CHAPTER 9 ENVIRONMENTAL INSTRUMENTS AND ECONOMIC OPPORTUNITIES
Economic progress and environmental sustainability are commonly viewed as competing objectives. While economic activity is a significant driver of environmental pressure, economic instruments such as environmental taxes can be used to alter human behaviour and help to deliver improved environmental outcomes. In addition, some forms of economic activity have a positive impact on the environment, for example, various environmental protection activities and certain types of R&D activity. By fostering these types of activities, an economy is able to decouple economic growth and adverse environmental outcomes.
This chapter presents a range of data on environmentally related economic instruments, and on activities that generate both economic output and positive environmental outcomes. The chapter first looks at government initiatives, with a focus on environmental taxes. The recent ABS paper Environmental Taxes in Australia - Experimental New Statistics (ABS cat. no. 4629.0.55.001) provides the basis for discussion. Areas measured include environmental taxation revenues over time, as well as an industry (plus households) breakdown of the level of environmental taxes paid. Environmental subsidies and permits are touched on, however, data on these areas are still in the early stages of development.
Economic opportunities resulting from protecting and managing the environment are then examined, focusing on innovation and technology; indicators profiled include environmental R&D expenditure by the public and corporate sectors. There is currently a dearth of statistics on economic growth originating from environmental protection activities. However, what data there are can be used to gauge the extent of economic activity arising from the demand for environmental protection based products. In line with this, measures are underpinned by previously unpublished data sourced from the ABS Economic Activity 2010-11 survey and cover aspects of air emissions management by industry.
Data sources for indicators
The indicators presented in this chapter are supported by a number of the accounts from the SEEA Central Framework. The two main accounts are the Environmental Protection Expenditure Account (EPEA) and the Environmental Goods and Services Sector account. Both focus on the production and use of goods and services in the economy that can be defined as being for the purpose of environmental protection, natural resource management or "green". Neither the environmental protection expenditure accounts nor an environmental goods and services sector account are produced by the ABS at present.
The ABS has published experimental estimates of environmental tax revenues in Completing the Picture - Environmental Accounting in Practice (cat. no. 4628.0.55.001). A more comprehensive investigation of environmental taxes was contained in the recent ABS discussion paper Environmental taxes in Australia - Experimental new statistics (ABS cat. no. 4629.0.55.001). These statistics were compiled in accordance with the SEEA Central Framework and as such provide statistics coherent with the information contained in the ASNA, as well as the suite of other environmental accounts(footnote 1) produced by the ABS. Statistics on environmental taxes have the potential to inform environmental policy and decision making. In particular, environmental taxes can be used to achieve improved outcomes for the environment as well as to provide incentive for innovation(footnote 2) .
Economic activity places various stresses on the environment, including, by producing waste; emitting pollutants into the air and water; and using natural resources. Society’s contribution to environmental problems can also be created in an indirect way; for example, by consuming goods and services in which emissions are discharged during the production process. One of the policy instruments to reduce environmental damage is to impose taxes on harmful products and activities.
According to the SEEA Central Framework “an environmental tax is a tax whose tax base is a physical unit (or a proxy of it) of something that has a proven, negative impact on the environment”(footnote 3) thereby increasing the price on activities and products that are harmful to the environment. Environmental taxes encourage consumers and producers to adjust their consumption and production patterns to achieve cost reductions and, as a consequence of the changes in consumption and production, better environmental outcomes. Monitoring these taxes can provide useful information for assessing how economic instruments can achieve these changes.
There are at least 125 types of taxes in Australia(footnote 4) . Of these, the majority are levied by the Australian Commonwealth government. In 2009-10, almost 15 million individuals, companies, partnerships or trusts lodged a tax return in Australia, with individuals representing the largest tax payer category at 85% of the total number of tax payers.
In 2010-11 environmental taxes amounted to $26 billion or 7% of total tax revenues and equated to 2% of GDP. Environmental taxes as a proportion of GDP have decreased in the past 10 years (see Figure 9.1). The largest contributor to tax revenue from environmental taxes is excise duty on crude oil and LPG, accounting for 65% by value of total environmental taxes in 2010-11.
Figure 9.1 Environmental Taxation Revenue, Australia - 2000-01 to 2010-11, $m, Current Prices
|Crude oil, LPG, gas and petroleum products |
|Petroleum products taxes |
|Ozone protection and synthetic GHG(a) |
|Renewable energy certificates(b) |
|Stamp duty on vehicle registration |
|Road maintenance and heavy vehicles duty (import)(c) |
|Luxury car tax(d) |
|Passenger motor vehicles duty (import)(a) |
|Total environmental taxes |
|% of GDP(e) |
|% of total tax rev(e) |
|(a) Department of Sustainability, Environment, Water, Population and Communities |
|(b) Clean Energy Regulators |
|(c) Also includes transfer fees, motor vehicle weight/Engine capacity tax. |
|(d) Government budget 2011 |
|(e) Not including Renewable energy certificates as the aggregates GDP and total tax revenues exclude these. |
|Source: Taxation revenue 2010-11 (ABS cat.no. 5506.0) |
|Note: na = Not applicable, no tax implemented at that point in time |
Figure 9.2 plots changes in current price estimates of total taxes, environmental taxes and GDP between 2001-02 and 2010-11. Over this period, total taxes rose faster than environmental taxes, while GDP grew more rapidly than either of these categories of taxes.
Figure 9.3 presents information on environmental taxes broken down by industry and households for 2000-01, 2005-06 and 2010-11. Industry pays approximately 67% of environmental taxes while household’s share is about 33%. Households account for 30% of total energy taxes and 44% of total transport taxes.
Figure 9.3 Environmental taxes by industry and households, Australia - 2000-01 to 2010-11, $m, Current Prices
|Not allocated(a) |
|(a) Gas franchise taxes and Petroleum products franchise taxes, Ozone Protection and synthetic GHG |
|Source: Discussion paper: Environmental taxes in Australia - experimental new statistics (ABS cat. No. 4629.0.55.001) |
The manufacturing industry made the highest contribution to energy taxes paid by any industry (39%) in 2010-11, while services contributed most to total transport taxes paid by industry (62%).
In 2010-11, the Agriculture industry paid around 3% of energy taxes, but accounted for 23% of GHG emissions. However, one third of these GHG emissions stem from changes in land use and deforestation, which do not relate to the use of energy products. Conversely, GHG emissions from the electricity, gas, water and waste services industry (EGW&W) account for close to 40% of total GHG emissions by Australian industry, but this industry contributes only 10% of energy taxes.
Figure 9.4 presents information on environmental taxes paid by industries between 2000-01 and 2010-11. The manufacturing industry was the most significant industry contributor to environmental taxes paid throughout this period. The EGW&W industry saw the most significant relative rise in the amount paid towards environmental taxes, recording an increase of 680%. An increase in taxes related to energy activities over the period represented the bulk of this rise. Despite this, the amount of environmental taxes paid by the EGW&W industry per annum was less than the manufacturing, commercial and services, mining and transport industries throughout the decade preceding 2010-11.
Economic opportunities arising from sustainable growth
At present, there are limited statistics on economic growth originating from the provision of environmental protection services. The definition of these services is problematic and collecting data in this area typically requires either specialised surveys, or detailed information on productive activities. Although no recent and comprehensive data for these activities are available, information is available for various categories of environmental protection expenditure. These data provide valuable information for policy-makers in a number of important areas.
Air emissions management activities
Air emissions management in this context relates to efforts by industry to ameliorate air quality problems through economic activities and processes such as:
- energy consumption that requires the burning of fossil fuels (oil, gas and coal) and results in the release of climate changing greenhouse gases and air pollution;
- the release of fumes, odours and emissions from products or processes that are used; and
- the use of motor vehicles for transportation of goods(footnote 5) .
Air emissions management can include activities such as managing air quality inside an economic unit’s premises (e.g. ensuring air conditioning systems do not contain Legionnaires disease), as well as reducing the emissions of pollution due to economic production (e.g. reducing the amount of smoke or fine particle pollution emitted from chimneys).
Figure 9.5 illustrates that construction, followed by manufacturing and mining were the largest contributors to total industry spending on air emissions management during 2010-11.
Figure 9.6 presents the capital expenditure by industry to reduce air emissions. Australian industry’s spending on capital to reduce its contribution to air emissions exceeded $37.6m during 2010-11. However, this represented less than 1% of total capital expenditure by Australian businesses during the same period.
The mining and wholesale trade industries were the biggest contributors to capital expenditure aimed at reducing air emissions, together contributing 94% of all industry spending in this area. Within the mining industry, the vast majority of expenditure was by the metal ore, and coal mining subdivisions of the industry.
Wholesale trade was the second biggest individual investor in equipment to reduce its emissions to air, spending roughly $16.4m during 2010-11. The wholesale trade industry largely comprises businesses engaged in the purchase and on selling, and the commission based buying and selling of goods, without significant transformation, to other businesses.
Environmental research and development (R&D)
Technology developments and innovation are important drivers for growth and productivity in the economy. They are also important for managing energy and material flows successfully and have a bearing on policies intended to preserve natural resources and materials and minimise pollution burden. R&D is a key element of attempts to decouple environmental pressure from economic growth.
Innovation is clearly central to moving an economy onto a more sustainable growth trajectory. Businesses have an important role to play in adopting greener management approaches; developing and using new technologies; carrying out R&D and delivering innovation. Businesses, along with governments, also play an important role in providing consumers with the information needed to make purchasing choices that reduce the environmental impact of consumption.
The most significant items of environmental R&D include policy frameworks, and knowledge and management of the environment. Another element of R&D in this area relates to environmental protection expenditure (EPE). This includes expenditure to reduce or prevent emissions to air or water, to dispose of waste materials, to protect soil and groundwater, to prevent noise and vibration, or to protect the natural environment.
Figure 9.7 shows that expenditure on environmental R&D as a percentage of total gross fixed capital formation (GFCF) across all sectors of the Australian economy fell from 7% in 1992-93 to 5% in 2008-09. In absolute terms, however, expenditure in environmental R&D has recorded a steady rise over the same period, with spending by government (both Commonwealth, and State and Territory) increasing by over two and a half times and investment by business increasing by over 300%. Spending by other institutions (higher education and non-profit organisations) also rose sharply increasing by over 300% between 1992-93 and 2008-09.
Australian authorities have provided broad-based support for R&D, notably through tax breaks, which have proved beneficial to environmental R&D investment. In May 2007, the Australian government further boosted R&D investment with a 10-year, $1.4 b package. The initiative was particularly supportive of environmental research, with the objective of fostering a more sustainable and internationally competitive business sector.
Recovery of landfill emissions for economic uses
A significant by-product of waste disposal is gas emissions into the atmosphere. When organic waste decomposes in landfills, it releases methane and other greenhouse gases, contributing to climate change. Similarly, greenhouse gases are also emitted during the treatment and processing of waste water and sewage, and during the incineration of waste.
Gas captured at Australian landfills can be utilised for many different purposes. Typically it is used as a fuel for electricity generation, but it can also be used to fuel nearby industrial facilities, or processed and sold to gas providers.
Figure 9.8 presents information on the level of landfill emissions, together with the proportion recovered over time in Australia. Total landfill emissions in Australia rose by roughly 38% between 1990 and 2008. However the greater use of methods to recover greenhouse gases from landfills for use in the production of energy means the change in net emissions related to landfill management has been more modest (8%). In 2008, around 28% of landfill emissions in Australia were recovered compared to less than 1% in 1990.
1 Energy Account, Australia
(ABS cat. no. 4604.0); Water Account, Australia
(ABS cat. no. 4610.0), Waste Account, Australia
(ABS cat no. 4602.0.55.005) <back
2 OECD 2010: Taxation, Innovation and the Environment <back
3 SEEA 2012, para. 4.150 <back
4 Discussion paper: Environmental taxes in Australia – experimental new statistics
(ABS cat. no. 4629.0.55.001) <back
5 Environment and Heritage, NSW Government http://www.environment.nsw.gov.au/sustainbus/smallfactair.htm <back