of goods or services.  It is an extension of the economic notion of capital (resources which enable the production of more resources) to goods and services provided by the natural environment.  The notion of integrated natural resources management fills the same intellectual space as natural capital.
     
  3. There is also the common notion of excessive growth (along with excessive pollution) and this is sometimes expressed as multi planet living (in Europe at the moment we need three planets’ resources  to carry on with our life style),  alongside the notions of excessive ecological footprints  and Earth Overshoot days, in which in each year we will have used our fair share of resources ,including the ability of the environment to absorb unwanted by-products by around mid-August, the rest of the time we are depleting the planet.

 

  1. We suggest that green growth is the mechanism by which a green economy grows. This leads to some challenging dilemmas, which if resolved, will provide some clarity. Does an economy grow in terms of its total value whilst remaining at some state of greenness or does an economy remain static whilst becoming greener? This is a manifestation of the growth or no growth debate on the future of economies. Or is it a bit of both? Is there an absolute yes/no state of affairs which defines a green economy - if the answer is no - then the mixed option is that an economy seeks to grow and at the same time metamorphose to be greener. So understanding what constitutes a green economy and how to measure it is an essential context for understanding where the Government wishes to travel and begins to bring the pieces of the jigsaw together.


Green Economy

 

  1. So what is a Green Economy?  The best definition we can find is from UNEP.  A green economy is defined as an economy that results in reducing environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. It is closely related with ecological economics, but has a more politically applied focus. The 2011 UNEP Green Economy Report argues "that to be green, an economy must not only be efficient, but also fair. Fairness implies recognising global and country level equity dimensions, particularly in assuring a just transition to an economy that is low- carbon, resource efficient, and socially inclusive”.
     
  2. There is widespread acceptance that there are in fact degrees of greenness. Even the UK Government’s aspiration of being the greenest has within it the concept of comparative shades of green. The debate we hear and see in the papers and in politics is whether becoming more green reduces competitiveness in world markets for an economy or whether it provides more opportunities to grow national income.  The ultimate in the greenness scale is 'One Planet Living'.  No country has achieved this yet, but on the other hand no country has been deemed to be not green at all.  Interestingly some countries have not very green economies but flourish because the economy is small compared to locally available natural resources reserves.
     
  3. So to articulate the relationships, the goal is to achieve the desired state of a green economy, however it is structured. This is achieved by green growth, which is facilitated by green investments and green finance particularly in green infrastructure. The mechanisms of finance can include instruments such as green bonds, crowd sourcing and paid ecosystems markets.  Natural capital and natural resources management are mechanisms which bring together the concepts of environmental and economic management in a practical way.  In Wales this purpose underpins the work of Natural Resources Wales and the recent proposal that a new duty be given to environmental regulators in England. The Society very much supports this important concept. We agree with the Chancellor’s statement in the Autumn 2015 Budget that going green should not cost the earth.
     
  4. What is the structure of a Green Economy? In the simplest terms it may be divided into economic activity from the exploitation of natural resources, perhaps defined as that arising from natural capital through ecosystem services, and economic activity from all other sectors.  All sectors should create value whilst not creating excessive cost - this is the basic concept of added value. All will have some sort of impact but it is not straightforward that green sector industries are necessarily deep green in colour and vice versa.
     
  5. So in extremis, it would be possible for a green sector industry like commercial fishing, including processing, to have high environmental impact by overfishing and irresponsible disposal of processing wastes, but for non-green sector manufacturing of high tech white goods to be environmentally responsible and carbon neutral. It must be recognised that all sectors contribute. Sustainable tourism and forestry, for example, must be promoted as key providers of green jobs in the economy, but there is a need for effort to ensure that good environmental practice is used by all sectors, for example by eradicating irresponsible waste management.  No sector should be excluded. There needs to be consideration on how taxes and incentives work normal to encourage all economic growth and a circular economy in a sustainable way.
     
  6. An economy has momentum, and infrastructure has replacement inertia.  So for example it takes a long time to replace power generation assets.  The challenge again is that commentators tend to focus on response to climate change and reliance on renewable energy as the central definition of a green economy. In our view a green economy can all industries, if they are managed sustainably but it has a massive challenge in becoming a deep green economy in the global competitive sense because of the central driver of renewable energy in the definition. Countries which have major and abundant sources of hydropower will always be difficult to beat. So an understanding of the total and exploitable natural resources of kinetic, potential, gravitational and radiant energy of the UK through wind turbines, solar arrays, hydropower, tidal power and so on will be key to increasing the green hue of the Country’s economy and must be supported.
     
  7. There are other elements in the ecological footprint of a Country other than carbon. This includes, for example, the impact on the state of nature, and of the need to move forward with a harmonious balance of the needs to improve the economy and the state of nature mechanisms in place particularly through the ways in which planning works. It is about nature conservation being at the heart of flourishing natural capital. The same is true for societal wellbeing.
     
  8. Regulators of natural resources should ensure that advice always converges on green growth towards a very green economy. Equally they must contribute by ensuring that in their roles as regulators, they are focussed on the same goals.  So once everyone is complying with consents and licences, there is a good platform to start thinking of the economy as being quite green. That requires ’fit for purpose’ consents and licences monitored sensibly and using the full force of law against abuses. These ‘fit for purpose’ consents etc must be based on sound legislation, strategies and policies.
     
  9. The Society suggests that there needs to be a national consensus on what we mean by a UK green economy and how we are going to manage it. We do not have space to elaborate the systems available to measure how green the economy is, but we commend a development of the Dual Citizen model, to which the UK contributes already, and we would be pleased to share further information with the Committee.

 

Green finance
 

  1. The Society is pleased that the financial markets are mobilising to provide the necessary support to develop green infrastructure and that standards will determine the robustness of these services. However the Society is concerned that caution has to be exercised in trading of any instruments so as to avoid the past mistakes of derivatives trading.  It therefore considers that the financial regulators must play a strong role.

 

Green taxes and incentives

  1. The previous Government published its definition of environmental taxes in 2012. The definition was designed to encourage effective policy making, and also measurement of progress against its pledge to increase the proportion of revenue that comes from environmental tax.

    Environmental taxes are defined as those which meet all of the following three principles:
  1. Applying these principles, the Treasury has identified the following taxes as environmental, and these will comprise the baseline against which the government’s commitment to increase the proportion of environmental tax revenue will be measured.

    The Office of Budget Responsibility forecasted that the proportion of revenue from these taxes would double by 2015-16.

 

  1. The Government saw this as an important step in meeting its commitments on environmental tax, and the broader determination to be the greenest government ever. Indeed, through policies such as the Carbon Price Floor, the Government foresaw that it would to double the proportion of environmental tax revenue by the end of the Parliament (the current Government has pulled back from the objective). In 2012 the OBR predicted that environmental taxes would rise from 2.5B£ out of 551B£ total tax (0.5%) in 2010/11, to 6.1B£ out of 660B£ (0.9%) in 2014/5 and to 6.6B£ out of 692B£ in 20156 (1.0%). However the ONS reported in 2014 that environmental taxes raised £44.6 billion in the UK in 2014.
  1. We are aware of the dismay over the announced changes in the Summer 2015 Budget to the Climate Change Levy (CCL).   From August 2015, the Government removed the exemption that businesses currently enjoy from the CCL for sourcing renewable energy. We do not wish to make an extended submission on renewable energy, but we are aware of the mixed reaction with considerable dismay, over the impact of the Autumn Statement. Whether or not more renewable energy is used is dependent on many factors beyond simple taxation, such as the role of DECC and the energy regulators on matters such as contract for difference auctions, capacity payments, feed in tariffs, but most particularly, the commodity market prices of fossil fuel. These are subject to geopolitical factors which make forward planning very difficult .But the Society supports all efforts to take a longer term view, that to follow what is needed in absolute scientific terms and to honour the international commitments such as the Paris Agreement, and to recognise the fact that sooner or later fossil fuels will run out and that they will get progressively more expensive, steps have to be taken now to increase the support given to renewable energy. We have to set aside the immediate issues of the continuing availability of cheap fossil fuels and prepare for the future. We are not sure if the Autumn Statement will help with this long term approach, although we commend the increase in investment in research .As is often said, and emphasised by the Chancellor in the Autumn Statement, more long term investments in infrastructure are needed. There does need to be a better balance between dealing with the immediate problems of the present and with those of a long term uncertain future. The current debates on investments in flood risk management highlight this.
     
  2. However there is a dilemma in all of this. Whilst the Society is not an expert taxation body, it would seem to us logical to see environmental taxes in the context of three categories
     
  1. This is an elaboration of the Treasury definition since pollution should be regulated sustainably first and not bought.  We agree with the report published by the Green Alliance. The use of natural capital accounting does not justify any retreat from environmental regulation. In a report comparing traditional conservation and newer natural capital approaches, published on 25 January, the think tank says there will be a continued need for a regulatory framework for nature as environmental threats to it rise.
     
  2. The Government wants a clear approach that delivers a positive environmental impact without adding burdens onto business or households. The Society is aware of the demands of austerity but also recognises these as the’ mother of innovation’ and we will suggest some ideas later. But it also recognises the difficult choices which have to be made in the competing demands on public finance. It is also aware of the potential burden which taxes may add to the costs of goods and services thus reducing competiveness, so we would urge all decisions on these matters to be based on the concept of ‘impact on goods and services to customers’, just how much does a tax cost the ultimate customer and in itself reduce competiveness? Perceptions should be based on objective data rather than subjective opinion.
     
  3. The Government will also continue to explore opportunities to further green the tax system through the course of the Parliament in a way that is consistent with the aims of tax simplification and deficit reduction. The Society suggests that the opportunity should be taken for a radical rethink of environmental taxes; an inspection of what is included now suggests a reflection of a collection of historical and separate initiatives rather than a consistent approach. Some natural resources are paid for in different ways such as abstraction charges for water which are paid to the appropriate regulators. We suggest that there should be broader integrated approach and that there should be, instead, a natural resources or future generations tax and incentive framework, which has the twin objectives of behavioural change and paying to use resources.  Furthermore the ambiguity of there being environmental elements in general taxes should be clarified and this should have a clear natural resources element as a subset.  This should include a good understanding of how natural resources research and development should be included in tax allowances.  There should be clear articulation of hypothecation. This change should be about better focussing management of resources and improving the environment and must not render the UK less competitive

 

Cross Departmental Working

  1. In order to effect these ideas, we commend the relevant Government departments, particularly BIS, DECC, and DEFRA to have an even closer relationship and of course the ONS and OBR providing objective data. We would also commend a better understanding by the Treasury of the impacts of restrictions on funding of the functions of Arms Length Bodies via the Sponsoring Departments, without any further intrusion into the front line delivery of functions by those Bodies.

 

Bibliography

OECD: Interim Report of the Green Growth Strategy. Implementing Our Commitment for a Sustainable Future (May 2010), and Towards a Green Economy. Pathways to a Sustainable Development and Poverty Eradication (Nov 2011)

Global Footprint Network and WWF websites

Dual Citizen LLC (J.Tamanini): Green Economy Index. Oct 2014

GovUK website. Definition of Environmental Tax (inc reference to OBR forecast)(July 2012), Summer Budget (July 2015), Autumn Statement (November 2015)

ONS: Environmental Taxes. June 2014

House of Commons Treasury Committee: Spending Review and Autumn Statement. Feb 2016

Green Alliance (S A Brown, W A Tripper, N Wheeler):  Natural Partners. Why Nature Conservation and Natural Capital Approaches Should Work Together.  Jan 2016

 

April 2016

1