Carbon Taxes can Help Solve the European Debt Crisis

A new report from NGO's the European Climate Foundation, Green Budget Europe, and consultancy Vivid Economics suggests that green taxes could play a crucial role in tackling Europe's debt crisis. Carbon and energy taxes will raise revenue and reduce greenhouse gas emissions, whilst at the same time having a less negative impact on economic growth than conventional fiscal means such as income tax and VAT.

The report states that "the overriding challenge for many European governments today is to reduce major fiscal deficits with the least collateral damage to the economy. This report shows that carbon fiscal measures may raise significant revenues while having a less detrimental macro-economic impact than other tax options. This gives them an important potential role in fiscal policy; a role that is currently widely overlooked."

It concluded that direct taxes could have double the negative impact on GDP than energy taxes, yet both would provide the same revenue. John Ward from Vivid Economics explained that market dynamics mean that people tend to react less to changes in price, than they do to changes in their own income.

The report is supported by former German Finance Minister Hans Eichel, former Austrian Vice Chancellor Dr Josef Riegler, and former Czech Deputy Prime Minister Dr Martin Bursik, who all wrote to the European finance ministers urging them to consider carbon taxation as a means of aiding the European economy.

"Pound for Pound, Euro for Euro, energy and carbon taxes have a lower negative impact on the economy, consumption and jobs than income tax and VAT. They offer less pain, and more gain. Europe needs a fiscal recovery, it needs to cut its emissions and it needs a strategy for growth. Carbon taxes and an effective ETS can be a powerful part of the solution."

By. James Burgess of Oilprice.com