Introduction
Climate change has become a reality in the world today as a function of the increase in carbon emissions into the atmosphere. The environmental quandary has repercussions on all countries in the world. Consequently, solutions for the problem should be adopted worldwide because cutting the emissions in one region leaving out others will be counterproductive. The economic analysis in relation to the measurement of externality provides a critical comprehension of the most successful measures in addressing the problem. Economic policies have proven natural mechanisms in tackling environmental issues as they incorporate environmental spoilage into the product prices and non-market processes such as driving (Liu 2013). Among the commonly used policy efforts is the employment of tax systems in diverse countries internationally. Analysis of the systems is critical to recognizing what a model system looks like to establish their utility in tackling the predicament. Evidence from different countries has divulged taking the environmental problems into economic and policy avenues.
Environmental Tax Model
In the consumption and production of goods, energy remains a critical input. The production and consumption back any country’s economic and social development process. Nonetheless, a huge proportion of the energy utilized has environmental implications, particularly the global challenge of climate change or global warming. The criticality of the problem has led to the increase in the discourse of the most effective means for dealing with the problem. Taxation is among the commonly used solutions today (Heine, Norregaard, and Parry 2012). It is viewed as an effective measure through which governments affect the use of energy to deal with the environmental ramifications. While taxation is utilized in different countries around the world, there are major disparities on the level and structure of the taxation systems adopted at the national level. The differences are evident within the OECD countries and the developing ones, which together account for about 80 percent of the energy use globally.
The environmental tax design is a common paradigm within the contemporary efforts to deal with the environmental problems relating to carbon emissions. The tax scheme is founded on levying of environmental taxes on the apt damage to the environment from diverse sources of pollution, including carbon emissions. Heine, Norregaard, and Parry (2012) portended that there are various sources of such pollution, including fossil fuel, natural gas, coal, and oil products, among other pollutants. As these fuels become part of the economy, the scheme proposes a refund system for emissions captured at downstream facilities. Among the effective alternatives to their use are downstream pricing systems. The pricing instruments are implemented towards the end of incentivizing all-inclusive actions to reduce environmental damage. The cost of environmental damage is vast, and any efforts to mitigate them should be at the center of green growth policy (UN Environment n.d) Therefore, the measures should be enacted to ensure that the economic development efforts align with the measures to protect the environment.
The pricing instruments underlying the environmental tax model offer the incentives for increased efficiency benefits, innovation and green investments, and changes in the patterns of consumption. Sustainable and efficient environmental uses in line with the taxes have the potential to drive growth-oriented reforms. Such development can be achieved through changes in the taxation system from the more distortive taxes, such as on personal or corporate income, and contributing to financial consolidation. A more generalization application of the environmental taxation system or the use of new pricing devices like emission trading system has been evidenced as contributing to sustainable development in the countries where they have been implemented, such as Sweden (OECD 2016). Environmentally based taxes can potentially augment the cost of activities or products that pollute the environment. In turn, the taxes dishearten the production and consumption of those products, despite the intended objective in implementing the tax system. The tax system has been implemented in different countries in the world, both developed (for example, Sweden) and the developing (such as Vietnam), though in differing rates.
Environmental Tax Model in Sweden
Research evidence has indicated that economic development cannot be achieved in a vacuum (OECD 2016). The case of Sweden is a typical model of this reality. According to the data from the OECD, the country is among the few that have achieved strong economic growth with a decline in the rates of unemployment and a matching increase in the living standards (the figure 1 below indicates this reality).
However, like many others, the country suffers the challenge of achieving sustainable economic growth due to the challenges accompanying such development, including environmental issues. Therefore, economic growth should be accompanied by further actions to mitigate the negative ramifications of the economic growth. With the changes comes the demand for a fiscal policy to ensure sustainable development (Liu 2013). The changes in the economy of Sweden reflect the rationale for including environmental measures within the fiscal policy to ensure that the two go hand in hand. In fact, this reality forms the basis for the adoption of the environmental tax system in the country.
Together with other Nordic countries, Sweden was among the leaders in adopting the model for tackling environmental issues. The country undertook environmental tax reforms at the beginning of the 1990s, with other changes transpiring at the beginning of the 2000s (Heine, Norregaard, and Parry 2012). The changes assumed in the country marked a critical element in a more generalized tax-shifting movement that fortified indirect taxes, principally the Value Added Tax (VAT) and environmental taxes. It also accomplished towards a reduction of labor-related taxes. The tax model in Sweden was geared towards stimulating employment, although there is still a lack of consensus on the potential to attain this end.
Between 1991 and 1992, a number of novel taxes surfaced from the Swedish reform. The taxes were implemented in various sectors, including oil and natural gas, towards charging carbon emissions for natural gas and SO2 emissions for oil. On coal-related SO2, downstream taxes were incorporated as well as on the industrial basis of NOx (OECD 2016). The increase in the tax was reimbursed in part by lowering the conventional excises of energy, primarily on motor fuels together with other oil products.
Other factors beyond the environmental concerns have driven tax changes in the country. Among them was the concern of cutback in competitiveness, whose upshot was a tax reform that occurred in 1993. One of the major changes that accompanied the tax reform was overall exemption of manufacturing from conventional energy taxes. Instead, from 2004 onwards, it would only pay 21% of CO2 tax rates (Heine, Norregaard and Parry 2012). In the meantime, on fuels, the CO2 tax applied in manufacturing companies would under the EU ETS slowly shrunk to15percentage of the statutory rates. Production of electrical power has been completely excused from corrective taxes, but only SO2 tax. Going forward, the country has been serious about using tax to make it more compliant with the global policies on environmental protection.
Environmental Tax Model-Vietnam
Like other countries across the world, Vietnam has also exhibited a commitment towards environmental protection and addressing climate change. However, comparative evidence reveals that the level of commitment is lower than the standards the developed countries set. One OECD report has indicated that sustainable development potential have been founded on critical policy reforms to guarantee that individuals and companies in the country appreciate the efforts at the national and international levels to protect the environment from complete damage. Policy governance has been explored, leading to data on how the country rates regarding the modern policy efforts towards environmental protection. Vietnam has witnessed relative economic growth, as evidenced by the growth in some of its major cities, including Hai Phong. The city has witnessed a steady and remarkable growth averaging at the rate of 8.7%, according to the data taken in 2015 (OECD 2016). The main indicator for the growth has been the continued growth of the Hai Phong Port.
However, amid the growth, there have been serious concerns in relation to the environmental ramifications. Theoretically, it has been revealed that economic development forms the basis for continued degradation of the environment. The idea underlying the hypothesis is that economic activity increases come in tandem with environmental damage, a reality evident in the country. Like other countries globally, Vietnam has to deal with increased problems such as greater levels of greenhouse gas emissions from transportation and industrial operations, swift pollution of sources of water due to untreated waste sources, diminution of underground waters, and inadequate systems for the management of waste. The country has adopted efforts, particularly since the dawn of the 21st century, to implement policy efforts to address the problems the economic activities impact on the environment. Among the efforts that have been implemented, though not at the same rate as in the OECD countries, is an environmental tax system (OECD 2016). The government has maintained an ultimate objective of building a stronger and more resilient country committed to protecting the environment.
In 2004, the Vietnam government deliberated to initiate an all-inclusive environmental tax reform. There were diverse rationales underlying the decision, including the increased awareness among the members of the public on the levels of pollution in the country and beyond. However, the reform process was impeded by the 2008–10 global financial crises. The delay, nonetheless, did not suggest a complete desertion of the reform initiatives. The Vietnam government was dedicated to implementing a more effective environmental tax reform.
By the year 2012, the country had adopted taxes for coal and gasoline. However, the rate of taxing these two energy sources is low when measured against the developed nations, including Sweden. The tax rate at the time was $0.52 per ton and about 20 cents per gallon, correspondingly (OECD 2016). There was completely no tax imposed on natural gas. Even when taking into consideration the system known as “Environmental Protection Charges,” the reality remains constant. In fact, based on the miniature charges experienced, the country only levies on resource extraction. In addition, the country gives considerable fuel subsidies to consumers (Heine, Norregaard and Parry 2012). For the purpose of saving the impoverished households, the subsidies, as applied to electricity are increasingly scaled. Evidently, the changes in Vietnam are not as effective as those enacted in the developed economies.
Comparing Tax Revenue in Sweden and Vietnam
In Sweden, the income from environmental tax as a proportion of the overall tax revenue has shown a slight decline in the last five years as showed in figure 2 below. In the country, environmental tax has been shown to average 5.4% of the total government revenue obtained through taxation in the last five years (OECD 2016). In fact, while the percentage has been declining in the last five years, since the introduction of the taxation system in the wake of the 21st century, there has been an improvement in the income obtained in the process.
In the energy sector, the tax in 2016 was 79.4%, in the transport sector, 19.4% and taxes on pollution, the figure was 1.3 (all the figures are taken as a percentage of the total tax income from environmental taxation) (Nordic Co-operation, n.d). The case of Sweden is among the successful models in implementing environmental taxation. Although there have been slight declines, the country has achieved an increase in the rate of taxation and the tax revenue. Evidently, the years that have experienced a decline in the level of revenue have been a minor margin.
Compared to Sweden, Vietnam is among the developing nations that are still struggling with adopting environmental tax reforms, with evidence showing that the rate of taxation has not been highly effective. The government’s revenue has been increasing, indicating a positive impact from policy reforms in the country (see figure 3 below).
The bill to implement taxation on the environmental elements was passed in 2010, regardless the fact that the intentions to implement the reforms had started a decade ago. Regardless, the country is the pioneer in terms of environmental taxation in South-East Asia. However, it would not be expected to garner much regarding taxation, as it is the case in Sweden. Taxation in the country is based on energy and other environmentally destructive substances, like hydrochlorofluorocarbons (HCFCs). Tax has also been levied on some pesticides and soft plastic bags. The rate on petrol has been set at VND 1,000 and 4,000 per liter. The income as at 2011, following the taxation has been between 5.9 % and 17.6 %. There has been an increase in the last five years, with the rate as at 2016 being between 6.3% and 18.2% (OECD 2016). The policy appears to be working towards improving the country’s protection of the environment.
In both Sweden and Vietnam, the energy tax accounts for the government’s largest source of environmental tax income. Indeed, this is followed by taxation from the transport sector and a minor percentage from the taxation on pollution and resources. However, in Vietnam, the taxes from the transport sector are evidently higher than in Sweden. Taxation using the environmental taxation model has not only increased revenue for the government but has also played a fundamental role in reducing the environmental damage by cutting greenhouse gas emissions. For example, the ex-ante assessments of impact in the two countries have revealed considerable changes in the use of fossil fuels, which is the leading contributor of emissions (Heine, Norregaard and Parry 2012). Where the environmental taxation is implemented, there has been an increase in the amount of tax revenue collected by the government. In Sweden, implementing the taxation system reduced the tax from other sources, but in the long run, including the new system improved taxation for the government.
Conclusion
In the modern days, the world has faced serious challenges associated with greenhouse emissions, which lead to climate change or global warming. The efforts to address the problem have taken center stage in the environmental discourse nationally and internationally. Among the most debated, and yet most implemented remedies has been the use of the environmental taxation system. The model is founded on the need to address the economic side of environmental damage by imposing a tax on the processes and materials that have a negative impact on the environment. Although in differing proportions, many developed and developing countries have adopted the environmental taxation system. For instance, Sweden (a developed country) and Vietnam (a developing country) have adopted the system. However, from a comparative perspective, the structure and rate of taxation in the two countries differ, with Sweden having a superior and more effective system than Vietnam. Despite the differences, the systems continue to play a critical role in improving revenue for the respective governments, reducing greenhouse gas emissions, and hence addressing the environmental problem.
Reference List
Heine, D., Norregaard, J. and Parry, I., 2012. Environmental tax reform: principles from theory and practice to date.
Liu, A.A., 2013. Tax evasion and optimal environmental taxes. Journal of Environmental Economics and Management, 66(3), pp.656-670.
OECD. 2016. Environmental country reviews, retrieved from http://www.oecd.org/environment/country-reviews/
Nordic Co-operation, n.d. Proportion of environmental taxes in total tax revenues, retreieved from http://www.norden.org/en/nordic-council-of-ministers/ministers-for-co-operation-mr-sam/sustainable-development/indicators-for-sustainable-development-1/sustainable-use-of-the-earths-resources/proportion-of-environmental-taxes-in-total-tax-revenues
UN Environment, n.d. Inclusive Green Economy, retrieved from http://web.unep.org/greeneconomy/sites/unep.org.greeneconomy/files/1_ian_parry_environmental_t
Vietnam Government Revenues 1985-2017. Retrieved from http://www.tradingeconomics.com/vietnam/government-revenues
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