Green tax for green fund
A newspaper headline reads: “Bhutan does not have enough funds for climate change reduction, mitigation, and adaptation: Foreign Minister”.
Bhutan implemented green tax on motor vehicles and petroleum fuel in 2012 after the 9th session of the first parliament.
Green tax in the transportation sector is imposed based on the engine type and engine capacity of the vehicle. The vehicle with spark-ignition engine and cylinder capacity less than 1500cc, 1501-1799cc, 1800-2500cc, 2501 cc- 3000cc and more than 3000 cc are imposed green of 10 percent, 15 percent, 20 percent, 25 percent, and more than 30 percent, respectively. Vehicle with both spark and electric motor ignition engine type is charged 5 percent less green tax in each category of cylinder capacity. Vehicles with electric motor ignition and are electrically operated are exempted of the green tax. With this, 5 percent tax is also imposed on fuel, including both diesel and petrol.
The primary aim of the green tax was to reduce import of fossil fuel-based vehicles, promote electric vehicles, and ultimately reduce vehicular emissions. Economically, green tax has two advantages, called double dividend, one for the benefit of economic growth and other for environmental protection. The latter is conceptualised on internalising the cost of pollution by fixing accountability of vehicle-based atmospheric pollution on a vehicle owner.
Trend of vehicle import
The data from the National Statistics Bureau of Bhutan shows import is increasing by 9.2 percent annually – roughly about 9,000 new vehicles plying on Bhutanese roads every year. Out of these, less than 200 are electric vehicles, a paltry 2.2 percent. The rest are fuel based. However, the introduction of green tax with specific goals to promote electric vehicles and reduce fuel-based vehicles seems to have had no noticeable positive effect on reduction of vehicular emission.
Impact and pricing nexus
Although green tax is imposed on vehicle ownership, economic growth per capita is the main factor that drives the purchase of vehicles. Lifestyle change, improvement of livelihood and living standards, and limited alternatives for electric vehicles only encourage buyers of fuel-based vehicles.
Green tax is imposed only once, during the purchase of the vehicle based on engine type and capacity. However, if we are to take an account of “impact versus pricing”, the monetisation of the impact from pollution would be higher than the tax imposed. For instance, the price of an Alto car with a motor engine capacity less than 1,500cc is Nu 500,000. Imposing 10 percent green tax is just paying about Nu 50,000. But would this make up for the cost of pollution, its impact on human health, and the increase in need for carbon sink throughout the working life of the vehicle?
Green tax based on engine type and engine capacity is clear and simple. However, options are wide too. If the point is to pay for the price of the emission, we need to consider factors for emissions. The current pricing is not on contributing factors for emissions, but merely on one-time purchase of vehicle.
This concept looks, at times, like a reason for a social disparity because taxis would obviously travel more than other vehicles. However, with a proper policy and practical solutions such as putting up fast and available charging stations would encourage the shift to electric vehicles.
The pricing based on the emission factors would be more reliable, although it is not accurate and precise matrix to calculate the impact. Moreover, tax based on travel coverage – one factor for emission – discourages people from commuting short distances like between office to house and back. This not only helps in reducing traffic congestion and emission reduction, but also promotes healthy lifestyles. The emission from a vehicle can be estimated by the amount of the fuel it consumes. The data can be digitally archived at the fuel recharging stations.
Emissions from transport sector
In 2015, the major emission sources in Bhutan were energy, industrial process and product use, waste, and land use related emissions from forestry and agriculture (AFOLU). Without removal of emission i.e. not considering sink capacity of forest, AFOLU accounts for the highest emission at 57.2 percent of total emission. The industrial process and product use accounts for 20.88 percent of total emissions, followed by the energy sector with 18.56 percent, and waste accounting for 3.32 percent of total emission. However, considering the carbon sink capacity of forests, the emission from industry would top the rank followed by the energy sector.
Transportation, which includes both road and air, contributed the highest emission of 60.01 percent from the energy sector. The Department of Renewable Energy, MoFA, reported that in 2015, a higher amount of fuel was consumed by buses, taxis, and trucks. This shows that emissions are higher from those categories of vehicles.
Green fund from green tax
In European countries, green funds that stem from environmental taxes are implemented as a major environmental policy. They earmark the income generated from environmental taxes as a separate green fund for other environmental schemes. They, for instance, invest in clean technology and promote energy-saving equipment. This means that they do not have to designate a share from the general fund of the country to invest in environmental plans and activities.
In Bhutan, despite no clear accountability of funds from green tax, appropriate investment is lacking. We could venture into the idea of earmarking income from green tax into a green fund. The green fund will be invested in environmental activities such as risk reduction, mitigation, and adaptation strategies to climate change. For instance, poor road conditions and traffic congestions also significantly contribute to emissions from the transportation sector.
Taking the recent case of erratic rainfall damaging the paddy into account, we could use funds from green tax to insure farmers.
Green tax is one story in Bhutan. We have other stories where environmental fees that we collect from fines for breaching the rules could be invested into environmental plans.
Contributed by Chandra Man Rai