The Eighth Annual Global Conference on Environmental Taxation
 
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IMPACTS OF ENVIRONMENTAL FISCAL REFORMS AND OTHER MARKET-BASED INSTRUMENTS 
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Workshop 1: EFR and construction, land use and conservation

Review of fiscal incentives for plantation forestry

Wayne Gumley and Shashi Sivayoganathan, Dept. of Business Law & Taxation, Monash University, Australia

This paper will examine the impact of environmental fiscal reforms upon employment and environmental outcomes in regional Australia arising from changes to the taxation treatment of plantation forestry. The Federal Government in Australia has actively promoted the expansion of plantation forestry in recent years as a response to climate change and declining employment opportunities in regional Australia.
The Federal Government has provided fiscal incentives to Managed Investment Schemes (MIS) promoting forestry projects, which has attracted substantial institutional and retail investment to the plantation forestry industry. In the 2005-2006 Federal Budget, the Federal Government announced that it would review the taxation treatment of plantation forestry. Following extensive consultation, it announced, on 21 December 2006, new taxation arrangements for plantation forestry schemes. The environmental benefits associated with plantation forestry were seen as a critical factor supporting the need for tax concessions to this industry.
The paper critically appraises, from an employment, regional development and an environmental perspective, the existing and proposed arrangements for the taxation of investments in forestry MIS.

Part 1 of the paper considers the existing taxation regime with regards to forestry MIS and the product ruling system operated by the Australian Taxation Office. Product rulings are of critical importance to retail investors as they provide certainty that the primary producer tax deductibility provisions will apply. This part of the paper also provides an outline of the technical amendments proposed by the Federal Government.

Part 2 of the paper examines the environmental, social and economic concerns with plantation forestry MIS which might detract from the potential economic benefits expected from an expansion in this sector. Current concerns regarding plantation forestry sector include:

  • The imbalance between State and Federal government regulation;
  • The lack of appropriate environmental impact assessment analysis in granting taxation incentives;
  • The socio-economic impacts of plantation forests in particular regions where forestry plantations have replaced traditional agriculture;
  • The taxation impediments to long rotation product; and
  • The use of tax incentives to achieve environmental reforms (for example, the political inability to remove tax incentives once entrenched in law).

Part 3 of this paper examines the extent to which the proposed measures seek to redress these concerns and suggest areas for further reform.

 

Taking Green to the Bank: Transferable Conservation Easement Tax Credit -
the Virginia Experience

Prof. Eleanor Brown, University School of Law, Virginia, USA

Virginia’s transferable conservation easement tax credits have positively affected the preservation of lands. The transferable component has attracted donors looking for liquidity as well as creating employment opportunities in the drafting, valuation, marketing, sale and compliance aspects of the easement.

In the U. S., open lands and forests are disappearing at alarming rates. The use of tax instruments as an incentive to promote preservation and conservation of open space, farms, forests and important ecosystems dates to the mid-1980s. Conservation easements, negative easements granted in perpetuity to protect conservation values, are permitted income and estate tax benefits at the federal level. Despite those federal benefits, the conservation easement tool did not result in marked increases in land preservation. In addition to federal efforts, many states have articulated conservation goals and initiatives. A number have promulgated state tax credits which provide, in varying amounts, a credit against state income tax related to the value of a conservation easement. Virginia enacted the Virginia Land Conservation Incentives Act of 1999 to provide tax credits to Virginia landowners who placed their land under easement after January 1, 2000. The law was modified in 2001 to permit transfers of the tax credits. Two other states, Colorado and South Carolina, permit the transfer of conservation easement tax credits.

This paper will survey the use of transferable conservation easement tax credits as an instrument of environmental fiscal reform. Specifically, the paper will review the Virginia experience, including the economic and social policy choice to promote voluntary action with respect to private lands, evaluate data to support a marked increase in lands under easement in Virginia after the credit became transferable, and address the political and economic challenges which undermine the success of the credit and led to changes in the law in 2006. A comparison of the Virginia experience with Colorado and South Carolina as well as consideration of a refundable alternative will be explored.

 

The unsustainable dependence of Spanish Local Treasuries
on taxes and charges related to construction activities

Dr. Ignasi Puig-Ventosa, Consultant, ENT Environment and Management, Spain

The budgets of Spanish municipalities have a strong dependence on income generated by selling their own land and income raised by taxing new urban developments (i.e. tax on constructions and installations, and charges on construction licences). Both types of revenue can be characterised as extraordinary, but are often used by local authorities to address expenses that can be characterised as ordinary, such as personnel, municipal services, etc.

This situation creates a negative feedback whereby municipalities stimulate urbanisation as a means to obtain further revenue required to sustain their budget. Nevertheless, since municipalities have a limited area suitable for urbanisation, this revenue is by definition, unsustainable and will diminish in the long run. Several municipalities are already at this point.

On the contrary, taxing construction activities has the positive effect of redirecting to the Local Treasury the added value generated by these operations. However, the net balance does not seem positive, at least from an environmental perspective.

This paper quantifies the municipalities degree of dependence on these flows of income, whilst proposing a range of adjustments to the financial and taxation structure of Local Authorities to overcome the environmental and economic impacts caused by the present situation.

 

Buildings and sustainable urban development:
Challenges and opportunities from an Italian case study

Andrea Zatti, Giorgio Panella, Dept. of Public and Territorial Economics, University of Pavia, Italy

The building and construction sector is a key area for sustainable development (UNEP, 2007). The construction, use and demolition of buildings generate substantial social and economic benefits to society, but may also have serious negative impacts, particularly on the environment. Areas of key concern include energy use with associated green house gas emissions, waste generation, construction materials use and recycling, water use and discharge, and the integration of buildings with other infrastructure and social systems. Public institutions can play a key role in addressing these negative externalities through a wide range of policy tools, notably legislative measures, economic incentives, technology transfer measures, home energy and environmental ratings, and information and education campaigns.

Focusing on the Italian experience, the paper will show how governmental policies have been only partially successful in performing this role: 1) they have mainly focused on a narrow range of specific concerns, especially those relating to health and safety, preservation of the urban landscape, observation of distances and views, and prevention of noise pollution, but have not fully grasped the important role that buildings, throughout their lifecycle, can have on energy consumption, natural resource depletion and urban pollution; 2) they have mainly relied on a top-down prescriptive approach, with a little attention to the implementation of market-based or informative measures; 3) many of the regulations have been barely enforced, so that many existing standards have remained little more than formalities.

This scenario began to change in the second half of the 1990’s, when energy conservation and environmental issues began to move higher on the priority lists of national and local governments, bringing about a significant ramp-up in commitments and activities.

This paper, through an analysis of the national implementation of EU Directive 2002/91 on the Energy Performance of Buildings and through an investigation of about 40 innovative case studies at the local level, will assess the main characteristics of this development, paying special attention to the use of local economic incentives introduced to encourage the attainment of energy and environment performances beyond those required by the national law. This will include both a description of the forms of incentives applied (building licence fee allowances for new construction, higher construction volume allowances, property tax allowances, dedicated funds for renewable energy production), and a description of the indicators used to quantify the incentives (such as home energy ratings and multi-criteria scoring mechanisms).

The conclusions will mainly focus on the problems encountered in the implementation of the process, above all in terms of vertical and horizontal coordination among different levels of government, and in terms of administrative and enforcement costs, since both issues prove to be more challenging as the scope of the regulations becomes broader and the instruments adopted more varied.

 

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