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Learning Journal 5
Learning Journal 5
0
International
developments and
initiatives supporting
green fiscal reform
international developments and
initiatives supporting
green fiscal reform
Copyright © UNITAR, United Nations Institute for Training and Research, 2016,
on behalf of PAGE.
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Course authors:
Giuliano Montanari, Maya Valcheva, Amrei Horstbrink (UNITAR); Philip Gass (IISD)
Contributors:
Jason Dion (IISD); Sirini Withana (UN Environment); Sarwat Chowdhury, Massimiliano Riva
(UNDP).
Creative Concept:
Arturo Rago (UNITAR)
Graphic Design:
Pilar Lagos (UNITAR)
Photo credits
Unless stated otherwise, the photos used in the journal are under a Creative Commons license.
TABLE OF CONTENTS
Introduction 5
OVERVIEW 6
MAJOR INTERNATIONAL FRAMEWORKS RELEVANT TO FISCAL AND ENVIRONMENTAL POLICY 6
A NEW AGENGA FOR ALL THE COUNTRIES 8
FINANCING THE DEVELOPMENT AGENDA 9
MOVING TO A LOW-CARBON ECONOMY UNDER CLIMATE CHANGE 10
agenda 2030
OVERVIEW 12
ACHIEVING SDGS THROUGH FISCAL INSTRUMENTS 12
CUTTING ACROSS THE AGENDA 15
5 references 30
ABBREVIATIONS 31
4
5
Introduction
Fiscal policy is primarily a national issue, fiscal reform. Lesson 1 places green fiscal
but it interlinks with developments at policy within current global frameworks, such
the international level as well. Trade, as the Agenda 2030 and the Sustainable
development assistance or regional Development Goals. Lesson 2 presents in
cooperation –think of the EU, ASEAN, more detail existing initiatives and networks
development banks for example– all affect that support researchers and policymakers
the management of public finances. around the globe in the design and
In recent years, the international community implementation of green fiscal policies.
has been active in establishing new and After completing the module, participants will
ambitious agendas related to both sustainable be able to:
development and the climate. These agendas • Explain how green fiscal reform can
will depend to a significant degree on sound advance the new 2030 development
fiscal policy to reflect changing priorities in agenda.
the way governments use public resources. • Discuss selected Sustainable
Recognizing the important role of fiscal policy Development Goals and targets that can
to achieve national and global goals, initiatives be advanced through green fiscal reform.
and networks are forming to assist countries in • Identify initiatives and networks pertinent
making the best use of revenue collection and to the area of green fiscal reform.
expenditure. • Describe how collaboration on
Module 5 identifies international international or regional level can
developments and efforts to advance green support national policy reform.
1
6
international developments
and the new agenda 2030
The global framework for political action on commonly shared challenges
evolves steadily.The international community remains committed to
sustainable development by adopting the 2030 development agenda.
OVERVIEW
A number of high-level conferences on Many of the outcomes also inform national
sustainable development discussed various efforts to put green fiscal instruments to
challenges at the interface of socioeconomic work.
development and the environment in recent This lesson outlines central outcomes of major
decades. international conferences that relate to fiscal
and environmental policy solutions
1 The main outcome document, Agenda 21, promotes “making effective use of economic instruments
and market and other incentives” (UNCED 1992, Ch. 8). See also Principle 16 of the Rio
Declaration on Environment and Development.
7
BOX 1:
CONVENTION ON BIOLOGICAL DIVERSITY
The 2002 Johannesburg World Summit for policy solutions. In the outcome document
Sustainable Development emphasized the “The Future We Want“, states recognize “that
interlinked relation between the environment fundamental changes in the way societies consume
and poverty reduction. One of the outcome and produce” are necessary, pointing to the
documents, the “Johannesburg Plan of potential of appropriate economic incentives and
Implementation”, explicitly advocates for sustainable public procurement.
internalization of environmental costs via economic
instruments. It furthermore reaffirmed the polluter In addition, the problematic role of harmful
pays principle (WSSD 2002, 9) fisheries and fossil fuel subsidies is reaffirmed.
For example, states are invited to “consider
Rio+20 – the 2012 follow-up conference to the rationalizing inefficient fossil fuel subsidies
1992 summit – featured a high-level summit by removing market distortions, including
that renewed global political commitment for restructuring taxation and phasing out harmful
sustainable development. It examined, inter alia, subsidies (…)” (UNGA 2012, 43)
how a green economy could provide contemporary
BOX 2:
UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE (UNFCCC)
The objective of the UNFCCC is to due to the combustion of fossil fuels and
stabilize greenhouse gas concentrations land use change. Actions to curb climate
in the atmosphere at a level that would change are negotiated and adopted at
prevent dangerous anthropogenic the Conference of the Parties (COPs)
interference with the climate system. which take place every year. Over time,
The basic measure is the concentration several market-based instruments were
of carbon dioxide in the atmosphere developed to protect the climate, such as
(parts per million or ppm). It has risen Joint Implementation (JI) and the Clean
from 280 ppm before the industrial Development Mechanism (CDM) (click on
revolution to over 400 ppm in 2016 UNFCCC for more info).
8
The SDGs come with a specified set 230 indicators have been proposed and
of 169 targets. At the moment, global preliminarily agreed on. The indicators
indicators are being formulated by the establish a common framework for
Inter-agency and Expert Group on measuring progress and are expected to
SDG Indicators (IAEG-SDGs) with be adopted by the UN General Assembly
support from member states. A total of in 20172.
2 For the latest on the process, please consult the UN Sustainable Development Platform. The
website provides main documents as well as extensive information on a range of topics related to
the new development agenda.
9
The financial architecture for achieving the innovation, trade and capacity building.
SDGs was in large part prepared by the third It explicitly emphasizes the need for adequate
UN International Conference on Financing fiscal space, modernized, progressive tax
for Development held in July 2015 in Addis systems, improved tax policy, reducing tax
Ababa, Ethiopia. evasion and broadening the tax base (UNGA
2015a).
Countries agreed to provide a financial
foundation for implementing the new global Together with the Agenda 2030 and the
sustainable development agenda. Paris Agreement, the AAAA represents a key
global milestone that will help redirect public
The agreement –the Addis Ababa Action and private finance to work for pro-poor, low-
Agenda (AAAA)– addresses various sources carbon solutions.
of finance including mobilizing domestic
revenue, and covers cooperation on a range Importantly, policymakers can refer to these
of issues including technology, science, international documents to build legitimacy
for green fiscal reform at the national level.
10
4 Article 2, Paragraph 1 (c) and 9, Paragraph 3 of the Paris Agreement (UNFCCC 2015) explicitly
acknowledge the important role of consistent financial flows, and public funds in particular, to
mobilize action on climate change. The Global Landscape of Climate Finance reports by the
Climate Policy Initiative provide a concise overview of financial flows worldwide (CPI 2015).
11
BOX 3:
KEY PROVISIONS OF THE PARIS AGREEMENT
Similarly, the Group of 20 (G20) committed The G20 also established two groups with a
to rationalize and phase out inefficient fossil mandate to identify challenges to mobilize
fuel subsidies over the medium term. private and public funds for green and climate
finance, i.e. the Green Finance Study Group
All member countries are encouraged to (GFSG) and the Climate Finance Study
participate in a voluntary review of their fossil Group (CFSG).
fuel subsidies. China and the US, however,
vowed to publish their mutually peer-reviewed The groups’ reports seek to develop specific
fossil fuel subsidies in an attempt to single out policy options for countries to choose from5.
and cut the most inefficient subsidies.
Overview
The linkage of the Sustainable Development issues like decent jobs creation (SDG 8)
Goals and green fiscal reform is very or strengthening means of implementation
obvious in the case of, for example, (SDG17; also a core element of the AAAA)
regulating natural resources or supporting can be supported as well through shifting
green infrastructure. public financial flows accordingly.
By correcting distorted prices, GFR can This lesson discusses how selected SDGs
promote sustainable water (SDG 6), energy can be advanced through fiscal instruments
(SDG 7) or ecosystems services (SDG 15), (2.2) and illustrates ways in which direct
among others. However, non-environmental and indirect impacts result in further
development benefits (2.3).
Given its emphasis on pricing, focusing on It is this versatility that makes fiscal
goods and services traded in the market instruments so useful in the pursuit of the
place, GFR affects almost all SDGs. SDGs.
Building resilient infrastructure (SDG 9), Against this background, the new
taking action on climate change (SDG 13) development agenda recognizes the
or conserving marine resources (SDG 14) important role of governments in regulating
can all be advanced by fiscal policy, i.e. by economic incentives that contribute to the
appropriate economic incentives. achievement of the goals (see Table 1)6.
6 For instance, the specified target 4 of SDG 10 (Reduce inequality within and among countries) explicitly
refers to fiscal policies as a tool to achieve greater equality.
13
7 For discussion on how fiscal policy promotes other SDGs as well, see UNEP (2016).
14
REFLECTION POINT
Looking at the goals in Table 1 do you identify SDGs other than the ones discussed here,
that fiscal instruments can advance? If so, how?
clean cookstoves
SDG 12
Ensuring sustainable
consumption and SDG 3
production Ensuring healthy
lives and well-being
improve
air quality
psychological
phase out old products
benefits
manage
health risks
healthier, mobility
choices; safer traffic
promote public transport
SDG 11
Make cities and
human settlements
direct impact inclusive, safe,
resilient, sustainable
indirect impact
Or take the example of more equal societies Principle 13 of the Agenda document
(SDG 10). Measures like increased progressive (UNGA 2015b) acknowledges this
taxation, transfer programmes (IMF 2015) or interrelated nature of the challenges and
a financial transaction tax can render income commitments concerning sustainable
distribution more balanced, with considerable development. In short, achieving the SDGs
positive effects on the health and well-being of requires integrated solutions.
entire communities.
video 1
TEDX SPEAKER RICHARD WILKINSON,
ON HOW ECONOMIC INEQUALITY HARMS
SOCIETIES IN DEVELOPED COUNTRIES
Overview
Since the beginning of modern states, fiscal recent years, information and experience-
policy has been considered a core right of sharing on green fiscal policy reform have
national government. become more pronounced though.
Collaboration in fiscal affairs among countries This lesson presents selected global initiatives
was traditionally low as a result. With growing in support of greening fiscal policy (3.2) and
experiences with green fiscal reforms and describes how collaboration can assist green
the agenda attracting increased attention in fiscal reform at the national level (3.3).
8 These two international organisations are also known as the Bretton Woods Institutions (BWIs).
19
9 For example, IMF analysis (2014) informs reform efforts through estimating the benefits of corrective
taxes on fossil fuels in a wide range of countries
10
The report is prepared by the IMF’s Fiscal Affairs Department twice a year, featuring a special topic in
each edition.
11
For more information on recent developments and key publications, please visit the IMF website on
reforming energy subsidies. The site also lists expert blogs.
The OECD has a long tradition in advisory on the global development and implementation
fiscal issues –also beyond member countries– of standards and best practices that work
and maintains the Centre for Taxation Policy for all, whether OECD countries, emerging
and Administration. The Centre covers economies or developing countries. It does so
topics, such as planning, policy analysis, global through various initiatives, among them:
relations and others more. • Task Force on Tax and Development –
e.g. by supporting developing countries
Work on planning aims to improve to enhance tax collection in extractive
international tax cooperation between industries and to curb wasteful tax
governments to counter international tax incentives;
avoidance and evasion. • Advisory Group for Cooperation with
Non-OECD Economies – e.g. by
The Base Erosion and Profit Shifting establishing fiscal policy dialogue across
(BEPS) project in particular refers to tax countries and serving as a channel to
planning strategies that exploit gaps in the influence the future direction of the
international tax system to artificially shift OECD’s partnership with the developing
profits to places where there is little or no world;
economic activity or taxation12. • Latin America and the Caribbean (LAC)
Fiscal Initiative – e.g. by organizing
Tax policy analysis is carried out to deliver regional fora, capacity building workshops
high-quality economic analysis and tax and joint publications with key fiscal
policy advice and to provide internationally institutions in the region.
comparable revenue statistics.
Fiscal reformers may use the Environment
Fiscal reformers interested in state-of-the- Directorate’s database on instruments for
art recommendations may benefit from environmental policy and natural resource
detailed and regular analyses, such as the management for comparison. The database
OECD’s Tax Policy Studies and the Tax is updated regularly and features easily
Working Papers. accessible information on national rates
related to taxes, charges and fees, tradable
The Centre’s global relations work has the permits, environmental subsidies and more. It
primary objective of expanding the global covers member and (selected) non-member
dialogue on relevant issues in order to enable countries.
PAGE focuses on reframing economic The 2011 flagship report, Towards a Green Economy
policymaking of countries or regions to advance (UNEP 2011) identified fiscal policies as a central
the Agenda 2030. The Partnership brings element of the wider policy toolbox for the transition
together the expertise of five UN agencies – to an inclusive green economy. The programme’s
UN Environment, ILO, UNDP, UNIDO and Fiscal Policy work stream14 focuses on: research and
UNITAR– and works closely together with analysis of green fiscal policies, knowledge sharing and
governments, delivering technical assistance and dissemination, policy dialogue.
capacity building.
UN Environment undertakes analysis on green fiscal
The specific policy focus varies from country policies across different sectors and provides advice to
to country, with fiscal policy typically being countries on how fiscal instruments can support the
one of the key mechanisms to drive change. inclusive green economy and delivery of the SDGs.
Reforms of both revenue and expenditure are Country studies identify options to reform fiscal
proposed following rigorous assessment of the policies to mobilize domestic resources and create
country’s or region’s economy and suitable fiscal space for green investment, while addressing
green economy indicators. Whenever feasible, environmental externalities and social equity issues.
economic modelling is used to project the impact Sector studies examine the role of fiscal reforms in
of intended policy interventions. specific sectors such as water and extractive industries;
the use of natural resource revenues through sovereign
The Partnership currently collaborates with 13 wealth funds to support the SDGs; and cross-sector
countries13 and maintains the so-called PAGE impacts of fiscal policies in relevant sectors (e.g.
Exchange in which non-PAGE countries can share agriculture, energy).
their initiatives, policies and lessons learned with
the community. The programme works with a range of partners
including fiscal authorities such as the IMF,
Furthermore, its website features a free package development agencies such as the German
of introductory learning materials on green Development Cooperation (GIZ), academic
economy and related policies, including fiscal institutions, think tanks and green fiscal policy experts
instruments. such as the Global Subsidies Initiative (GSI), Green
Budget Europe (GBE) and national research institutes,
to provide policy advice, develop knowledge products
and host technical workshops which facilitate policy
dialogue among experts and policymakers on the role
of fiscal policy in the transition to a green economy.
Photo: BMUB/ThomasTrutschel
23
The website serves to share knowledge For example, a Subsidy Watch Blog tracks
products and latest research structured along news, commentaries and analyses related to
different subsidized items, i.e. fossil fuel, subsidies.
biofuel, renewable electricity, irrigation, and
trade. An interactive map tool (Figure 3) allows
for visualizing GSI’s subsidy database along
The resources section features information different categories such as consumption
suitable for both non- experts and experienced or production subsidies for various fuels and
practitioners. countries, per capita and total government
spending etc.
FFFSR is an informal group of non-G20 Current members of the group are Costa
countries working to build political consensus Rica, Denmark, Ethiopia, Finland, New
on the importance of fossil fuel subsidy Zealand, Norway, Sweden, Switzerland
reform. It addresses international fora such and Uruguay. Many more countries,
as the G20, World Bank, OECD, Asia non-governmental organizations and
Pacific Economic Cooperation (APEC), major corporations support the group’s
UNFCCC and the 2030 Development Communiqué, a call on the global
Agenda to promote the benefits of reform community to increase efforts to phase out
among governments. fossil fuel subsidies18.
18 The search function allows for targeted search of learning resources along a wide range of
criteria, e.g. sector, region, organization, country etc.
26
19 As we have seen, the case of environmental leakage illustrates that green fiscal policies are not immune to
these risks. Even a well-meaning policy that, say, places a high cost on carbon emissions, may result in perverse
incentives that run counter to the desired outcome.
20 The EU Emissions Trading System legislation, for instance, provides for the possibility to link the EU ETS with
other compatible emissions trading systems in the world at national or regional level.
27
REFLECTION POINT
Internalizing the regional cost of externalities can be a driver for regional/global
collaboration on fiscal issues.
In your own regional context, is there a sector or a pressing issue that might promote
regional fiscal collaboration? Are there any windows of opportunity to support GFR?
Now that we concluded the final module to establish dialogue or seek assistance.
of this course on green fiscal reform, it is The green fiscal reform community is
up to you to make a positive change! As we growing steadily, persuading more and more
have seen throughout the discussions, fiscal citizens, stakeholders and leaders around
instruments offer versatile tools to develop the world. You are a part of it now.
and incentivize societies for the better, i.e.
to become more sustainable, equitable, Reach out beyond your community!
prosperous and innovative. Try to engage stakeholders that are not
like-minded but potentially powerful
How to achieve change? Even though the agents for change. Green fiscal reform is
task seems enormous, there are concrete about multiple goals and benefits. It might,
steps that you can take to build momentum however, still be perceived as expensive,
for green fiscal reform. complicated and detrimental to the national
economy. You now have arguments to
Forge alliances! counter such criticism and help design and
Actively approach the various initiatives and implement fiscal reforms that work for your
organizations working on green fiscal reform country.
28
key
learning points
1
Various international agreements underscore the importance of economic instruments to
achieve sustainable development.
2
Given its emphasis on prices, focusing on goods and services traded in the market place, and
its revenue raising potential, green fiscal reform affects almost all SDGs.
3
Green fiscal reform can have direct and indirect impacts on SDGs with beneficial outcomes.
4
International collaboration can assist green fiscal reform through dissemination of good
practices and policy dialogue, regional economic integration, facilitating greater ambition, and
the creation of international markets for tradable permits or allowances.
30
REFERENCES
Colchero, M.A., and S. Ng (2015) Changes in Prices After an Excise Tax to Sweetened Sugar
Beverages Was Implemented in Mexico: Evidence from Urban Areas.
IMF (2014) Getting Energy Prices Right. From Principle to Practice. Washington, DC.
— (2015) Harnessing the Power of Fiscal Policy to Mitigate Inequality. Washington, DC.
— (2016) After Paris: Fiscal, Macroeconomic, and Financial Implications of Climate Change,
IMF Staff Discussion Note. Washington, DC.
OECD (2013) The Swedish Tax on Nitrogen Dioxide Emissions, Lessons in Environmental Policy
Reform, Environment Policy Paper No. 2. Paris.
UNEP (2011) Towards a Green Economy. Pathways to Sustainable Development and Poverty
Eradication. Nairobi.
— (2016) Fiscal Policies and the SDGs. Policy Brief. Geneva.
— (2015b) A/RES/70/1 Transforming Our World: The 2030 Agenda for Sustainable
Development. World Future Council et al. 2013. Powering Africa through Feed-in Tariffs.
Advancing renewable energy to meet the continent’s. Nairobi.
Abbreviations