Resource productivity, environmental tax reform and sustainable growth in Europe (PETRE)

PETRE examined the economic and environmental implications and impacts of environmental tax reforms and assesses the effectiveness of these reforms to improve the use of resources, including labour, and to raise welfare.

PETRE was coordinated by Paul Ekins from the Policy Studies Institute (now University College London). Other project partners were Cambridge Econometrics, Free University Berlin, Institute for Economic Structures Research, Osnabrück, and the University of Economics, Prague.

Using different economic-environmental models on the country, European and global level, PETRE investigated the major issues related to resource productivity and Environmental Tax Reforms (ETR), including both economic and environmental implications and impacts, in single countries, within the EU and in the global economy.

SERI was responsible for the work package on “Global Dimensions of Sustainable Growth in Europe”. This work package investigated global patterns of resource use and resource productivity and the world-wide consequences of a European transformation towards sustainable growth based on an environmental tax reform and significantly increased resource productivity.

Key results

Using the Global Resource Accounting Model (GRAM) we showed that the EU has higher net imports of natural resources than any other single country in the world economy. Its material consumption by far exceeds its domestic resources, and a significant and growing share of EU’s consumption is met by natural resources from other world regions.

The results underline that a country’s resource efficiency alone is not a suitable indicator for its environmental sustainability. It needs to be complemented by data on the total amounts of extraction and consumption, as countries with the highest resource efficiency in the world are in most cases also the ones which extract and consume the highest amounts per capita (notably Europe and North America).

The petrE scenario results suggest that if the EU introduced an Environmental Tax Reform (ETR) and the major producers of greenhouse gas emissions agreed on emission reductions, the economic impacts on the rest of the world would be small while the environmental benefits would be significant. In such a context of cooperation, a large ETR in the EU could reduce global material extraction in 2020 by more than 5% and global CO₂ emissions by more than 15%, while reducing world GDP by only 1.4% compared to a business as usual scenario. Negative effects on trade competitiveness are likely in Europe’s emission intensive industries, especially in the utilities, heavy industries, and chemicals.

Conclusions and policy recommendations:

Combating climate change can only be successful with global cooperation and strong global climate treaties.
Given the importance of embodied emissions in traded goods (i.e. emissions that occur in the extraction, production and transport of goods outside the consumer country), environmental aspects must be integrated into international trade policies in order to achieve sustainable development. A fair distribution of costs to reduce GHG emissions between the producers and the consumers of products is required for sharing the common responsibility of all countries.
As the world continues to use more and more resources, targets on CO₂ emissions alone are not sufficient in order to lessen the environmental impacts of our economic activities. Europe should set an international example and formulate targets not only for CO₂ but also for resource productivity and absolute levels of European resource use.