Sustainable Germany: A View from the South; July 2002 -- pdf

ergy production. Germany’s landmark label on sustainability and global responsibility is
based on its climate protection and energy policy.
4.8 The ecological tax reform
Celebrated by some, attacked by others, a breakthrough made by German economy in
pursuing sustainability is the enactment of the ecological tax reform. Both controversial
and a political risk, this measure was part of the election campaign promises of the Social
Democrat and Green coalition.
The eco-tax introduced by the present government is an exceptional and unique fiscal
instrument to internalise the environmental costs of energy that proved to be a highly
appreciated economic breakthrough. Although the eco-tax has generated a diverse set of
reactions, it has been greatly welcomed by environmentalists in Germany. The social
context of this eco-tax is, however, questionable. The disproportionate taxation system,
giving preferential treatment to industries over households, raises concerns over the
need to reform this taxation system further, according to some of the institutions interviewed
by the evaluation team. For some of them, the eco-tax needs to differentiate between
industries based on their consumption rates.
This reform is designed to encourage savings of energy and promote the use of renewable
energy - both key aspects of climate protection - and create jobs. The reform imposes
gradual increases in the prices of energy, particularly oil-based energy. The tax
provides Germany's economy with an incentive to develop and market conservation
technologies, and to use energy efficiently. The enacting of the eco-tax was primarily
mandated by the rise in CO2 emissions.
Dirk Wolters, senior research fellow at Energy Division of the Wuppertal Institute, says
taxes are also seen as one of the most cost effective means to achieve environmental
targets and that they are also a means of integrating environmental concerns into all
other policy areas, including fiscal policy.
The Ecological Tax Reform adopted in April 1999 stated that:
• There will be an annual increase in electricity tax by 2 pfennigs in 1999, and 0.5
pfennigs per kilowatt/hour on January of each year from 2000 to 2003;
• Also an increase of mineral oil tax on motor fuel by 6 pfennigs per litre on January
1 st each year until 2003; and
• Additional taxation on heavy heating oil of 0,5 pfennigs per kilogram.
The revenues arising from the ecological tax reform are being fully returned to Germany's
taxpayers. Most of these funds are being used to reduce the 19% contribution of
employers and employees to pension funds. This helps to reduce the costs of job creation
and helps to deal with unemployment. The revenues are also being used to foster
the development and use of renewable energies. This support currently amounts to DM
200 million a year for renewable energies generating electricity.
In spite of the widespread public discussion, admittedly still 22% of people in Germany
have heard nothing of the term eco-tax reform. With respect to the acceptance of such a
tax reform, the data shows an ambivalence, and to some extent, controversial picture. A
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