The Eighth Annual Global Conference on Environmental Taxation
 
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INNOVATION, TECHNOLOGY AND EMPLOYMENT IN THE TRANSPORT SECTOR 
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Workshop 1: EFR, biofuels, and environmentally harmful transport subsidies

Direct and indirect transport subsidies in Hungary

A. Lukács, L. Pavics, Clean Air Action Group (CAAG), Hungary

Since 1991 the experts of the Clean Air Action Group  have been making calculations concerning the state revenues expenditures relating to transport. In 2004 a new research was undertaken by CAAG, financed by the European Commission’s PHARE ACCESS Program and the Hungarian Ministry of Environment and Water. This resulted in the most comprehensive study ever on this issue in Hungary. Since then the study has been updated, including further research in order to have a clearer view on several aspects of these subsidies.

In 2004 the state revenues from taxes and charges on cars and trucks amounted to HUF 560 billion. On the other hand, state expenditures or uncollected revenues relating to road motor vehicle transport added up to about HUF 4700 billion. This meant a deficit of more than HUF 4100 billion. This can be considered as the amount of subsidies for road transport, which in turn equals to 20% of the GDP in 2004. From this, state revenues relating to cars amounted to HUF 480 billion, and the expenditures exceeded HUF 2000 billion, which means that the amount of subsidies was more than HUF 1500 billion. State revenues related to road freight transport were HUF 80 billion, whereas expenditures amounted to HUF 2600 billion. Thus the amount of subsidies was more than HUF 2500 billion. Beyond that, damages caused by heavy goods vehicles are estimated to at HUF 1000 billion, however, most of these are paid by all the participants of transport, primarily by the owners of private cars. (Thus, as regards transport as a whole this is not an external cost but an enormous cross-financing within the sector that cannot be supported by rational arguments.) These are mean values; the overall range of uncertainty is about -30% and +50%.

 

Successes and failures of biofuels promotion in the Czech Republic

Dr. Vojtech Máca, Dr. Hana Brůhová-Foltýnová, Charles University Environment Centre, Prague, Czech Republic

There are various possibilities of transport regulation such as taxes, congestion charging or normative regulation. To choose efficiently, one has to understand the main factors influencing transport behavior. This paper contributes to this task and analyzes the main factors of modal split of passenger transport in selected European countries. We try especially to understand whether and to what extend fuel prices are among the decisive factors. If the prices are an important factor, then public policy may use environmental taxes to influence the modal split, otherwise other instruments should be used.

We construct a panel database and argue that statistical analysis of the panel is a suitable tool to address our question. Data on selected European countries over the last 20 years are included in the panel. An innovative aspect of our study is that we include data on some transition countries as well. Since data for different countries are available for different years, our panel is unbalanced. Nevertheless, because of advances in statistics and econometrics over the last decade, unbalanced panels do not represent a major problem for estimation (Biørn, 2004).   

The panel database consists not only of fuel prices but also of other transport characteristics (such as congestions) and of characteristics of included subjects, such as existence and mode of land use, density of traffic network, structure of road network (share of highways), structure of urbanized areas, demography and the level of economic development.

From the formal point of view, we apply methods of multivariate statistics suitable for dealing with unbalanced panels. Both cross-section and time-series dimension of the panel provides variation necessary to identify the impact of prices on the modal split. The cross-section dimension identifies fixed characteristics of subjects, while the time dimension identifies time-varying characteristics. Thus our paper contributes to the research agenda represented by Kain (2001) or Medlock and Soligo (2002).

 

Moonshine to Motorfuel: Tax Incentives for Fuel Ethanol

Prof. Roberta Mann, Widener University School of Law, USA;
Prof. Mona Hymel, University of Arizona, James E. Rogers College of Law, USA

In the search for oil and gas substitutes, biofuels have emerged as the new panacea. Touting supporters such as President George W. Bush and the Natural Resources Defense Council, biofuels are receiving world-wide attention and money.  Historically, biofuels, such as ethyl alcohol, have not enjoyed such good fortune. Before 1930, the U.S. Treasury focused on shutting down small alcohol producers. However, by 1978, U.S. energy policy sought to encourage ethanol production to reduce dependence on foreign oil. For example, federal and state incentives are credited with increasing ethanol production from 175 million gallons in 1980 to 3.9 billion gallons in 2005. The first major federal ethanol subsidy provided an exemption from the motor fuel excise tax. Revised in 2005, the tax law now contains three income tax credits designed to encourage ethanol use. These credits, together with other subsidies, stimulate ethanol production by making ethanol prices competitive with petroleum based fuels. 

Despite its possibilities, ethanol is not universally viewed as the solution to reducing petroleum use.  Studies come to different conclusions about whether ethanol produces a net energy gain, after considering the energy used in planting, growing, harvesting, and processing the raw materials. Several concerns expressed by critics of wide-scale ethanol production are that the use of food crops for fuel will exacerbate world hunger; ethanol subsidies amount to corporate welfare for large agricultural firms; and the U.S.’s capacity to produce ethanol will be over stimulated by subsidies, resulting in bankruptcies and industry collapse.

In this article, tax incentives and subsidies for ethanol (and other biofuels) are evaluated for their economic and environmental effectiveness. Ethanol can play a role in reducing dependence on foreign oil and greenhouse gas emissions, particularly in the transport sector. However, the tax incentives for ethanol production should be structured to operate more effectively. For example, corn constitutes about 90% of the feedstock for U.S. ethanol production, although cellulosic sources show increasing promise. Changing the source and methods of agriculture can limit adverse environmental and economic effects of ethanol production. Taxes and other subsidies can be structured to take these variables into account. As analysts continue to evaluate environmental subsidies, policy makers must respond by eliminating wasteful subsidies and crafting tax incentives and other subsidies for biofuels that will facilitate the move away from fossil fuels towards renewable energy sources.

 

Ethanol as Renewable Energy: A Quantitative
Analysis of U.S. Energy Policy Using Corn as an Alternative Fuel

Prof. Rahmat Tavallali, Walsh University, USA;
Prof. Scott Yetmar, Prof. Paul Lee, Cleveland State University, USA

In 2005, the United States Congress passed an energy bill that mandates the doubling of ethanol production to 7.5 billion gallons a year by 2012 and then a boost to 35 billion gallons a year by 2017. Currently, there are 112 ethanol refineries in the United States with a capacity to produce more than 5.5 billion gallons of ethanol annually. In addition, 77 more ethanol refineries are under construction with a combined capacity of more than 6.1 billion gallons annually.

In the United States, ethanol is made mostly from corn. This has placed a strain on corn supplies and has boosted corn prices to a 10-year high of around $4 a bushel. This record high price for corn has raised objections to using corn for ethanol production. A major criticism against using corn for ethanol production is that it diverts agricultural production from food crops which could cause a food shortage.

Corn has traditionally been used as feedstock for cattle and chickens in the United States as well as a sweetening ingredient for soft drinks, candies, and many other food products. As more corn is used to produce ethanol, less corn is available for these food products.

In this paper, the authors review this complex issue of corn being used for both food supply and ethanol production. The paper also reviews the tax incentives which currently exist for ethanol production and analyzes the merits of these incentives. A quantitative approach will be used in this analysis.

 

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