Topic: taxes

Property Tax Incentives for Forest Conservation in the U.S. South

John Talberth — Wed, 15 Jun 2011 15:54:24 -0400

Current use valuation programs can encourage landowners to resist development pressures and leave forest as forest.

Development pressure on the outskirts of cities throughout the southern United States drives up land values and makes it more difficult for private landowners to keep their forestland. On average, in the South, short term returns for development can be $36,000 per acre. And for private landowners who want to keep their forest, rising property taxes can also provide a perverse incentive, because as the fair market value of the land increases, property tax bills rise. To help pay these increased taxes many landowners often resort to selling at least a portion of their lands despite their intention to keep their forests intact.

Current use valuation programs, as illustrated in a new WRI issue brief Current Use Valuation Programs: Property Tax Incentives for Preserving Local Benefits of Forests, are a tax benefit that states and counties in the South are using to encourage forestland owners to leave forest as forest and help resist development pressure. Under these programs, enrolled lands are assessed not at their fair market value (for housing development and the like) but at their value for timber production and other forest uses. This lowers the tax bill for landowners, improves the profitability of timber production, and helps reduce development pressure.

Road blocks to implementing effective Current Use Valuation Programs

Current use valuation programs exist throughout the South, but the scale of their implementation and overall effectiveness is limited for a variety of reasons. For example, some programs still provide low financial returns to landowners relative to the opportunity cost of development. Additionally, there are concerns from many local governments about the impact of reduced property taxes.

WRI’s report argues that overcoming these obstacles will require more consistent and accurate analysis of the overall fiscal impacts of current use valuation programs to determine whether protecting forests and other forms of open space result in a net drain or net surplus when the cost of providing community services is taken into account. Cost of community service studies and other forms of fiscal impact analysis demonstrate that by helping counties avoid infrastructure and community service costs (such as roads, electricity, and sewer infrastructure) of new residential developments, such programs can often save money in the long term (Figure 1).

Figure 1: Dollars Spent on Community Services per Dollar in Tax Revenue Received: Range of Values from Cost of Community Service Studies in the South, 1997-2007, (click to enlarge)

The report also discusses how a variety of modifications to existing programs will increase their popularity among local governments and landowners.

How can Current Use Valuation Programs Promote the Conservation of Forests?

This report outlines four changes to current use valuation programs that could make them more effective, as applied in the South.

Designated state reimbursement fund. States can offer reimbursement funds similar to the one pioneered in Georgia to help alleviate county concerns over short-term fiscal impacts from drops in property tax revenues. Reimbursement funds can be targeted at forestlands specifically rather than open space in general to provide a more direct link between current use valuation and forest protection.
Longer covenant (contract) periods. States and counties can extend covenant terms to match the minimum rotation age for commercial forest management. Extending covenant terms to 20 years or more would ensure that lands protected under current use valuation programs would be of sufficient age to generate income streams from the sale of commercial forest products. Extending covenant terms would also help reduce speculation on lands enrolled for shorter periods.
Management for ecosystem services. States and counties could increase the flexibility of current use valuation programs to allow landowners to enroll lands that provide important ecosystem service benefits but not necessarily cash income from the sale of forest products. Building in this flexibility would make it easier for landowners to enroll and help states and counties meet important objectives related to environmental conservation and improved quality of life for residents. This flexibility would also improve the economics of maintaining land in current use valuation status relative to conversion, by saving landowners the expense of investing in timber or crops when they otherwise would not have chosen to do so.
Extending current use valuation programs to restore forest cover on marginal farmland. On agricultural lands, states and counties could encourage forest restoration on marginal and idle cropland by removing crop income requirements for enrollment. Providing tax incentives to farmers who want to let these lands naturally transition back to forest could help increase the extent of southern forests by millions of acres in the decades ahead.

Implementing these changes to current use valuation programs could help alleviate concerns about the bottom line, and bolster the long-term effectiveness of current use valuation programs throughout the region. In addition, these changes could increase the acreage of southern forest protected from development and instead managed for timber, water, wildlife habitat, recreation, scenery, erosion control, watershed protection, reduction of flooding hazards and other ecosystem services increasingly important to the well-being of southern communities.

This brief is designed to inform state, county, and municipal decisionmakers; land-use planners; and other people working to conserve and sustainably manage forests.

To learn more about southern U.S. forests, visit: www.SeeSouthernForests.org. Developed by WRI with support from Toyota, this interactive site provides a wide range of information about southern forests, including current and historic satellite images that allow users to zoom in on areas of interest, overlay maps showing selected forest features and drivers of change, historic forest photos, and case studies of innovative approaches for sustaining forests in the region. To order hard copies of this issue brief, and other briefs in the Southern Forests for the Future Incentives Series, please contact us.

Green Taxation

Mon, 09 Nov 2009 10:13:56 -0500

Ecosystem Services is playing a growing role in Brazilian environmental law.

Note: This post is a translation of the original article in Portuguese by Juliana Lopes with Ana Carolina Addario, which appeared on Ideia Socioambiental. It is posted here with permission.

The environmental legal dictionary has a new entry. The word is incentive, an economic benefit granted by the government, through taxes, to stimulate economic, social, and cultural activities. This practice is not new in traditional economic segments such as the automotive and construction industries. However, incentives to stimulate sustainable development are advancing in Brazilian environmental legislation.

Called active control, this new mechanism differs from the command and control methods traditionally adopted by governments and legislators. “Instead of discouraging certain behaviors, we seek to encourage positive attitudes. The establishment of sanctions only, adds nothing in terms of proactive behavior. It is therefore important to prioritize incentives”, says Judge Consuelo Yatsuda Moromizato, a federal judge with significant experience in environmental law.

Examples of Payments for Environmental Services (PES) in Brazil

Proambiente: Family Production Socio-environmental Development Program (Proambiente), created in 2000 by civil society and incorporated by the Ministry of Environment (MMA) in 2003, awards farmers and ranchers with up to one-third of the minimum wage when they incorporate less destructive production practices, such as not using pesticides or introducing sustainable agroforestry systems(SAF’s)
Ecological ICMS: Brazilian states give 25% of the Tax on Circulation of Goods and Services (ICMS) to cities. Some municipalities allocate 5% of these funds for environmental preservation projects
Environmental compensation: companies financially compensate for projects’ unavoidable environmental impacts (for example, testing chemicals at sea for drilling oil). States use these funds to invest in conservation projects
Reforestation: focused on timber companies, it promotes reforestation either through compliance with forest management rules (tree cutting restrictions), or paying for tree replacement, which will fund reforestation in other areas
Tax exemption for Private Reserves of Natural Heritage - RPPNs: exempts RPPN owners from paying the Rural Land Tax (ITR)
In deployment phase: some PES policies are not yet implemented, awaiting approval or regulation. This is the case, for example, of the ecological income tax (IR) scheme, which proposes a tax deduction for expenses on projects with an environmental benefit.

This new logic reflects the evolution of the guiding elements in environmental legislation. “The ‘polluter pays’ principle was initially used as a way to internalize the costs of environmental impacts, which were considered externalities,” she explains. Next, came the principle of ‘the user pays,’ which distinguishes between the polluter and the offender. “This concept envisages compensation for the use of natural resources, as occurs with the law of royalties for oil exploration,” she says.

These tax and fiscal mechanisms play an important role, especially in the transition to a low carbon economy, by encouraging the adoption of cleaner technologies. “It is essential that governments create policies through subsidized financing that encourage and enable the purchase of equipment. This public sector contribution will help promote a technological change by companies that will advance the transition toward a sustainable economy,” says Consuelo.

To Adriano Pires, president of the Center for Infrastructure (CBIE), incentive policies can be important tools for the development of new sources of renewable energy in Brazil. But in his analysis, the government still does not make proper use of these mechanisms. “The country needs policies that define what will be in the energy portfolio of the future. The implementation of these policies requires fiscal and tax mechanisms, which unfortunately are still underutilized. The government has not given any medium nor long-term signals to investors or consumers. Tax policy in relation to energy should be discussed because gasoline, diesel, and other fossil fuels cannot be a priority for the country due to their high environmental costs,” he says.

Other countries’ Payment for Environmental Services (PES) Initiatives

Mexico: The government rewards communities and owners of rural properties for preserving their forests and watersheds
Costa Rica: the government created a tax levied on the consumption of water and gasoline. The amount collected is given to forest owners for providing environmental services (about $80USD per hectare per year).

It is true though, that promoting the uptake of incentives will require a paradigm shift. According to Werner Grau Neto, managing partner at Pedro Pinheiro Lawyers, the best example of this transition is the Legal Amazon. Created in 1953 to be a hub of economic development, the region received a series of stimuli, such as preferential loan rates, designed to expand agribusiness. “Today, the paradigm has changed. The Legal Amazon is no longer an area focused purely on economic expansion; it has become an area of sustainable economic development. Instead of just developing, now it undertakes preservation to develop,” he said.

Environmental Services

Ongoing deforestation in the Amazon is a clear indication that the punitive mechanisms imposed by Brazilian law have not been sufficient to protect the environment. The integration of market instruments and self-regulation into national regulation is imperative, in order to balance long-term economic activity and ecosystem well-being.

This challenge becomes clear when the condition of environmental services is examined. According to the Millennium Ecosystem Assessment (MEA), a scientific inventory led by the United Nations, 15 of the 24 environmental services considered essential to human life are gradually disappearing or losing function. As a result of this trend, fisheries, for example, may be unsustainable by 2040 under current trends.

The pricing of these services has been discussed as an effective way to deter the indiscriminate use of natural resources. Thus, to be effective, it is essential that preservation be more profitable than destruction. Within this logic, the carbon market is one of the pioneering and most successful payment schemes for environmental services. But there are also projects and conservation reserves established on the principle of the non-polluter receiver. “The reasoning is simple: just as those who violate the law receive negative sanctions, those who abide by them should receive economic advantages,” says Consuelo.

Werner highlights the experience of the World Bank and the government of Amazonas state in the design of the JUMA Sustainable Development Reserve, in the city Apuí. “By creating a structure for selling forest carbon credits, the initiative provided the necessary resources for maintaining and monitoring the protected area,” he points out.

The same concept applies to farmers who maintain conservation reserves on their properties. “The conservation reserve is a cost to the farmer. However, with the pricing of environmental services and the possibility of developing projects to generate carbon credits, it becomes revenue. This is where the new concept of producer-receiver emerges. It establishes a paradigm shift in the principles that guide legal rules and future public policies,” he says.

In order to promote this practice, the National Water Agency (ANA), in partnership with The Nature Conservancy (TNC), initiated a program in 2007 called Water and Forest Producers that pays farmers for restoring and maintaining “standing” forests on their properties.

According to Fernando Veiga, Environmental Services Coordinator of TNC, the initiative seeks to enhance environmental stewardship by offering an environmentally friendly alternative to a society that is used to extraction. Paying conservation bonuses to producers is much more efficient, in economic terms, than having to remedy the problems caused by poor maintenance of services. When the forest and its services aren’t functioning well, the producer ends up having to pay to recover them”, he points out. In the context of local initiatives, some Brazilian cities have established an ecological Tax on Circulation of Goods and Services (ICMS), whereby 5% of the 25% of tax revenue that states pass to cities will be invested in environmental protection projects. Although laudable, some experts still have reservations about the mechanism.

According to Mauricio Chapinoti, from Pedro Pinheiro Advogados, even working as a promoter, the ecological ICMS has limitations in that it divides already limited amount of government revenues at the risk of being subject to disputes among municipalities. “For investors or consumers, this instrument does not change anything. But from the point of view of cities, it changes a lot because it increases their revenue. However, as the total collected amount does not grow, the other municipalities do not like this kind of decision,” he explains.

Also according to Chapinoti, the proposal currently in Congress to create a green income tax (PL-5974/2005) is subject to similar risk, because it will be categorized as a mechanism for tax incentives, like the Rouanet Law (a tax incentives for cultural and educational investments). “This bill proposes to deduct part of the income tax allocation for environmental projects. But, as the rule puts all these tax benefits in the same box, setting an overall 6% deduction limit, the adoption of this mechanism will make environmental projects compete with cultural projects without changing anything in the state tax waiver.”

Chapinoti claims that it would be better if each type of project respected a specific limit of deduction, as happens today with the Municipal Fund for Children and Adolescent Rights (FUMCAD).

Tax versus Incentive

Across the country, there are many initiatives in favor of laws promoting environmental preservation. In the “Manifesto in Defense of Environmental Tax Reform,” some public defenders and prosecutors endorse tax benefits that reward environmentally sound processes and products, and on the other hand, higher taxation to discourage those who choose activities with high impacts on the environment.

In the same vein, three months ago Congressman Roberto Rocha (PSDB-MA) proposed an amendment to the Constitution (PEC 353/09) that would lay down general guidelines for an “environmental tax reform.” The PEC is based on an Environmental Tax Reform (ETR), a mechanism of tax reform for environmental purposes adopted by several European countries in the 90’s. According to this notion, the degree of increase or decrease of tax burden levied on a certain business activity must be proportional to the environmental benefits or losses it generates. Ultimately, however, the total tax burden should remain the same.

The proposed Brazilian tax reform brings three major changes to the existing Constitution. It

introduces the principle of environment “extrafiscality” (possibility of using taxes as a mechanism for encouraging or discouraging activities) for the entire set of taxes in the country;
establishes tax immunity in favor of goods and services considered environmentally beneficial; and
distributes tax revenues, among the entities of the Federation, using environmental criteria.

Anticipating trends

Facing an increasing pressure for cleaner processes and products, many companies have revised their production processes. Knowing how their activities impact and depend on environmental services inspires shifts in current business models.

The task is far from simple, since conventional corporate metrics ignore externalities, such as environmental and social impacts.

Considering this, the World Business Council for Sustainable Development, in partnership with the Meridian Institute and the World Resources Institute (WRI), prepared the Corporate Ecosystem Services Review. The methodology helps companies to assess impacts and dependencies on environmental services to better understand future risks and opportunities.

According to Charles Iceland, Associate at WRI, companies are entering an era of “dual flow” [interdependence with the environment] because they rely on environmental services to produce goods and services, while the health of ecosystems depends on corporations for environmental stewardship. “Knowing the risks that will arise as a result of likely changes in government regulations is important. But knowing which environmental services the company depends on is even more urgent since they can determine business success. Identifying risks and opportunities from ecosystem change should guide every company’s decisions “, says the researcher.

$1.5 Million Grant Supports Peterson Institute and WRI on International Trade and Climate Change

Nate Kommers — Thu, 29 May 2008 12:00:00 -0400

The Peterson Institute for International Economics has been awarded a $1.5 million grant by the Doris Duke Charitable Foundation (DDCF) as part of the foundation’s $100 million Climate Change Initiative.This joint project, conducted with the World Resources Institute (WRI), will undertake a comprehensive analysis of the connections between international trade and climate change policies and make recommendations for how these policies can be mutually supportive.

“The foundation is pleased to award this grant to an organization of the Peterson Institute’s intellectual caliber,” said Joan Spero, President of DDCF. “Working together with an environmental leader like the World Resources Institute, the Peterson Institute is well equipped to produce research and recommendations that can help spark creative solutions in the ongoing debate about climate policy, trade policy, and international competitiveness.”

The analysis will begin with an assessment of the degree to which different emissions control programs would affect the costs or impede the competitiveness of particular industries in key countries. From this foundation, the researchers will be able to assess the role that industry-specific and bilateral agreements, as well as multilateral agreements and institutions like the World Trade Organization (WTO), can play in maximizing greenhouse gas reductions while minimizing economic impacts.

“The creation of a global regime to address the crucial problems posed by climate change has the potential to produce the most sweeping changes in the international economic architecture since the construction of the Bretton Woods system at the end of the Second World War,” said C. Fred Bergsten, Director of the Peterson Institute. “It is imperative that cutting edge research proceed as quickly as possible to inform both the national decisions that will be taken on these issues in the United States and elsewhere over the next few years and the international negotiations that will seek to mesh them into a coherent global regime.”

WRI and the Peterson Institute already have collaborated successfully on Leveling the Carbon Playing Field, a new book that focuses on the potential impact of US climate policies on carbon-intensive manufacturing in the United States. This new grant will enable the two organizations to use a similar methodology to generate recommendations or how to design international climate and trade policies, such as the successor treaty to the Kyoto Protocol.

“This research comes just as policymakers are grappling with tough issues on global warming and global trade, both in the US and in the UN Framework Convention on Climate Change,” said WRI President Jonathan Lash. “Creating opportunities for international cooperation, rather than confrontation, has to start
now.”

Over the next two years, the Peterson Institute and WRI will publish their research and recommendations in a series of five studies that will address crucial aspects of the nexus between national greenhouse gas reduction efforts and the global trading system.

Addressing International Carbon Leakage
A Positive Agenda for Climate and Trade
Addressing Trade-Climate Linkages Through Sectoral Agreements
The Role of the WTO in Future Climate Policy
Aligning Free Trade Agreements with Climate Change Goals

“Efforts to address global climate change cannot succeed unless they take into account the realities of global trade and the international competitiveness of energy-intensive industries,” said Andrew Bowman, Director of the Climate Change Initiative at DDCF. “The hope here is to connect the dots between these two important issues and find ways that climate and trade policies can work together, rather than at cross purposes.”

The Peter G. Peterson Institute for International Economics (www.petersoninstitute.org) is a private,nonprofit, and nonpartisan research institution devoted to the study of international economic policy. Since 1981, the Institute has provided timely and objective analysis of, and concrete solutions to, a wide rangeof international economic problems.

Green Fees

admin — Thu, 27 Sep 2007 14:53:50 -0400

The federal tax code can have a significant impact on the environment. Fiscal policy is used to encourage as well as discourage various business activities and consumer decisions. These activities affect the environment and human health by influencing how much we consume, how we use natural resources, and how much pollution is released into our air and water.

The President’s recent call for tax reform and the presence of persistent budget deficits provide opportunities for policy makers to consider changes to the federal tax code that could lead to not only greater fiscal responsibility, but also improved human and environmental health.

The World Resources Institute’s Green Fees initiative seeks to identify and analyze a portfolio of tax reforms that would be both fiscally prudent and environmentally sound. WRI and partners will educate policymakers, interest groups, and opinion leaders in order to build support for these measures.

The portfolio of reforms WRI will address include:

Eliminating existing tax expenditures that forego revenue and that encourage activities reducing the quality of our air, the cleanliness of our water, and the abundance of our natural resources;

Introducing environmental charges on pollution and waste to discourage environmental degradation, stimulate technological innovation, and improve the federal budget situation.

Paying For Environmental Performance: Using Reverse Auctions to Allocate Funding For Conservation

admin — Mon, 01 Jan 2007 00:00:00 -0500

Can reverse auctions be used to achieve cost-effective improvements in environmental quality?

This Policy Note explains how reverse auctions can be used to allocate funding in agricultural conservation programs or environmental trading programs with constrained or limited budgets. Reverse auctions are competitive bidding systems where sellers compete to supply buyers with a specified good or service, ensuring cost-effective environmental improvements are purchased with conservation dollars.

The Policy Note outlines the findings and lessons learned from the Conestoga Reverse Auction Project in Pennsylvania, where a reverse auction was used to allocate funding to agricultural conservation or Best Management Practices based on their ability to reduce phosphorus losses.

The World Resources Institute is releasing a series of Policy Notes outlining issues and providing recommendations relating to environmental markets, energy, climate, and trade. These recommendations are based on the World Resources Institute’s independent analysis of biofuel policies, experience with developing and testing environmental markets, and our expertise in climate and trade issues.

We hope that you find the Notes informative and useful in helping define policies that promote environmental sustainability, rural vitality, and a healthy farm sector. Additional Policy Notes can be downloaded from http://www.wri.org/publications/policy-notes.

Reforming Agricultural Subsidies: "No Regrets" Policies for Livelihoods and the Environment

admin — Sat, 02 Sep 2006 00:00:00 -0400

This paper analyzes the effects of developed-country agricultural subsidies on the environment and on poverty, particularly in developing countries. It highlights the movement toward developed-country subsidy reduction and proposes a policy reform agenda to help developing countries capitalize on these reductions and turn their agriculture sectors into vehicles for sustainable development.

Agricultural subsidies are among a number of factors determining whether and how agriculture can help the poor and protect ecosystems. Reforming the current agricultural subsidies system in developed countries, a central goal of the Doha Round negotiations of the World Trade Organization, provides an opportunity to generate a number of positive impacts:

For poor farmers in developing countries whose ability to compete is hampered by subsidy-driven overproduction in rich countries;
For taxpayers and consumers in developed countries faced with rising deficits;
For the environment in developed countries where subsidies contribute to ecosystem degradation; and
For the environment in developing countries, where poverty is one driver of environmental degradation.

An agreement to reduce subsidies at the international level, however, does not guarantee that the poor and the environment will benefit—this requires the implementation of strategic domestic policies in developing nations. This white paper proposes a reform agenda that developing country governments and development organizations can build from to ensure that the poor and the environment are able to benefit from changes in international trade policies. The reforms outlined in this paper are “no regrets” policies that can help make agriculture pro-poor and pro-environment, regardless of the outcome of the Doha Round.

Greening the Tax Code

admin — Sat, 01 Apr 2006 00:00:00 -0500

In recent years several Republican and Democratic governors have imposed new pollution taxes, often winning bipartisan acclaim. A growing number of commentators have supported such measures at the federal level.

Analysis indicates that taxes on air and water pollution could generate substantial revenue for the U.S. Treasury while improving environmental quality, stimulating technological innovation and enhancing energy security. Reducing tax expenditures with adverse impacts on natural resources could do the same. As lawmakers explore ways to reduce federal budget deficits and reform the tax code, they should consider measures that shift more of the tax burden onto activities—such as pollution—that make the economy unproductive or reduce quality of life.

This policy brief examines fiscal instruments that both raise revenue and help improve environmental quality. The paper analyzes several different types of pollution taxes, considers current tax expenditures with adverse environmental impacts, discusses ways of integrating these instruments into tax reform packages and suggests directions for further research.

Taxing Carbon to Finance Tax Reform

admin — Wed, 01 Mar 2006 23:00:00 -0500

In this issue brief, WRI and Duke Energy explain how instituting a carbon tax would simultaneously support federal tax reform initiatives, reduce carbon dioxide emissions, and promote sound energy policies.

Summary

Reforming the federal tax code could advance economic growth as well as help the United States address a number of its environmental and energy challenges. A carbon tax, in particular, is an effective fiscal policy option that would simultaneously support federal tax reform initiatives, reduce carbon dioxide emissions, and promote sound energy policies.

A carbon tax is a consumption tax levied on the carbon content of oil, coal, and natural gas. Taxing the carbon content of these fossil fuels is an efficient means of assigning costs to the carbon dioxide emissions they release when burned for energy.

A carbon tax would be relatively easy to administer. It could be collected where fossil fuels enter the economy, such as ports, oil refineries, natural gas providers, and coal-processing plants. Applying the levy to as few as 2,000 entities could reach nearly all the fossil fuel consumed in the U.S. economy and would cover 82 percent of U.S. greenhouse gas emissions.

A carbon tax would generate significant revenue. According to the Congressional Budget Office, a tax of $12 per metric ton of carbon that gradually rises to $17 per metric ton of carbon would generate $208 billion in revenue over a ten year period.

Revenue from a carbon tax could be used to finance other tax reform initiatives. A carbon tax could be incorporated into a number of revenue-neutral tax reform packages, with the proceeds supporting reductions in inefficient existing taxes on productive labor and investment.

A carbon tax dovetails sound tax policy and sound climate change policy. Climate change policy in the United States would be most effective if it were federal, economy-wide, and market based. A carbon tax meets all these criteria. A tax that starts at a modest rate and increases gradually and predictably over time would establish incentives throughout the economy to reduce carbon dioxide emissions with minimal disruption. Moreover, by encouraging a less carbon-intensive economy, a carbon tax could help improve the nation’s long-term energy security.

Money to burn? The high costs of energy subsidies

admin — Thu, 01 Oct 1987 00:00:00 -0400

Focusing on the role of energy in the global economy, this frequently quoted report notes that unstable and unstainable energy prices have brough about many problems – high inflation rates, world recession, and mountind debt burdens.

Kosmo analyzes government subsidies abd the prices of oil, electricity, coal, and natural gas in 32 countries around the world, finding that countires that don’t subsidize prices use energy more efficiently than those that do. To cushion the world economy from future price shocks and promote a more stable energy future, Kosmo argues that steps need to be taken to raise energy prices to reflect true costs. Oil prices are now at a 13 year lows, and it is imperative that governments improve pricing policies during this temporary reprieve.