Are Green Taxes a Luxury for Developed Economies?

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Green taxes play an important role in the encouragement of green solutions in developed countries, but how ready is the developing world to apply them?

ISTANBUL, Turkey — “What do you mean with ‘green’?” Emin asks while driving me to Atatürk Airport in Istanbul. This young Turkish taxi driver tells me (with his limited English, and even more limited body language, given he’s driving) he does not know what environmental taxes are, while pointing out the dozens of cars stacked in traffic on the right side, traffic he managed to avoid by maneuvering.

One of Istanbul’s bustling roads.

flickr / davidbenito under Creative Commons

One of Istanbul’s bustling roads.

More than 1.6 million automobiles are circulating on Istanbul’s roads, a number that is increasing every day. Consequently, so are gas emissions. The Turkish Finance Ministry, using Germany’s green policies as a model, is planning to implement a green car tax—a levy that Emin evidently does not know about.

In Germany, this tax is based on how much a vehicle pollutes (carbon dioxide emissions per kilometer) and not on just the capacity and age of the engine. Germany has even created Environmental Green Zones where only low-emission vehicles can travel. The proposed tax in Turkey would be for just new vehicles, however.

Most developed economies are applying green tax policies. Some are using incentives, like the United States, or increasing penalties, like Japan. Yet as the developed economies introduce green taxes, it’s not common to hear of them in the developing world. Do green taxes depend on how developed an economy is?

Green taxation has been equally criticized and lauded in recent years. It is meant to incentivize ecologically sustainable activities by applying taxes on CO2 emissions and other pollutants, and by offering exemptions that promote sustainable corporate behavior. The more you pollute, the more you pay, so the theory goes. Well-targeted green tax policies are seen as critical for genuine sustainable development. As Anna Peters, a senior consultant at Endeva, an institute that promotes solutions for global problems, says, green taxes can “push actors into a direction.” But can they work in all developing countries or regions?

According to Charles Ocici of Enterprise Uganda, a consulting company that advises and encourages sustainable businesses, green taxation does not play an important role in Africa yet, but it is coming.

“Until people are sure that food and clothing are there … in the villages nobody would care about gases for the environment,” he says.

In low-income countries, it seems wrong to ask for green taxes if you have not addressed even basic needs. However, Ocici still emphasizes the necessity for green legislation and education.

Alejandro Velasco, CEO of Quality Energy Solutions in Colombia, takes a different position.

“Green taxes could be just another tether of governments,” he says, meaning that green taxes can be another way for governments to get income. In developing countries, “green taxes should not be applied the way they are being managed in Germany or in Sweden,” he adds. “The change would be systematical.”

For Velasco, countries like Colombia are not ready to ask their citizens or industries to pay higher taxes on energy because they have not yet created or invested in greener alternatives.

Carbon dioxide emissions are known to be the main cause of environmental pollution and climate change. While the United States emitted around 5.49 billion metric tons of CO2 in 2011, Colombia was responsible for 71.15 million metric tons in the same year. Despite the fact that Latin American countries do not pollute as much as developed economies do, these countries should follow a clean path to development, Velasco says.

“We cannot make the mistakes Europe did,” he says, implying that developed economies’ practices have not always been sustainable and clean.

But two of the biggest concerns from developing economies are already among the top 10 most-polluting countries worldwide, with China holding first place and India third. Together, these two economies are responsible for one-third of global CO2 emissions, which have increased about 44 percent in the past five years.

Biplab K. Paul, CEO of Bhungroo, an Indian company that offers irrigation solutions, notes that green taxes have not been extensively applied in India because the political situation will not permit it.

“People know what a tax is, but they do not know what green is,” he emphasizes. “Taxes do not stop consumption.” The pollution rate per capita in India is not high, which means that industry bears the heaviest responsibility for the problem.

Paul believes India will have to adapt to global practices, but the government’s unwillingness represents a barrier.

Another energy sector executive from Asia, Alpine Wu of Sinopec Corporation, points out that China is taking the initiative and setting goals for reducing CO2 emissions. Green taxes and incentives in the world’s most polluting country are being applied, especially in terms of resource efficiency (energy, water) and green buildings. “For the next seven years, China is planning to reduce its CO2 emissions by 17 percent,” Wu says.

However, the Earth Policy Institute’s latest report reveals that China increased its CO2 emissions by 40 percent in the past five years. This presents a huge challenge for the Asian giant, which is already experiencing the consequences of a carbon-based energy supply, as seen in the dense cloud of muddy smog in the northeastern city of Harbin this past month.

Air pollution is worsening in places like Guangzhou that overlooks the Pearl River.

flickr / jaaronfarr under Creative Commons

Air pollution is worsening in places like Guangzhou that overlooks the Pearl River.

In an increasingly globalized world, international cooperation and industry participation could play a crucial role in green taxation, offering a new and cleaner energy path for developing economies.

Andreas Spiess, CEO of Solarkisok, a German company that brings solar power to remote towns in Africa, offers a widely held perspective on how green taxes can be an opportunity for investment and can therefore open new markets in developing economies.

“[Green taxes] are neither a luxury nor an advantage. They are a strategy,” he says. Some African countries are already applying tax exemptions, which is one way to help finance foreign business in Africa and also encourage investors to go green. This way, the massive demand for electricity in Africa could be met without the risk of having a monopolized, centralized energy supply. And, as Spiess notes, “you can avoid the mistakes that we made in Europe.”

Governments face the challenge of finding a new and sustainable strategy for improved living worldwide. The current environmental crisis demonstrates that the way developed economies improved living standards is not the best model to follow. Natural catastrophes and new climate conditions, which normally have a greater impact in developing nations, are going to become even more extreme as Typhoon Haiyan in Philippines just showed . Better living conditions won’t be attainable if industry does not change. Even though some countries pollute more than others, every nation has to understand that environmental issues are global.

Environmentally friendly practices shouldn't be seen as a region-specific pursuit but as a global shift in priorities.

flickr / daniwally under Creative Commons

Environmentally friendly practices shouldn't be seen as a region-specific pursuit but as a global shift in priorities.

Because people react to economic realities and market forces, incentives and penalties might be a smart way to promote environmentally friendly practices, especially given the urgency of the issue. Factors like diverse electricity offerings, organized public systems and higher incomes create a more stable platform for green policies. Nevertheless, this does not mean they are a requirement for a green strategy. Well-targeted green taxes and other policies require a country-by-country, and even state-by-state, analysis.

On the other hand, focusing on recovering our natural connection to where we all come from—through, for example, early education that charts a course toward respecting nature—could achieve a more lasting impact on people’s behavior. Meanwhile, green taxation could be an opportunity for developed economies to demonstrate factual international cooperation on the issue, taking into consideration the conception of a self-sufficient local growth.

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