GREEN TAXES
During the late 1980s, the UK government showed a growing interest in environmental issues. However, instead of imposing new regulations on industry or consumers to protect the environment, it developed a preference for market based solutions such as tax incentives. Thus, the idea of greening tax system took off.

The theory has been taking root and developing ever since, gaining acceptance even among more left-wing thinkers. For example, institutes such as Institute for Public Policy Research is one of the main champions of ecological tax reform, whereby the burden of taxation would be shifted away from economic "goods" such as employment, and on to "bads" such as damaging the environment.

i. STATUS IN VARIOUS COUNTRIES IN EU
Commission plans to impose green taxation (energy taxation) throughout Europe. This was met with several objections and opposition by the various countries such as France, Spain, Greece, etc. However, concerns over climate change, and interests of countries such as Germany, Ausrian and Finland have improved the energy taxation’s prospects considerably.¹

Germany’s energy tax was finally approved by the European Union in 1999², after facing several hitchbacks due to its tax gave exemption to energy-intensive industries.³ The German cabinet have agreed to the next round of green taxes, which includes a commitment to introduce fuel tax and electricty price rise in each of the next four years. From 2000, the road fuel duty is to be increased by Euro0.03 (6 pfennings) per litre for both diesel and gasoline. The German parliament proposes to increase this duty annually by the same amount till 2003. However, this has met with criticism from the environmentalist, as according to them, the increase is not large enough to affect CO₂ emissions.⁴

It was also agreed to introduce an incentive for low sulphur diesel and gasoline, which at Euro0.015 per litre was higher than what the governemnt had initially proposed but lower than what had been wanted by the environmental groups and the car industry. The incentive will be introduced in 2001 and will apply to fuels with sulphur content of less than 50ppm. In order to encourage the use and development pf fuel with even less sulphur, from 2003 the incentives will apply to fuel with sulphur levels of no more than 10ppm.¹³

The Dutch government is reported to be considering the use of range of fiscal incentive for inclusions in a national transport strategy. The distance based road tolls are high on the list of measures being considered. A discussion paper proposed that the measure would be revenue-neutral as existing weight based taxes would be cut. The measure is intended to put into practice the "polluter pays" principle. The Dutch have a target of reducing CO2 emissions by 10% from 2010 from 1986 levels (which is very difficult to meet). Emissions level are 25% higher than they were in base year.⁶

California also levies a tax of $300 on cars from outside the state assuming that it would be more polluting as it has not been manufactured to Californian emission standards. The tax was ruled to be unconstitutional by a judge is 1997, however, Department of Motor Vehicles (DMV) has appealed against this judgement.⁷

UK was the first country to have adopted the system of green taxes. The ‘climate change levy’ was introduced in the British Parliament. The climate change levy on the commercial and industrial use of energy is one of the measures that the government intends to use to ensure that UK meets its international commitments under Kyoto Protocol. Consensus has to be reached on this levy from representatives of industry. The largest users of energy (industries) have been offered 50% discounts if they agree to adopt more energy efficient systems.⁸

Japan’s Ministry of Transport (MOT) has got together with the country’s Environment Agency in an attempt to green the national vehicle taxation system. This move was opposed by the car industry, the Ministry of Finance and the Ministry of Construction. The proposed tax would be graduated according to the fuel efficiency with less efficient cars paying an increased tax and more efficient cars paying less tax. However, this proposal was opposed by car industry claiming that it would put people off buying larger cars. Thus, it was decided not increase tax on less efficient model but only to reduce tax for the more efficient models. However, this too met with opposition from Finance Ministry.⁹

Japan has nothing close to the level of environmental taxation in some European countries. However, concern over global warming and diesel emissions, have spurred to government into action, which has resulted in investigation into introduction of environment taxes. The investigation is still in its early stages and is being undertaken by a sub-panel of the Government’s Tax Commission. Under the 1997 Kyoto Protocol, Japan has to reduce CO₂ emissions by 6% on 1990 figures by 21008-2012. In order to acheive this, the government has to take steps to introduce tax by 2002. The tax could take the form of Carbon tax similar to those introduced in some northern European countries.

The Commission is also looking at the possibility of raising taxes on diesel, which are currently relatively low. A plan has been put forward to require all diesel powered vehicles to fit emission powered devices, to introduce toll on all diesel vehicles entering the city and to push for road pricing to be introduced in the city.¹²

France too has made a proposal to introduce an energy tax. The new tax will become a part of the Government’s general pollution tax, the TGAP. The proposal is not yet detailed but the paper indicates that the final consumption of electricity would be included, as would heavy fuel oils, heating oils, natural gas and coal.¹⁰ French government has announced an increase of Euro0.01 on the taxes for diesel.¹⁴

The Swiss parliament approved the new energy tax. The main thrust of the plan is to encourage the use of renewable energy and decrease the use of fossil fuels. Switzerland is commited to reduce its CO₂ emissions by 10% on 1990 levels by 2010. This also includes a target to reduce emissions from motor fuels by 8%. The government has committed itself to further taxation if by 2004, the targets look as though they might not be achieved. The maximum tax would be equivalent to Sfr0.5 per litre of gasoline, but the law allows for different rates to be levied on different fuels.¹⁵

India still lags behind in regulation formulation or its implementation. No environmental/green taxes have been formulated to promote better fuel quality, or environment friendly cars, etc.

ii. CASE STUDY OF UK⁵
By and large, the practice has lagged behind the theory, and there is little to show for years of discussion and endless policy papers. Transport, however, is the one area of UK policy, which provides the exception, as major changes to the tax structure have been introduced.

THE GREENING OF TRANSPORT TAXATION⁵
The first notable attempt to green fuel duty was the imposition of a duty differential between leaded and unleaded gasoline in the late 1980s. The differential was small at first but increased progressively in successive budgets, helping unleaded sales to grow from virtually nothing in 1987 to 37% by the end of 1990.

As this policy continued into the 1990s, climate change began to emerge as a major environmental issue. As a central plank of the UK’s first climate strategy, a fuel duty escalator was imposed to increase the duty by 3% per year in real terms. This policy continues to this day and now runs at 6% per year.

Reflecting growing concern over particulate emissions, the duty on diesel has risen even more steeply, with the result that the UK is the only EU member state in which diesel is now more expensive than gasoline. The latter rises were however associated with a lower rate of duty on low sulphur city diesel, to help counteract its higher production costs and increase sales.

The road vehicles have not escaped the growing zeal for graduated taxes. Vehicle excise duty (VED) on heavy goods vehicles has varied for many years according to the number of axles and the axle weights. Tax levels rise steeply for heavier trucks, although this is to reflect road damage rather than other environmental criteria. Some discounts are also available to encourage exhaust emissions control retrofits on trucks and buses. Things are a little more advanced on the continent, where the EUs Eurovignette system offers lower rates for newer trucks built to Euro II standards.

The last budget in UK also saw a first move to graduate VED on cars, with a discount of 450 for those under 1,000cc. Other fiscal incentives are now available to encourage the take up of alternative fuels and vehicles as well.

A further announcement in the UK’s March 2000 budget set out a radical reform of company car taxation. From April 2002, the mileage criteria are to be abolished, and replaced by discounts based on the CO₂ emissions of the car. Thus for cars emitting up to 165g CO₂/km, the tax will be based on 15% of list price, rising to 35% for those emitting over 265g/km. These thresholds will be reduced by l0g/km in each of the two years following, to reflect the expected improvements in fuel efficiency.¹¹

Diesels will pay a 3% supplement to ensure that they do not receive an excessive advantage, balancing their better performance on CO₂ against greater emissions of NO_x and particulates. Discounted rates will be available for alternatively fuelled vehicles, and the tax on free fuel from employers has been raised by a hefty 41 % in order to discourage employers from offering this particular perk. The new UK banded VED rates for cars is provided in Table: 1.¹¹

SUCCESS OF GREEN TAXES⁵
Some of the changes outlined above are too recent or too small in scale to have had much discernible effect either way. Taking the three major initiatives on gasoline and diesel, however, the effectiveness of greening the duty rates so far has been variable, especially in case of unleaded petrol.

Unleaded petrol sales rose steadily as the price differential grew, and it was instrumental in securing widespread availability of unleaded to pave the way for the first cars with catalytic converters. On the other hand, some millions of motorists continued to pay extra for the privilege of sprinkling lead across the country, in the largely mistaken view that unleaded was inferior, or would not work in their particular car.

Steady rises in fuel duty have certainly not reversed the upward trend in fuel use, and hence in CO₂ emissions. This has led some to conclude that the tax is not working, but this is almost certainly wrong. What has happened is that the pre-tax price of motor fuels has fallen like a stone, so the government is picking up more tax, but the price at the pump has not gone up as much. Therefore there has not been a great reduction in fuel use or emissions, but they are lower than they would have been without the escalator. It is also likely that recent duty increases will continue to exert downward pressure on fuel consumption in future years, because motorists are known to be slow to adapt fully to the rise in price. As yet it seems to have had very little impact on the average fuel consumption of new cars either, although this is likely to change under the influence of the motor manufacturer’s voluntary agreement.

Certainly the most spectacular success of greening fuel tax to date has been the differential in favour of city diesel. In 1998, prior to the adoption of the EC directive to set the maximum sulphur content, the UK’s leading refiners were claiming that desulphurisation would entail massive new investment and closure of some UK refineries. However, in March 1998, the Chancellor increased the tax differential between conventional and city diesel to two pence per litre, with the intention of further increases in future budgets. This move initially led to only modest increases in the availability of city diesel, but early in 1999 all the LWs oil majors announced that they would imminently be switching to exclusively ultra-low sulphur supplies.

IMPACT OF GREEN TAXES⁵
The net effect of these changes has been an increase in the taxation of road travel, so it is no surprise that they have not been universally popular. The most vociferous protesters thus far have been in the road haulage industry, claiming that the taxes are now driving haulers to flag out to the Continent where fuel and vehicle taxes are much lower. The latter is undoubtedly true, but it is less clear how many have actually made the move. The government counters that this would not make sense because other costs are lower in the UK - and the latter argument is also true. Where the balance lies is yet to be resolved, and the unenviable task of unravelling the figures has now been placed in the hands of the newly- formed Road Haulage Forum.

Controversy is also growing over the effects of the fuel duty escalator on poorer motorists, and those in rural areas with few alternatives to the car. As a result the Conservatives have now turned against the policy which they themselves began, and it is on the brink of running into trouble within the Labour Party as well. The governments commitment of extra funds to rural bus services went some way to smooth ruffled feathers after the last round of increases, but already this is wearing a bit thin.

The real price of fuel is in fact still lower than it was during the oil crises of the 1970s and 1980s, and other motoring costs have fallen over the same period. As a result, the real cost of motoring has hardly changed on a mile-for-mile basis over the past thirty years, while bus and rail fares have risen steadily.

FUTURE PROSPECTS⁵
In spite of any setbacks, the green tax agenda rolls on. A more elaborate differentiation of VED for cars on the basis of CO₂ emissions is already in place. Company car tax is also facing a fundamental reform, and again the tax may be partly based on CO₂. If anything the latter will have the greater impact on the future makeup of the car stock, because companies buy more than half of all the new cars sold in Britain.

Other options for the future include a duty differential to encourage city gasoline, while purchase taxes and scrappage incentives for cars are regularly mooted. More immediate are plans for urban road pricing, with pilot schemes starting next year in Leeds and Edinburgh. Other local authorities are looking seriously at workplace park- ing charges as a less complicated option. These moves are directed primarily at tackling congestion, but would have a knock-on effect on CO. emissions and air quality too.

The uncertain future of the fuel duty escalator should be a reminder, however, that these plans will only succeed in the long run if they command public and political acceptance. This can yet be done, but probably only if the Treasury swallows some more of its pride and allows the extra income to be spent on more jobs and better transport alternatives.

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LAWS AND REGULATION

EXHAUST GAS POLLUTANTS

EMISSION WARRANTIES AND RECALL SYSTEM

GREEN TAXES