From 29-30 January 2015, Ca' Foscari University of Venice, The Energy and Resources Institute (TERI) and the United Nations Environment Programme (UNEP) will host the GGKP's Third Annual Conference on the theme of "Fiscal Policies and the Green Economy Transition: Generating Knowledge – Creating Impact" in Venice, Italy. As background to the Annual Conference, the GGKP Fiscal Instruments Research Committee commissioned a number of studies, including the paper 'Overcoming obstacles to green fiscal reform' authored by Sirini Withana. In this blog post, Sirini presents her research, drawing on lessons from experiences across countries and sectors. This research will be presented on 29 January 2015, as part of the session 'B1: Overcoming obstacles to green fiscal reform' .
Obstacles to green fiscal reform can be overcome through careful design and implementation. Securing broad political and public support will ensure lasting reform.
Recent months have seen government announcements to eliminate subsidies to fossil fuels in several countries including India and Indonesia. These subsidies have significantly strained public budgets and their reform has been long called for. Recent announcements have benefitted from the steep decline in global oil prices which has helped cushion the impacts of reforms. Such efforts form part of a wider range of measures known as green fiscal reform (GFR) which include a number of tax and pricing instruments that can raise revenues while furthering goals such as mitigating climate change, protecting water resources and reducing traffic congestion.
Experiences with GFR have grown over the past two decades with an increasing number of countries undertaking reforms in various areas, in particular on climate and energy. This renewed interest is driven by various economic, environmental and social considerations including the need for fiscal consolidation in some countries (e.g. Ireland, Italy, Portugal) and growing appreciation of the financial burden of certain measures such as fossil fuel subsidies in others (e.g. India, Indonesia).
Despite recognition of the many benefits of GFR and numerous calls for action, efforts remain limited. They are also constrained by various obstacles including concerns of the economic and social impacts of such reforms, particularly on vulnerable groups. While such concerns are important and merit attention, they should not be used as an excuse to avoid or halt GFR as they can be addressed through careful design and implementation of reforms.
A new paper on ‘Overcoming obstacles to green fiscal reform’ commissioned by the GGKP Fiscal Instruments Research Committee, examines how obstacles to GFR can be overcome through targeted mitigation measures for vulnerable groups, careful use of revenues raised, and complementary strategies and tools. The paper draws on lessons from GFR experiences in developed and developing countries across different sectors and policy areas. It will be presented at the Third Annual GGKP Conference in Venice on 29-30 January and published shortly thereafter.
The paper highlights the importance of identifying potential impacts of GFR, including the full range of costs and benefits, winners and losers, intended and unintended effects across economic, social and environmental spheres. This can inform the effective design and implementation of the reform process, including any mitigation measures which may be necessary. It can also help build support among affected groups by highlighting the true costs of non-action (e.g. unintended beneficiaries of subsidies), and the pros and cons of reform.
In certain cases, mitigation or compensation measures may be required to alleviate the impacts of GFR and help overcome obstacles to progress. Such measures should be carefully designed and monitored to ensure they are effective, send the right signals and contribute to the overall objectives of the reform. Complementary policies and measures, communication and engagement with stakeholders, as well as monitoring and review processes can also help overcome obstacles.
Despite good intentions and due process, GFR efforts sometimes fail or decisions are reversed in the face of political, economic or social pressures. There are several recent examples of this including in Australia, Nigeria and Bolivia. These cases highlight the importance of building broad support and political capital for GFR which transcends party-political lines and short-term electoral timescales. A lasting GFR also depends on government credibility and links to wider structural and good governance challenges. In some cases, cooperation between countries can help build political and public support and overcome certain obstacles to progress.
Preparation and careful planning are critical. There is a need to adopt a comprehensive, integrated and consultative approach to reform which reflects good governance principles, sets clear objectives and a timeline. GFR requires broad political commitment and public support from the short- to the long- term, taking into account the broader context and contributing to wider policy objectives. There is also a need to adopt a pragmatic approach, allowing for certain deviations from theoretical ideals (e.g. avoiding use of exemptions or compensation measures) as a politically expedient way of making progress. Such provisions should be tolerated provided they are well-designed with adequate safeguards in place.
The current context is particularly favourable for undertaking GFR and the case for such reforms is increasingly being made by various actors including by the IMF. The recent steep decline in global oil prices provides a conducive environment to launch carbon pricing mechanisms and reform fossil fuel subsidies. Other avenues for progress include the need for fiscal consolidation in many countries, international commitments on biodiversity and climate change, and pressing challenges such as energy security and poverty reduction. Some countries, such as India, Indonesia, Ireland, Italy and Portugal, are already seizing these opportunities. Others should be encouraged to follow their lead, drawing on lessons from practical experiences with GFR across the globe. Such efforts should be based on a comprehensive reform strategy with a clear timeline, and seek broad political and public support to ensure their success.