DELIVERING THE CIRCULAR ECONOMY A TOOLKIT FOR POLICYMAKERS

80 • DELIVERING THE CIRCULAR ECONOMY – A TOOLKIT FOR POLICYMAKERS
Setting clear direction
As set out in Section 2.1.2, adopting a national ambition level using appropriate targets
– based on, for example, the three circular economy principles, as described in Section
2.1.2 – might send a powerful signal to businesses and investors. Setting out a clear
economy-wide strategy on circular economy and resource productivity might do so as
well, and governments have already begun to do so. Existing national circular economy
or resource productivity strategies include China’s Circular Economy Promotion Law,
Japan’s Law for the Promotion of Effective Utilization of Resources, the UK Resource
Security Action Plan: Making the most of valuable materials, Germany’s Resource
Efficiency Programme (ProgRess) – see Table 2 for details – and the Netherlands’
Waste to Resource strategy. In Scotland’s Economic Strategy 2015 remanufacturing was
identified as a strategically important innovation sector.
Realigned incentives
While many circular economy opportunities already have a sound underlying
profitability, realigning incentives from resources to labour could potentially unlock
further opportunities. Such shifts are sensitive and need to be seen in the light of
issues such as international competitiveness, stability of tax revenues, administrative
complexity and potential distributional effects. They are, however, an option to explore
since there is some evidence that they could bring economic and societal benefits (see
below).
A number of international organisations, such as the European Commission, the OECD,
the IMF, and the International Labour Organization, have suggested shifting taxation
from labour to resources. 97 They propose that such a shift could increase incentives to
minimise waste, maximise resource productivity and increase the feasibility of more
labour-intensive circular business practices. Ex’Tax has done detailed analysis on the
practicalities and implications of such a shift. Its report presents a case study that
finds that a (mid- to long-term) tax shift could shift more than EUR 30 billion in tax
revenues from labour to resources and consumption in the Netherlands alone and, if
internationally coordinated, could potentially create hundreds of thousands of jobs 98 . As,
in Europe, 6% of total tax revenues originate from environmental taxes (including taxes
levied on energy, transport, pollution and resource extraction), and 51% from labour
taxes and social contributions 99 , there might be – at least in theory – significant scope to
shift taxes from labour to resources.
The IEA, the World Bank and the IMF, among others, have studied fossil fuel subsidies
and their economic and environmental implications 100 . An IMF working paper from May
2015 101 estimates global fossil fuel subsidies in 2014 to have been USD 5.6 trillion (7% of
global GDP). The report states that “[eliminating] post-tax subsidies in 2015 could raise
government revenue by USD 2.9 trillion (3.6% of global GDP), cut global CO 2
emissions
by more than 20%, and cut premature air pollution deaths by more than half. After
allowing for the higher energy costs faced by consumers, this action would raise global
economic welfare by USD 1.8 trillion (2.2% of global GDP).”
There are however significant concerns about shifting taxation, most notably about
distributional effects, the volatility of the tax base after the transformation and the
potential for weakened competitiveness of primary materials and heavy industry.
Policymakers that are considering tax shifts would need to investigate avenues
to alleviate such concerns, which might include but are not limited to: mitigating
distributional effects by increasing personal tax-free allowances and providing
compensatory subsidies to those on fixed incomes and/or outside the labour market. To
implement such a shift, policymakers would have to find widespread consensus on what
97 Stahel, W. R., Palgrave Macmillan, The Performance Economy (2006).
98 The Ex’Tax Project, in cooperation with Deloitte, EY, KPMG Meijburg and PwC, New Era. New Plan: Fiscal
reforms for an inclusive, circular economy (2014).
99 Eurostat, Taxation Trends in the EU (2014).
100 See for example www.worldbank.org/en/news/feature/2012/05/09/real-costs-fossil-fuel-subsidies and www.
worldenergyoutlook.org/resources/energysubsidies/
101 IMF Working Paper, How Large Are Global Energy Subsidies (2014).