Study claims green taxes must be earmarked for green causes

Politicians must clearly earmark revenue raised from green taxes for investment in specific environmental projects if they are to ever generate public and business support for the concept, according to a major study released over the weekend.

Government's typically oppose the hypothecation of tax revenues as it limits the flexibility they enjoy when making spending decisions. However, according to a new study from Sweden's Center for International Climate and Environmental Research released ahead of this week's UN climate change conference in Poznan, Poland, politicians risk undermining support for green taxes if they do not make it explicit that the revenue raised is spent on environmental projects.

"People do not understand environmental taxes," said Steffen Kallbekken, who led the research. "If politicians don't provide better information about how these taxes work, it might not be politically feasible to implement them."

Kalbekken's study found that the public had a natural aversion to believing that taxations increases welfare, and that this scepticism was even more pronounced for green taxes.

But the report found that this opposition fell away when the link between taxation and welfare is made more explicit.

The study cited Stockholm's congestion charge as an example of how an environmental tax can lead to increased welfare. It noted that during the scheme's trial period, traffic to the city fell by 22 per cent, accident rates fell and emissions fell by over 10 per cent, and as a result, the number of people in favour of the charge rose by 18 per cent.

"The congestion tax was very controversial before the trial period," said Kallbekken. "However, as people experienced the positive effects of the congestion tax during the trial period they adopted a more favourable view of the tax."

In a referendum at the end of the trial period, 52.5 per cent of voters were in favour of the scheme and the charge was permanently implemented.

"The Stockholm example shows that demonstrating the benefits of environmental taxes can substantially increase public support," said Kallbekken, adding that demonstrating how the revenue raised was being used was key to generating public support.

The report follows a series of calls from businesses and environmental groups for the EU to ensure revenue generated from the auctioning of carbon credits under the EU Emissions Trading Scheme is ploughed back into climate change mitgation and adaptation programmes.

However, several member states have rejected such proposals, claiming hypothecated taxation runs against their countries' constitutions. The issue is still being debated as part of ongoing talks on the EU's package of climate change measures that are due to be finalised before the end of the year.