Environmental Fiscal Reform

Two considerations relevant to our Assembly explain the interest of Elliniki Etairia (the Hellenic Society for the Protection of the Environment and the Cultural Heritage) in environmental fiscal reform (EFR). One, seemingly unconnected but in fact very relevant, goes back to 1988 when I was requested by the Ecumenical Patriarchate to organize an event on Patmos at the time of the 900th anniversary celebrations of the foundation there of the Monastery of St John the Evangelist. My suggestion was for an inter-faith meeting on religion and the environment. This gave the opportunity for Metropolitan John (John Zizioulas) of Pergamos to set out for the first time his theology of human beings as the priests of creation. As a result of this meeting the recommendation was made to the late Patriarch of Constantinople, Demetrios, to institute a day of prayer for God’s creation. During the following year the Holy Synod of the Patriarchate of Constantinople chose September 1st, the first day of the Orthodox ecclesiastical year, for this purpose. There followed meetings in 1989 at the Convent of Ormylia in Halkidiki and in 1991 at Kolymbari in Crete, at which the theology adumbrated by Metropolitan John in Patmos was articulated in greater detail, to be finally adopted by the leaders of all the autocephalous Orthodox Churches in 1993 under the present Patriarch, Vartholomaios.

Since that time the present Patriarch and a number of other bishops, priests and lay people, but by no means all, have laid increasing stress on the existential significance of this theology, as a genuine expression of the eucharistic life of the Church and a critical mark of distinction between the Christian ethos and the consumerism which prevails in our today’s world and inevitably marks us all in our daily lives.

The question which then inevitably arises, supposing that, over time – and the process cannot, for better or worse, take much less than a generation – such an attitude takes root in a substantial section of the Orthodox Church as in Christian Churches in general, is how most effectively to influence society as a whole in the same direction. The earth’s ecological crises affect all human beings equally and require an equivalent response from all people, in this way bearing out dramatically the Christian concept of all humanity as one body, but simultaneously challenging Christians to develop means to address non-Christians on their own terms. The challenge of ecological and environmental developments is in reality equally existential for the advocate of or participant in the consumer society, which we are all to some degree in any event, as it is for a Christian, but this truth is extraordinarily well concealed, crises excepted, from most people in everyday practice.

The problem is still further complicated by the fact many people in secularized societies have abandoned the concept either of a moral imperative or, except when faced with natural catastrophe, of human solidarity as effective moving forces. The ship of society has been put on automatic pilot with market forces and technological developments as respectively its invisible and visible “guiding hands”. And it is well known that the market does not, of its own accord, take many environmental costs into account, considering them externalities or free goods, unless society ascribes them a cost. Fortunately it does take some such environmental costs into account: hence the intense attention paid to the cost of energy, particularly of course the price of oil.

The most normal response to this dilemma, in Europe at least, where the environmental movement is comparatively strong, has been to pursue the path of regulation. It is a long and sticky process, but by no means therefore necessarily an ineffective one. It has indeed been markedly effective, sometimes internationally when an environmental problem has been perceived as pressing, and more frequently nationally, in those countries where government servants have inherited and feel they must transmit to their successors a relationship of trust between governors and governed. In those countries however where the relationship between governors and governed was never – or at least never in recent centuries – one of mutual trust, where indeed there is often a heritage of deep mistrust, whether reflected in an autocratic or a mercenary relationship between rulers and ruled, the likely result will be the evasion of any regulations, wherever that is possible, not to mention the addition of further opportunities for individual enrichment through a bending or breach of the regulations by regulators and regulated alike.

Greece being, sadly, one of many such societies in our today’s world, you will now more easily understand the second strand in Elliniki Etairia’s thinking, that which has led to our sustained interest in EFR as a means to move that large segment of society, both national and international, which is not immediately open to Christian theological or ethical reflection. Although our particular problematic is Greek the initial impetus for it came from experience gained in Brussels by Yannis Paleocrassas, since 2002 a member of Elliniki Etairia’s Board, but who in 1992-94 was EU Commissioner for Environment and worked closely with Jacques Delors on the European Commission White Paper “Growth, Competitiveness and Employment”, issued in 1994.

At that time the problem was perceived to be the comparative failure of the European economies compared with that of the US. The point was made that the current European tax structure was schizophrenic in the sense that the main problems were unemployment and a downgraded environment – yet our fiscal systems were, and are, overwhelmingly based on the taxation of human labour, both by means of direct taxation and through the value added tax (VAT), while very few environmental costs, whether raw materials or waste and emissions, were subjected to fiscal attention.

There was not just symmetry but a great deal of truth in this analysis. However, a number of northern European economies, notably but not only Britain and the Netherlands, proved able to make a substantial impact on the problem of slow growth and high unemployment during the course of the 1990s in a different way, namely by a liberalization of the economy and more particularly of the labour market on the model of the US, while maintaining the welfare state and simultaneously using chiefly (but not solely) the regulatory system to improve the environment, or at least prevent its deterioration.

In this way a more rational use of resources, in itself economically effective and justified by results, has put off the moment of truth when even the most vocal advocates, and we all as practioners, of the consumer society will have to acknowledge that there is at least an inherent difficulty in our world achieving what may indeed finally turn out to prove an “impossible trinity” of, first, maintaining the present level of consumption in the already developed world with its approximately one billion inhabitants; second, of providing the same style of life for at least three times that number of people, in China, India and Latin America, who are now developing the educational and economic means to reach the developed world’s level of consumption; and, third, of simultaneously avoiding a serious impact on the ecological balance of the planet.

In short, developments in the 1990s and in the current decade, more particularly the attractiveness of the US model both in itself and as partially adopted in Australia and some European countries where it has been combined with a maintenance of the welfare state, have discouraged even those EU member countries who continue to face high unemployment, from adopting a policy of substantially increasing taxes on certain raw materials and emissions while reducing taxes on human labour. Such a policy, associated with higher prices of raw materials, currently appears to many of their citizens certain to condemn them to even greater uncompetitiveness against their global rivals and hence an even higher level of unemployment than they already complain of today.

It is important to make this point because otherwise it would be hard to explain why EFR has not already been more widely implemented than it has. Yet if we look a little more closely we can identify some somewhat more hopeful elements in the situation. Let us, quite appropriately, since we are now again in a period of high oil prices, cast an eye back on the 1970s. The energy crises at the beginning and the end of that decade led to very different reactions in the US and Japan. The US was loyal to the classical market model and enjoyed an immediate benefit when oil prices fell. In Japan the price of fuel oil rose more steeply than the price of imported crude oil because the Japanese, without domestic fuel resources and without the military strength even to begin attempting to defend their ability to secure oil from other parts of the world, took fiscal and environmental measures which altered market conditions, and by altering market conditions, made it far more likely that technological innovation would, over time, make a positive social and environmental contribution.

We are no more accustomed to considering Japan a success story in comparison with the US than most of Europe. In several ways this is correct. The Japanese made a mess of their closed financial system, while the US and the UK maintained and, over time, improved their far more open financial markets that distribute people’s savings wherever they are required very efficiently, even if to the accompaniment of some speculative activity, which in any event has been a recurrent feature of markets at most times and in most places. The US also, in the course of the 90s, greatly improved its government’s fiscal position before the equally dramatic relapse that has occurred in the current decade.

In addition, we must remember it is the English-language media, not the European, still less the Japanese, that dominate international public discussion and inevitably these media give more attention to failures elsewhere and to successes in English-speaking lands, which tended to move in the same direction over the last two and a half decades, all the more so since the media are by their very nature interested in the shorter term, and in the short term they were unquestionably correct.

All this being granted, it remains true and all the more impressive, therefore, that in the particular field of energy consumption it was specifically Japan where technological innovation most effectively took up the challenge set by what we may call the “adjusted market”. Today we have the hybrid motor car, which is a Japanese development reflecting a long period of steady technological improvement in response to a high price of oil. The hybrid car is clearly a fundamental development, providing the world with an environmentally sounder and technologically more advanced product than any earlier model, certainly more impressive than the gas guzzlers which look increasingly like dinosaurs. Here is an example where competition in a properly adjusted marketplace, has brought substantively positive consequences. More generally it seems that in Japan the ratio of oil use to every unit of Gross Domestic Product is about one half that in the US. In short, what may seem correct in the short term may in the middle and long term turn out to be grievously mistaken.

It seems then that one aspect of EFR, namely that of setting prices of raw materials above that which would obtain in an unadjusted market, has already made a substantial impact, wherever it has been applied. It is accepted, in some countries at least, that the market is not to be seen as a replacement neo-pagan god, working miracles through an invisible hand, but a set of human institutions working within legal and fiscal parameters that society is at liberty to alter, for better or for worse. The alterations which the Japanese initiated in the 70s bore fruit in the 90s and in the current decade because it takes a period of constant market signals for technology to respond.

Similarly the cautious shift to environmental taxes in some northern European countries which began in the 1990s in response to the theoretical problematic outlined above, has already produced a shift in the sources of these states’ revenues, and, to the degree it is maintained, will over time bring considerable environmental but also technological benefits through entrepreneurial response to the signals given by an adjusted market economy. No environmentalist is likely to express displeasure if Europe ultimately emerges as the strongest world competitor in environmental technology as a result. Competitiveness in an environmentally adjusted market should be seen as a major positive benefit, something which is indeed already evident enough that many US corporations are likely to move in the same direction long before US politicians remove their ideological blinkers.

We have a different current example in Greece relating to charges rather than taxes. In 2004 Yannis Paleokrassas returned to politics and Parliament and then was appointed President of the Public Power Corporation. Amongst the moves he has made are, first, to set in hand substantial anti-pollution investment, and, second, to identify and publicize the fact that a full ten percent of installed electrical generating capacity in Greece is required to satisfy just 60 hours of peak demand stemming from the use of air conditioners, mainly in the month of July. He is thus this year introducing, for those buildings where it is already technically possible, a differential rate of charging to penalize those enterprises who run air conditioning systems during these periods and to reward those who do not. If maintained over a sufficient length of time this should lead to energy-saving measures in the construction and repair of buildings, something that is sorely required.

In short the use of pricing mechanisms to encourage environmentally positive behaviour is now well understood and frequently practiced. We need to press for it to be practiced far more widely. We should acknowledge but not be intimidated by the regrettable reality EFR has not been more widely and more fully adopted to date largely because of the attraction of the short-term success of the US economic model in the last two decades. This has certainly been healthy in so far as the reduction in labour market regulation and the openness of financial markets are concerned, but has equally been disfigured by a meretricious and indeed neo-paganistic idolatry of a theoretically unadjusted market, which is often in fact adjusted in precisely the least desirable direction, as for instance by subsidies to cotton and sugar producers. This has worked greatly to the detriment of African and other among the poorest countries in the world, who in this way are denied the development fruits their comparative advantage in the production of these commodities would otherwise provide them. I hardly need to refer again to the irresponsibility of the fiscal policy followed by the US in the current decade, nor to the well known fact that where agricultural subsidies against the interests of poor countries are concerned the EU is as bad, or a worse, offender.

A radical implementation of EFR as a fundamental adjustment in the workings of the market economy has thus yet to be implemented and is unlikely to be so until, first, the economic benefits obtainable by adapting the positive lessons of the US model have first been fully absorbed and, second, the negative consequences of market idolatry have become evident as a result either of US economic problems, or of major climatic crises, whenever these may occur. In the meantime however China, a well-advertised triumph of growth and a less well-advertised disaster of environmental economics, seems set, given its weight in the future course of world economic development, to make even more cruel humankind’s future dilemmas created by our effectively attempting to achieve the inherently difficult and probably impossible trinity I outlined above. Given too that China is one of the developing countries where the relationship between rulers and ruled is certainly not one of trust, it provides a further illustration of the need to start pressing for environmental fiscal reform at an international and not just at an European or a national level within Europe.

If you dispute that China is sailing as fast for environmental disaster as for economic success, you need not believe me. Read on openDemocracy.net, the new global on-line magazine, what the Deputy Environment Minister of China, Pan Yue, told Andreas Lorenz of "Der Spiegel":

"Currently there are 1.3 billion people living in China – twice as many as 50 years ago. In 2020 there will be 1.5 billion …Cities are growing but desert areas are expanding at the same time; in these fifty years, habitable and usable land has been halved… the environment can no longer keep pace. Five of the ten most polluted cities worldwide are in China; acid rain is falling on one third of our territory; half of the water in China’s seven largest rivers is completely useless; a quarter of our citizens lack access to clean drinking water; a third of the urban population is breathing polluted air; less than a fifth of the rubbish in cities is treated and processed in an environmentally sustainable manner…Because air and water are polluted, we are losing from 8-15% of our gross domestic product. This does not include the costs for health and human suffering: in Beijing alone, 70-80% of all deadly cancer cases are related to the environment. Lung cancer has emerged as the number one cause of death… Even now, the western regions of China and the country’s most ecologically stressed regions can no longer support the people already living there. In the future, we will need to resettle 186 million residents from twenty-two provinces and cities. However, the remaining provinces and cities are able to absorb only 33 million people. China, in short, will have more than 150 million ecological migrants, or, if you like, environmental refugees."

We have a major challenge ahead of us, a challenge of truly existential dimensions since it requires us to persuade a world obsessed by the short-term, not to say the immediate, to implement measures difficult in the short-term that will however reduce, although they certainly cannot eliminate, the difficulty of the choices that will surely face us in just a few decades. It is for this reason that Elliniki Etairia, at our English-language conference, and in our 2003 book on the subject, constantly repeats that proposals for EFR should be revenue-neutral so as not to increase the inevitable resistance to its adoption.

In assessing future prospects it is best to avoid presenting any magic formula and instead to recognize we face – and this becomes particularly clear when EFR proposals are indeed revenue neutral - fundamental problems of values, of economics and of the environment alike, but in addition a fundamental problem of communications. These seem to me to join together in an existential challenge to our societies, whether we describe them as Christian or post-Christian. Effectively, what has occurred is that the traditional Christian ethos, that of joyful restraint in relation to the natural world, but also of joyful participation in it, an ethos which in the Orthodox tradition is manifested in the cycle of feast and fast, is being revalidated by environmental developments at precisely the moment when the majority of nominally Christian societies had determined that this ethos is no longer applicable in an economic universe of unlimited opportunities and thus no longer wishes to hear any such message. There are no easy answers to this problem but I would like to end with certain suggestions.

First, the concept of EFR needs to be pressed even when it does not seem to be making marked progress. At least the idea of differential pricing for environmental reasons is already accepted in many societies. It will gradually become accepted in more. We should also explore any opportunity to press the concept internationally, whether in the EU or in wider fora, as this reduces alike the genuine fear and the excuse of the effects, actual or alleged, on national competitiveness.

Second, we need to differentiate between two types of environmental tax. One may be termed an environmental incentive tax, which is not aimed at shifting the sources of state revenue but at drastically reducing a certain type of environmentally damaging activity or encouraging activity or technological developments that are friendly to the environment. An example would be a tax on plastic bags, as, I understand, was introduced in Ireland, where use of plastic bags simply collapses. This is a plus for the environment but no gain for state revenue and therefore does not make part of a structural fiscal reform. It represents instead a method of obtaining a result that might otherwise have been obtained by regulation through the use of fiscal means.

By contrast where there is low elasticity of demand because of an inability or likely unwillingness to adjust rapidly to a change in adjusted market conditions we find the ideal situation for a structural EFR. Here there will be no collapse in demand but instead a double or even a triple dividend. Over time enterprises and individuals will react to the adjusted market signals in a multitude of ways, chiefly however through better resource management and technological innovation and adaptation. That will be the environmental dividend, to be obtained only gradually, it is true, but still the most critical in terms of the medium and long-term environmental requirements of our world as a whole.

In parallel the taxing authority will obtain a revenue dividend which it can use either to increase environmental expenditure or preferably, in the interests of revenue neutrality, to reduce the tax burden on human effort and encourage employment. That is the revenue dividend.

Finally, to the degree that the option of reducing the tax burden on human effort, and provided the overall tax shift is significant, there will be an important third dividend in respect of long-term social and economic structure in any developed country. At any particular growth rate – and it is only healthy that growth rates in developed countries should in general be lower than those in the developing world – employment after EFR will be higher than it would otherwise have been, while the use of raw materials and the irresponsible emission of pollutants lower. This structural change will prove beneficial in the medium-term for the world’s developed societies, and in this respect will send signals of the greatest significance for the long-term future of all humankind.

As a last comment on the issue of communicating the message, I believe Christians would be ill advised to assimilate the dialogue between themselves to that of Christians with the secular world. There is a tendency for some Christians in northern Europe to see secular communities as Christian communities only without belief in God. This has a certain historical attraction. It is possible to make such a mistake because so much of Christian ethics remains deeply engrained in many of these societies. Their fundamental driving force however, their ethos as opposed to their ethics, has altered – and whether this is combined with an aggressive assertion of traditional values in some spheres, as in the US, or with an aggressive secularism, as in parts of Europe, is not very relevant.

There is indeed an absolute need for a specifically Christian witness based on faith in God, hope for His world, and above all love for human beings and all creation, within and around the eucharistic community, which must remain open for all human beings since it realizes in our imperfect world the hope of our unity with God and amongst ourselves, at the end of time.

We might be better advised however not to harbour illusions regarding a Christian ethos or community outside the Church when there has been such an evident divergence of fundamental outlooks. Here lies a further value of EFR and of the adjusted market. These do indeed represent a system of signals to encourage technological innovation and the highest possible level of human participation in relation to the limits set by the availability of natural resources and the limitation on damaging emissions, as has already been argued. EFR, together with an international dialogue on environmental regulation and its limits, also however represents a necessary common language that is comprehensible and relevant to the secularized but simultaneously in its effects points towards a different ethos for living, effectively in part at least a Christian ethos, rather than that which currently dominates our world. It thus both represents an important economic tool to help prevent global environmental disaster and the beginning of a long slow way back – or forward! – for many people to appreciate the central value of a Christian existential stance in relation both to our fellow human beings and to the natural world of which we form a part.