Germany – taking stock of the eco-tax: benefits for climate & employment

Studies prove positive: 20 million tons less carbon dioxide and 250,000 more jobs.



Germany‘‘s eco-tax introduced in 1999 has had a positive effect on climate protection and employment in Germany, as demonstrated in three current studies by the German Institute for Economic Research (DIW) and ECOLOGIC – the Institute for International and European Environmental Policy, who investigated the effects of the eco-tax on the environment and employment on behalf of the Federal Environmental Agency (UBA).



Thanks to the eco-tax Germany saved 20 million tons of climate-damaging carbon dioxide CO2 in 2003 alone, a year during which private households produced about 120 million tons of CO2 and roughly 250,000 jobs were created, especially in labour intensive businesses and among providers of energy savings technology. "The numbers help to objectify the debate about the eco-tax. In 1999 it was appropriate to introduce the eco-tax, and discontinuation of the tax now would send the wrong message to climate protection efforts and the labour market", said Prof. Dr. Andreas Troge, President of the UBA, about the results.



The eco-tax makes electricity and the use of fuels more expensive, giving consumers an incentive to save energy and use it more efficiently. About ninety percent of eco-tax revenues are channelled to the national pension scheme. Contributions to be made by employees and employers to the scheme have been lowered, so eco-tax has actually made labour cheaper and created impulses to hire more labour.



DIW has recorded the effects of the eco-tax on the environment and found that emissions of carbon dioxide are on a steady decline on account of it– by some 2.4 percent in 2003 alone. That means a savings of about 20 million tons of climate-damaging CO2. By the year 2010, up to 24 million tons of CO2 can be saved every year, making the eco-tax one of the most critical instruments of climate protection in Germany.



The job market has also improved thanks to ecological tax reform. According to DIW employment rose by a net of about 250,000 jobs up until 2003. This figure proves that the eco-tax creates jobs and does not, contrary to what some maintain, contribute to job losses. Two factors play a key role: firstly, eco-tax lowers non-wage labour costs, and its revenues serve to reduce employer contributions to the national pension scheme. Those who have benefited the most from ecological tax reform are therefore labour-intensive businesses, e.g. the financial services and insurance sectors.



Secondly, the eco-tax has promoted businesses that offer products or services which increase energy efficiency, for example suppliers of thermal protection glazing, low-energy houses, and energy contractors. Innovative energy-saving products and services have opened up new markets and boosted companies‘‘ profits. Another positive effect of the eco-tax is that it has led to and supported many innovations in energy efficiency within numerous companies. Innovations in production resulted in lower operational demand for energy and international competitive advantage