in: Tilman Altenburg / Claudia Assmann (eds.), Green industrial policy: concept, policies, country experiences, Geneva; Bonn: UN Environment; German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), 102-119
Schlegelmilch, Eichel and Pegels explore the rationale of environmental fiscal reforms and show how they need to be designed to achieve the dual purpose of protecting the environment and spurring competitiveness, industrial development and jobs. In their analysis, they put a particular focus on conditions in developing countries.
Environmental fiscal reforms correct inefficient market pricing by signalling environmental costs, and leave it to competitive market forces to find the best technological and organizational solutions to reduce pollution. They enhance the competitiveness of clean industries and reduce competitive advantages of polluting industries. While this shift of competitiveness is intended and required for a green transformation, governments may need to allow for a transitory phase of careful taxation when polluting enterprises are exposed to international competition. At the same time, credible signalling of the intent to fully tax pollution after the transitory phase and increased efforts to harmonize environmental taxation internationally are needed. Tax revenues can be used for poverty reduction, green infrastructure and other national priorities, and they can be channelled in a way that helps to build reform alliances and overcome resistance.