Global Policy Forum

Green Taxes 'To Hit Poor Hardest'

October 27, 2004

Poor families will be hardest hit by "green" taxes designed to protect the environment by cutting consumption of gas, electricity, petrol and other natural resources, according to a report. But their negative impact on low-income households can be substantially reduced through carefully-designed charging regimes or compensation schemes, says the Joseph Rowntree Foundation.

The study by Professor Paul Ekins and Dr Simon Dresner of the Policy Studies Institute, shows consumption of energy, water and waste disposal services in poorer homes is disproportionately high in relation to their income. The same is true of petrol or diesel for those who own cars. Consequently, flat-rate environmental taxes or charges would be "regressive" - claiming a greater share of income from poor people than from better off households.

Most unintended social consequences could be removed by giving green taxes a structure that increased the tariff or charge for those most able to pay - or by making compensation available for low income households through state benefits. However, the authors warn that use of environmental resources varies widely within income groups. This means that even if most low income households were to be protected by charging or compensation schemes, a minority would still end up as net "losers".

On energy use, and the potential impact of a "carbon tax" on household energy consumption, the researchers note that many low income households already experience "fuel poverty", defined as needed to spend more than ten per cent of their income on keeping warm. After analysing 13 different models for tax and compensation schemes they conclude that it would be possible to design systems that on average benefit poor households.

Professor Paul Ekins, co-author of the report said: "The results from this research can help policy makers ensure that, if environmental taxes and charges are introduced, they are designed in ways that prevent unintended consequences for people who live on low incomes. "Our research demonstrates that, in general, it is possible to solve the disproportionate impact on poorer households sometimes associated with environmental taxes and charges."




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