The current state of the value-added tax sets several ecological disincentives. If the value-added tax discount on meat and animal products was abrogated, up to six million tons of greenhouse gas emissions per year could be saved through dampening ecologically harmful consumption.

Furthermore, a revenue tax reduction on services for energetic renovation to seven per cent would save one million tons of greenhouse gas emissions per year.

These calculations rest on a policy paper published by the Freie Universität’s Environmental Policy Research Center, the Öko-Institut, and the Forum Ökologisch-Soziale Marktwirtschaft e.V. elaborated on behalf of the Federal Environmental Agency. It analyses how different economic instruments can be aligned more appropriate to ecological goals.

Strengthen the circular economy through taxes

The researchers propose to promote even small mending services through a reduced value-added tax to boost the circular economy.

The current reform of the European value-added tax system directive should be used to create action corridors for an “ecologization” of the value-added tax. The European directive prescribes for which products and services reduced taxes are admissible. Possibly, eco-friendly products and services in different sectors can be promoted through a reduced value-added tax. Additionally, a reduced tax on the mending of utility commodities as electronic devices as well as furniture should be encouraged.

Consumption taxes with ecological steering effects and further approaches

A further entry point for the “ecologization” of consumption are consumption taxes. Examples include a tax on cement, a tax reduction on sustainable coffee, and a tax on shopping bags. The examined consumption tax on cement could supplement the currently planned subsidies on CO2-poor cement production and set additional incentives for an efficient use or use of eco-friendly alternative construction materials.

Further economic instruments examined are levying an air freight tax, transferring the costs to producers of one-way plastic products through the extended producer responsibility, and a deposit system on lithium-containing batteries.

Ecological incentives for consumption

The value-added tax and the taxes on consumption can provide ecological impulses especially regarding private consumption. Environmental impacts from the production process are being reached only indirectly. But producers are affected indirectly through changes in consumption. Distortion of competition are not expected since the examined instruments affect both domestic and foreign producers. A national introduction can be facilitated more easy and can set incentives for European and international initiatives.

Retrieve the publication here.