Ecological fiscal reform and conservation Irene Ring UFZ ... · Ecological fiscal reform and conservation Irene Ring UFZ, Department of Economics Seminar on financial instruments

Ecological fiscal reform and conservation

Irene Ring UFZ, Department of Economics

Seminar on financial instruments for conservation

Vilm, 29th July – 3rd August, 2007

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Vilm 2007 – Irene Ring: Ecological fiscal reform and conservation

Ecological fiscal reform –Concept and historical background

Ecological tax reformConcepts: late 1980s/early 1990sIncrease taxes on energy resources, decrease tax on labourImplementation in Germany: 1999 – 2003

Ecological financial or fiscal reformEnlarged concept to cover various taxes and to reduce environmentally harmful subsidies Implementation in Germany: since 2003, various instruments

Useful source: BMU (2004) The ecological tax reform: introduction, continuationand further development into an ecological fiscal reform

Ecological fiscal reform –Enlarged understanding

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Public income

TaxesChargesFees

Public expenditure

SubsidiesFiscal transfersPayments for ecosystem services

Negative externalities

Negative & positive externalities

Ecological fiscal reform and conservation

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Nature conservation in intergovernmental fiscal relations

Objective: Consideration of ecological public functions in fiscal transfers between governmental levels

Status quo and

perspectivesGermany

ModellingFree state of

Saxony

International experiences Brazil

Principles in fiscal federalism

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Concerning the allocation function of the public sector:

Suitable for less mobile environmental compartments: inland waters, nature

conservation, land use

Consider spatial externalities, e.g. existing for special priority areas

Principle of decentralisation

“Find a match between those who receive the benefits of a collective

good and those who pay for it.”(Olson 1969)

Internalisation through government grants, compensating for the

external benefits of local costs

Principle of fiscal equivalence

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Spatial distribution of conservation benefits and costs

Benefits:

Goods and services of national and global relevance

Costs:

Regionally and sectorally unequal distribution

Payments for ecological services at the local level:

Land users (e.g., agri-environmental programmes, conservation programmes)

Local governments (Fiscal transfer system to the local level)

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Fiscal transfer system in Germany

Distribution to state and local levels

Taxes Public revenues

Governmental levels in the German federal system:

Federal State (Länder) Local

Fiscal transfers tothe local level

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Fiscal transfer systems to the local levelSubstantial source of income for municipalities: 30% in West-Germany, 50% in East-Germany

Not considered:Ecological services involving

spatial externalities: spillover benefits

Urban agglomerations Rural and remote areas

Fiscal compensation today:

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Ecological fiscal transfers as conditionalgrants in Germany: Status quo (2006)Areas Supported measures States (Länder) Soil Soil conservation BW, S-A

Prospecting and remediation of contaminated sites, recultivation

BAY, BW, HE, S-A, THÜR

Water Water protection HE, SH, RPWater supply BAY, BW, HE, MV, RP, SAAR,

SACH, THÜRSewage disposal BAY, BRG, BW, HE, MV, RP,

SAAR, SACH, THÜRNature protection Nature conservation and

landscape preservationHE, MV, S-A

Recreation Spas, recreation and tourism MV, RP, SH

Waste disposal Waste disposal plants BAY, HE, MV, RP, SAAR, THÜREnergy Energy saving measures HE

BAY Bavaria MV Mecklenburg-Western Pomerania S-A Saxony-AnhaltBRG Brandenburg NRW North Rhine-Westphalia SACH SaxonyBW Baden-Württemberg RP The Rhineland-Palatinate THÜR ThuringiaHE Hesse SAAR Saarland SH Schleswig-Holstein

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Status quo and perspectives

Status Quo Perspectives

water supply + sewage disposalwaste disposal, remediation

Dominance of end-of-the-pipe and infrastructural functions

nature conservation water protectionsoil protection

Resource conservation: long-term and precautionary tasks

From conditional to unconditional grants!

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Ecological fiscal transfers – Experiences

Brazil has gained positive experiences with ecological fiscal transfers: ICMS-E

Compensation for land-use restrictionsIncentive to create and maintain protected areas

*

or commonly also called:

Ecological value-added tax

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States with ICMS-E legislation in Brazil (2005)

Ecological indicators

“Conservation Units”: officially registered protected areas for nature and biodiversity conservation Watershed protection areasSolid waste disposalSanitation systems and sewage disposalSlashing and burning controlSoil protectionLocal environmental policy

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Paraná/Brazil: Incentives for biodiversity conservation and watershed protection

Motivation for introduction

1980s: stricter environmental legislation in BrazilMunicipalities with protected areas exerted pressure on the state legislature and government agenciesE.g., Piraquara: 90% of municipal territory protects a major watershed for the Curitiba metropolitan region, remaining 10% nature reserves

ICMS-E implementation in 1992

5% of the total ICMS amount distributed to the local level is based on ecological indicators

- 2,5% Conservation Units (CUs) –biodiversity conservation

- 2,5% watershed protection areas

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Indicator “Conservation Unit”

∑ ×=n

nni CWareaprotectedCUArea

Management category n Conservation weightEcological research station 1,0Biological reserve 1,0Park 0,9Private natural heritage reserve 0,8National, state or municipal forest 0,7Indigenous area 0,5Environmental protection area I 0,1Area of relevant ecological interest 0,1Special, local areas of tourist interests 0,1Buffer zones 0,1

+ quality indicator

Conservation weights for different management categories in Paraná

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Ecological Index based on “Conservation Units”

SCFMAreaCUArea

SCFMCFEI

i

i

i

ii

1×== ∑

=

=z

iiMCFSCF

1

EIi Ecological Index of municipality i

MCFi Municipal Conservation Factor of municipality i

SCF State Conservation Factor

Area CUi Total area of conservation units in municipality i

Area Mi Total area of municipality i

Mi Municipality i

z Total number of municipalities in the state

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States with ICMS-E legislation

T A B E L A 1 - E S T A D O S B R A S I L E I R O S Q U E P O S S U E M I C M S E C O L Ó G I C O I M P L E M E N T A D O O U E M F A S E D E I M P L E M E N T A Ç Ã O , A N O D E A P R O V A Ç Ã O D A L E I , E P E R C E N T U A I S P A R A O R E P A S S E D E R E C U R S O F I N A N C E I R O E M R E L A Ç Ã O A S U N I D A D E S D E C O N S E R V A Ç Ã O E O U T R O S

C R I T É R I O S

E S T A D O A N O

U n id a d e s d e C o n s e r v a ç ã o , T e r r a s I n d íg e n a s e o u t r a s

Á r e a s E s p e c ia lm e n te P r o te g id a s ( % )

O u t ro s c r ité r io s a m b ie n t a is

( % )

P a r a n á 1 9 9 1 2 ,5 2 ,5 S ã o P a u lo 1 9 9 3 0 ,5 - M in a s G r a is 1 9 9 5 0 ,5 0 ,5 R o n d ô n ia 1 9 9 6 5 ,0 - A m a p á 1 9 9 6 1 ,4 R io G r a n d e d o S u l 1 9 9 8 ( 1 ) 7 ,0 - M a t o G ro s s o 2 0 0 1 5 ,0 2 ,0 M a t o G ro s s o d o S u l 2 0 0 1 5 ,0 - P e r n a m b u c o 2 0 0 1 1 ,0 5 ,0 T o c a n t in s 2 0 0 2 3 ,5 9 ,5 A c re 2 0 0 3 5 ,0 - F O N T E : L e g is la ç õ e s E s t a d u a is . N o ta : A le g is la ç ã o d o R io G r a n d e d o S u l p re v ê q u e s e m u lt ip liq u e p o r t rê s a s u p e r f íc ie t e r r it o r ia l d o m u n ic íp io q u e c o n te n h a u n id a d e d e c o n s e r v a ç ã o .

Source: Loureiro 2005

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Participation in ICMS-E programme

Voluntary participation: good information policy essentialPrerequisite for approval of reserves: official registrationParaná: more than 50% of municipalities participateMinas Gerais: more than 30% of municipalities participate

Positive effects:

Perception of existence of protected areas by municipalities changedProtected areas are not perceived as obstacles to development any moreSome municipalities develop active interest in designating protected areas, even national parks

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Paraná: Increase in conservation units

Protected areas Until 1991 [ha]

Created after 1991 [ha]

Total by 2000 [ha]

Increase[%]

publicFederal 289.582 50.846 340.428 18

State 39.859 13.804 53.663 35

Municipal 1.429 2.740 4.169 192

private/mixedAPA 306.693 905.631 1.212.324 295

RPPN 0 26.124 26.124

Other 0 53.607 53.607

Total 637.563 1.052.752 1.690.315 165

APAs (Environmental Protection Areas) can be designated at federal, state or municipal level. RPPNs (Private Natural Patrimony Reserves) can be designated at federal or state level.

Fiscal effects of ICMS-E on municipal budget

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Paraná: 1994 – 2000 50 Mio. R$ annually 06/2001:São Paulo: 1994 – 1996 23 Mio. R$ annually R$ 1,00 =Minas Gerais: 1998 – 2000 15 Mio. R$ annually US$ 0,41

Paraná:Piraquara (100% water reserves + CUs): local income increased by 84% until 1995São Jorge do Patrocínio (52% CUs): 71% of ICMS transfers based on CUs (2000)

Minas Gerais:Marliéria (55% CUs): 68% of ICMS transfers based on CUs; Increase of transfers from R$ 36.648 (1995 before ICMS-E) to R$ 811.335 (1996 after implementation of ICMS-E)

Rondônia:Municipalities with at least 25% protected areas within their territory benefit from ICMS-E

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Transfer potential of Brazilian model to Germany

Consideration of conservation areas within the intergovernmentaltransfer system to the local level – possible scenarios:

Brazilian model: Alternatively:

Set aside a definite budget in advance and allocate according to share of conservation units within

municipal territory

Consideration of conservation units as part of the additional approach

to allocate lump-sum transfers (analogous to area, pupils, etc.)

Corresponding scenarios are calculated at UFZ for the Free State of Saxony

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Nature conservation in the Saxon fiscaltransfer system of 2002

Governmental structure of Saxony

State level: SaxonyIntermediate administrative level - 3 Regierungsbezirke Chemnitz, Dresden, Leipzig 22 Districts7 District-independent cities, such as the larger cities of Chemnitz, Leipzig, Dresden530 Municipalities, eachbelonging to a district

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Basic structure of Saxon fiscal transfersystem (2003)

Scenario 1 Scenario 2

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Protected areas in Saxony, Germany

National park Sächsische Schweiz

Biosphere reserveOberlausitzer Heide-und Teichlandschaft

Nature park Dübener Heide

Nature park Erzgebirge-Vogtland

Natura 2000 site: Military training areaOberlausitz

GIS: J. Myšiak

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Indicator “Conservation units”

∑ ×=n

nni CWareaprotectedCUArea Area CUi Conservation units (ha) of municipality i

Management category n Conservation weight CW

National park (NLP) 1

FFH-reserve, Habitats Directive (FFH) 0.9

Specially protected area, Birds Directive (SPA) 0.9

Nature reserves (NSG) 0.7

Biosphere reserves (BR) 0.6

Nature park (NP) 0.4

Landscape reserve (LSG) 0.3

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Scenario 1: Nature conservation as part of general lump-sum grants

Conservation units (dimension: hectare) are transformedinto equivalents of inhabitants that can then be multipliedwith the basic amount of € available for each type of localjurisdiction

Partial scenarios: e.g., 1 ha CU corresponds to one orseveral inhabitants, analogous to existing approaches that consider area for general lump-sum grants

- Scenario 1a: 1 CU = 1 inhabitant

- Scenario 1b: 1 CU = 2.36 inhabitants (average population density in Saxony in 2002)

map

both maps

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Saxony 2002: Scenario 1a, 1 ha CU = 1 inhabitantRelative change of lump-sum grants [%]

0

50

100

150

200

250

300

Number of municipalities

RB Chemnitz 1 1 113 64 21 13 1RB Dresden 0 0 98 66 21 16 19RB Leipzig 1 0 61 18 15 4 4Sachsen 2 1 272 148 57 33 24

-55,1% -50 bis < -25%

-25 bis <0% 0 bis < 25% 25 bis <50% 50 bis <100% ≥ 100%

Zwochau: - 55% Trossin: + 447%

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KFA Saxony 2002 - Scenario 1a: RB DresdenLump-sum grants considering conservation units

Relative change of lump-sumgrants in RB Dresden [%]

1 ha Conservation Unit =

1 inhabitant

GIS: A. Kindler & H. Hartmann

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Saxony 2002 - Scenario 1a + b: RB DresdenLump-sum grants considering conservation units

Regierungsbezirk Dresden; Relative change of lump-sum grants [%]

Dresden

Hoyerswerda

Gör-

0 10 20 30 40km

litz

Kommunaler Finanzausgleich Sachsen 2002Regierungsbezirk DresdenNaturschutz im Nebenansatz1 ha Naturschutzeinheit = 2,36 Einwohner

Prozentuale Veränderung

50 bis < 100

200 bis < 950

- 100 bis < - 50

- 50 bis < - 25

- 25 bis < 0

0 bis < 25

25 bis < 50

100 bis < 200

1 ha CU = 1 inhabitant 1 ha CU = 2.36 inhabitantsAverage population density in Saxony in 2002


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Saxony 2002 - Scenario 1a + b: RB LeipzigLump-sum grants considering conservation units

1 ha CU = 1 inhabitant 1 ha CU = 2.36 inhabitants

Regierungsbezirk Leipzig, Relative change of lump-sum grants [%]

Relative maximum SaxonyTrossin: + 447% (+ 1.5 Mio.€)

Relative minimum SaxonyZwochau: - 55% (- 38.000 €)


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Scenario 2: Unconditional conservation grants –Compensation of conservation burdens

Analogous to compensation of cultural (2002: 30 Mio. €) and road burdens (2002: 90 Mio. €) in Saxon transfer systemDefined amount set aside for local ecological services Conservation units as basis for calculationConservation grants = Ecological Index EIi of municipality i, multiplied with available amount set aside for conservation

- Scenario 2a: 30 Mio. €

- Scenario 2b: 90 Mio. €

map

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Scenario 2: Ecological Index

SCFMAreaCUArea

SCFMCFEI

i

i

i

ii

1×== ∑

=

=z

iiMCFSCF

1

EIi Ecological Index of municipality i MCFi Municipal Conservation Factor of municipality i SCF State Conservation Factor Mi Municipality iz Total number of municipalities in Saxony

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KFA Saxony 2002 - Scenario 2a: RB Dresden30 Mio. € set aside for conservation

Relative change of unconditional

conservation grantsand lump-sum grants

in RB Dresden [%]

GIS: A. Kindler & H. Hartmann Compare scenario 1a

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Ecological fiscal transfers: A realistic way to go?

Highest Environmental Expert Council (SRU): has asked for integration of ecological indicators into fiscal transfers for about 10 years Federal Environmental Ministry and Conservation Agency interestedExisting studies: more complicated indicators, show no significant financial effectScientific challenge: To justify intangible needs for allocation of transfers (economic and legal task, Federal/State Constitutions)Practical challenge: To gain political momentum and powerful advocates

Europe: Portugal! Since 1.1.2007 there is a new law that introduces Natura 2000 and other protected areas as indicator for fiscal transfers to municipalities (73 Mio. €/year).

Documents

Ecological fiscal reform and conservation Irene Ring UFZ ... · Ecological fiscal reform and conservation Irene Ring UFZ, Department of Economics Seminar on financial instruments