• Lead-organizer: International Monetary Fund (IMF)
  • 11:00 - 12:30
  • Date: 21 Jun 2012
  • Room: P3-E

Tax and Subsidy Reform for a Greener Economy

Organizing partners

Lead Organizing Partner:: IMF

Other Organizing Partners: ADB, FAO, IDB, and OECD


For many environmental problems, fiscal policies are a very effective instrument. Reflecting environmental costs into market prices gives all actors the right incentives to exploit all possibilities for emissions mitigation and efficient use of natural resources. But the fiscal instruments must be well designed, in terms of targeting the right base, aligning their scale to the magnitude of environmental damages, and using the revenues productively, while also addressing concerns as to the burdens on households and industry. Often, however, the first priority in ?getting the prices right? is reform of existing energy and agricultural subsidies that distort the functioning of markets, and run counter to environmental objectives.

This session will provide recommendations for tax and subsidy reforms to promote environmental sustainability. Case studies will be examined, with a focus on experience in Latin America, Asia, and selected countries of the OECD area.

Detailed programme

The session will involve five presentations, each approximately 15 minutes, leaving up to about 40 minutes for questions and open discussion.

The IMF will provide a quick overview of issues in the use of fiscal and subsidy reforms to promote a greener economy. The rationale for, and appropriate design of, fiscal policies to reduce pollution will be discussed. Pricing instruments potentially exploit all (and strike the right balance between) opportunities for mitigating pollution, whereas regulatory approaches (e.g., renewable subsidies) focus on a narrower range of mitigation opportunities. But fiscal instruments must fully cover emissions sources, use any revenue generated productively (e.g., to reduce broader tax burdens on work effort and investment), scaling them to environmental damages, and perhaps provide compensation for households and firms. The IMF will also discuss the magnitude of global fuel subsidies and suggest recommendations for subsidy reform in developed and developing countries, paying attention to distributional and other constraints.

The OECD will discuss the role of environmental fiscal reform within the overall package of reforms to foster green growth and sustainable development. Based on work in the context of the OECD?s Green Growth Strategy, it will review how environmental fiscal reform can contribute to growth-oriented tax reform, greater macroeconomic stability and poverty reduction. The latest data on support to fossil fuel consumption and production in OECD countries will be provided, as well as an overview of recent trends in the use of environmentally-related taxes (e.g. carbon, fuel, and waste taxes) in advanced and emerging economies. Analysis will be presented of the potential for environmental taxes to stimulate innovation and diffusion of new technologies and practices. Successful country examples of environmental fiscal reform will be highlighted, including experiences in addressing the political economy challenges.

The FAO will discuss the magnitude of subsidies for the agriculture sector and highlight concerns where subsidies promote either food production, or environmental protection in isolation. Guidelines will be presented for reforming the use of public funds to simultaneously promote food security and environmental objectives, including to seek synergies and handle trade-offs between these objectives.

The IADB will present an analysis of the potential scope of carbon taxes as well as a review of the potential for future fiscal reforms to promote a greener economy in Latin America.

The ADB will provide a brief overview of the Asia-Pacific region experience in using market based instruments for environmental management including the use of cap and trade, environmental taxes, effluent charges, emission fees, eco-compensation schemes and other policy measures that come from the fiscal and subsidy reform toolkit. A brief discussion on a couple of case studies from countries in the region will also be presented to illustrate country and sector specific application and initial lessons being learnt.

Contribution to the outcome of Rio+20. The discussion will provide a broad range of options for appropriate fiscal policy reforms to promote greener economies and present an approach for evaluating countries? energy tax and subsidy policies and establishing priorities for reform from the perspective of environmental sustainability.
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