Opinion on Economic Growth and the Environment: Some Implications for Economic Policy Making (Communication from the Commission to the European Parliament and Council)

(95/C 155/01)

On 15 November 1994 the Commission decided to consult the Economic and Social Committee, under Article 198 of the Treaty establishing the European Community, on Economic Growth and the Environment: Some Implications for Economic Policy Making.

The Section for Protection of the Environment, Public Health and Consumer Affairs, which was responsible for preparing the Committee's work on the subject, adopted its Opinion on 4 April 1995. The Rapporteur was Mr Colombo, and the Co-Rapporteur was Mr Boisserée.

At its 325th Plenary Session (meeting of 27 April 1995), the Economic and Social Committee adopted the following Opinion unanimously.

1. General Comments

1.1.

Content and objectives of the Communication

1.1.1. The Committee welcomes the Commission Communication, which is intended to prompt a wide-ranging debate on the implications for European economic policy of the inclusion of the principle of sustainable growth respecting the environment, as enshrined in Article 2 of the Maastricht Treaty, and the principle that all Community policies should take account of environmental protection requirements.

1.1.2. The Communication raises some major points concerning the trade off between economic growth and general environmental quality, and between conservation of resources and the (not exclusively material) quality of life in the EU.

1.1.3. On the strength of a number of previous Opinions in this field, the Committee can but share the belief that economic growth and ecologically sustainable development are not mutually exclusive, and that, in the long term, environmentally sustainable development is an essential precondition for growing economic prosperity.

1.1.4. It would also strongly emphasize the assertion, in point 1.1 of the Communication, that the move from the current economic pattern towards an environmentally sustainable type of development is in no way automatic and can only materialize within an appropriate policy framework of strategies and action programmes for the environment.

1.1.5. The Committee endorses this approach, and feels that it is time for a stronger reliance on market-based instruments (point 1.3) in order to ensure that other policies take greater account of environmental considerations.

1.2.

The risks of a too broad, abstract approach

1.2.1. It should, however, be said that the Communication is too broad in scope, since its approach is too wide-ranging and abstract. With the exception of environmental taxes, it does not go into the social and environmental consequences of using the various market-based instruments, and of an integrated policy using a mix of economic instruments and legislation. Only the macroeconomic angle is discussed, whilst nowhere does the document deal with how firms actually operate. Furthermore, the Communication does not even touch upon the important matter of the influence of various employment policy instruments on investments.

1.2.2. The Committee would particularly point out that previous debate within Community institutions on the economic instruments used in environmental policy has centred on the operational aspects of adopting specific measures and recommendations. Examples are provided by the debates on environmental action with consequences for employment, on the Task Force report on the relationship between the environment and the Single Market, on the preparatory work for the Dublin Council, on the Green Paper on the urban environment, and , more recently, on the 5th environment programme, the energy/CO2 tax, and on the White Paper on Growth, Competitiveness and Employment.

1.2.3. The Committee believes it necessary to avoid a situation in which resuming debate on the same issues - but at a more general, abstract level - might impede the progress of the discussion, as if the practical difficulties encountered in implementing certain measures - particularly the stalemate in debate on the energy/CO2 tax - made it necessary to review guidelines which should, by now, have become firmly established. In this respect, the Committee hopes that the current debate will lead to a clearly-defined Community policy, capable - at least in theory - of overcoming the obstacles which have delayed the adoption of fiscal and economic instruments in the environmental field.

1.3.

The danger of over-emphasizing industrial pollution and taxation

1.3.1. Generally speaking, the Commission Communication concentrates on industrial pollution - an area in which, to a certain extent, taxation can be used effectively.

1.3.2. Conversely, the Communication underestimates the environmental impact of other economic activities, such as services, which cause environmental problems through road traffic, energy consumption, etc. The Communication also fails to address issues such as waste production, pollution from sewerage, over-abstraction of groundwater and contamination of drinking water, the effects of transportation systems and agriculture, the behaviour of consumers and the manufacturing, transportation and use of dangerous substances. The Committee believes that taxation, and more generally, market-based instruments, can be highly effective in precisely these areas.

1.3.3. In this respect, the Communication seems only vaguely related to concrete Community strategy on the environment, and to measures which have already been, or are currently being implemented in the European Union. Some of these already envisage the use of market-based instruments, e.g. the policy on waste management and incentives for reclaiming and recycling waste, the Directive on packaging and packaging waste, the environmental Audit and environmental management of firms, the Eco-label, and civil liability for damage.

1.3.4. With reference to this broader range of issues, the Committee believes that tax instruments are, in certain cases, no substitute for legislation and other economic instruments.

1.3.5. The Committee has in fact, on several occasions () stressed the fact that a sophisticated environmental policy, in keeping with the requirements of the Treaty, should be based on a mix of legislation and market instruments, and that in no way, either now or in the future, can legislation be wholly replaced by market instruments. Reference is made here to the large number of Committee Opinions which have commented on these issues, particularly Chapters 7 and 8 of the Opinion on Environment Policy and the Single European Market ().

1.4.

Sustainability on a worldwide scale

1.4.1. Finally, it should be said that the Communication's general comments on the trade off between economic growth and reduced pollution are largely accurate when referring to industrialized, mature economies. Here, growth in the economy and production capacity makes it possible - financially and technologically - to improve economic performance without adding to the various types of pollution and environmental decay.

1.4.2. These comments seem, however, over-optimistic when referring to developing countries. Here, the need for improvement in material living standards could still lead to a considerable increase in environmental deterioration, if growth is not accompanied by adequate legislation.

1.4.3. It is therefore not only in the European Union's interest, but also its duty to take account of developments beyond its borders, and, in keeping with the commitments undertaken at the Rio Conference in 1992, address the problems of depletion of the planet's resources, the preservation of biodiversity, and global climate changes.

1.4.4. In this respect, the Committee feels that the strategy of incorporating environmental aspects in other policies should be extended to international trade. This would allow for Community support and cooperation action which enables developing countries, by means of appropriate technology transfers, to avoid the more environmentally 'unsustainable' development phase, and so prevent further deterioration of the global environment.

1.4.5. The Committee hopes that the forthcoming Commission Green Paper on Trade and the Environment will set out clear objectives for EU action, and will outline ways in which Member States might pursue an ecologically sustainable trade policy, inter alia within the framework of WTO agreements and commitments.

2. Specific comments

2.1.

Statistical tools

2.1.1. The reference in the Communication to the need to develop appropriate statistical tools in order to include environmental accounting in traditional economic accounts is vital to the problems involved in integrating environmental and economic policies. The Committee welcomes the recent Commission Communication on this issue ().

2.1.2. Considering the difficulties involved in finding a reliable system of integrated environmental/economic accounts, the Committee shares the Commission's view (point 3, page 9) that there is an immediate need, in the transitional phase, for economic accounts to be supplemented by a range of auxiliary environmental accounts, in order to highlight the environmental costs of growth.

2.1.3. Vigorous action should be taken to ensure that Member States adopt auxiliary environmental accounts promptly, and move on from the voluntary, experimental phase to an accounting system involving all EU countries.

2.2.

Internalization of environmental costs

2.2.1. The Communication emphasizes the importance of using market-based instruments which will enable the social and environmental costs of economic growth to be internalized in the production costs of goods and services (point 3, page 11). The Commission's view is that the choice of internalization instrument (limits and standards, market-based instruments, voluntary agreements, legislation on civil liability, etc.) must be based on economic efficiency, and that in aggregate marketbased instruments have a better cost:benefit ratio.

2.2.2. The Committee feels that there is substantial evidence to suggest that, of the wide range of market-based instruments available, environmental taxes and charges, and, more generally, an ecologically-oriented taxation system, will prove to be effective, in a large number of cases, in achieving significant pollution-abatement levels and reduced consumption of resources.

2.2.3. However, when the wide range of environmental problems is considered, and the different effects of eco-taxes on Member States' direct and indirect taxation, there is also good reason to believe that other market-based instruments (deposit-refund systems, tradable permit systems, tax and financial incentives, voluntary agreements, civil liability for environmental damage) will be particularly effective in attaining certain specific objectives of environmental policy.

2.2.4. The Committee therefore believes that the Commission should not only look more closely at the effect environmental taxes are likely to have on the economy and employment, both generally and in the individual Member States, but should also analyze in depth the implications and possible benefits of using other instruments.

2.2.5. Further research is needed, including a cost-benefit analysis (which should also cover the administrative costs of implementation and monitoring), into the implications of the following systems in particular:

a)

deposit-refund systems to increase re-use and recycling of certain types of packaging and consumer goods (Article 15 of the Directive on packaging and packaging waste already provides for the use of market-based instruments as a means to achieve its objectives);

b)

tradable permit systems, in order to curb or reduce discharges from the commonest industrial pollutants, bearing in mind likely implementing and monitoring costs;

c)

tax and financial incentives to bolster investment expenditure on researching and introducing environment-friendly technologies, and on developing eco-friendly consumer goods;

d)

voluntary participation for firms in the ECOLABEL and ECOAUDIT systems, to develop environmentally-sustainable products and manufacturing techniques, with particular emphasis on encouraging SMEs to take part;

e)

voluntary agreements on pollution abatement, increased recycling of residual waste, and the fulfilment of specific environmental quality objectives;

f)

civil liability for environmental damage and the possibility of setting up sectoral compensation funds ().

2.3.

The impact of environmental taxes on growth and employment

2.3.1. As regards the impact of environmental taxes on growth and employment, the Committee believes that, given the fiscal neutrality of environmental taxes, their introduction would lead to a reform of existing tax systems in Member States.

2.3.2. The Committee feels, in fact, that the introduction of new environmental taxes should be accompanied by a thorough analysis of existing tax systems and the environmental distortions they create. It should also provide the opportunity to review tax policy in general, making it more ecologically-oriented, whilst paying due attention to the need to safeguard international competitiveness.

2.3.3. The Committee endorses the need for new taxes on the use of energy and resources to be matched by a commensurate reduction in the tax burden on labour, in order to produce direct benefits for the labour market.

2.3.4. It feels, however, that environment measures in general, and those based on taxes in particular, will not automatically boost employment. If they are not bolstered by additional measures, they might merely become part of corporate strategy to streamline production processes, thus reducing energy consumption and pollution and increasing competitiveness, but with negligible or non-existent benefits on the jobs front.

2.3.5. Although much research has been carried out into the possible impact on employment opportunities of environmental taxation () and a reduction in payroll taxes, there is no conclusive evidence that such a reduction automatically affects the jobs market. Broadly speaking, research in this area is posited on econometric and macroeconomic assessments which show that environmental policy can be used to create new openings in the labour market, but that, in order to achieve this, concrete policies and measures are needed.

2.3.6. The Committee therefore believes there is a need for close ties between environmental policy and employment policy without losing sight of their separate objectives. This could be brought about by encouraging ecological redeployment in manufacturing and services, and funding actions and programmes for cleaning up the environment.

2.3.7. The Committee particularly believes that in order to achieve the 'double dividend' - an improved environment and a boost in employment - funds must be made available for the following sectors:

a)

R& D work on environmentally-friendly products and technologies, particularly in the industries where ecological redeployment is exceedingly costly;

b)

redevelopment and streamlining of public transport, with particular reference to urban transport; inclusion of environmental considerations in the extension of national and trans-European networks;

c)

schemes to clean up the environment, nature conservation, etc.; many of these schemes would be very labour-intensive;

d)

schemes to improve corporate environmental performance, by encouraging in-house management systems and support for staff-training programmes. These are particularly needed for SMEs, and could also be developed by means of cooperation actions.

2.4.

Social consensus and equity of distribution

2.4.1. With reference to the problems of equity, inflation and the social security reforms which could result from the introduction of environmental taxation, the Committee feels that the Commission document takes a somewhat simplistic view of the problems involved in achieving social consensus.

2.4.2. There also seems to be a naive element in the calls for assumption of joint responsibility by the different social classes, and for containment of the pressures for wage increases which might be triggered by labour and income tax reforms.

2.4.3. The Committee feels that, given the complexity of the reforms, and the conflict they will inevitably produce, a more detailed analysis is required. The social partners and all the parties concerned should be involved in the discussions, not least when tax policies are being implemented at various levels.

2.4.4. It is particularly important that national and Community environmental measures based on market instruments and taxation should be drawn up within an established bargaining and brokering framework involving the various tiers of government, the social partners and all interested parties.

2.4.5. The equity criterion cannot be divorced from the regional dimension, bearing in mind the problems involved in redeveloping the economy in less favoured regions.

2.5.

Managing the transition towards sustainable development

2.5.1. The Committee is aware that the transition towards sustainable development will not be automatic, and, in conclusion, would emphasize the need for a coherent, long-term policy strategy. This should be phased in gradually and predictably, so as to limit adjustment costs and give economic agents time to adjust (cf. point 4, page 15 of the Communication). This, moreover, was the stance adopted by the Committee in its Opinion on CO2 emissions and energy, particularly in point 1.2.3. ()

2.5.2. Despite the need to simplify regulations, the Committee would reiterate its reluctance to interpret the use of economic instruments in the environmental field as being part of the deregulation process, since the implementation of market-based instruments demands a framework of regulatory and monitoring provisions. Furthermore, legal limits and standards will always have to be imposed in some areas of environmental policy, such as reduced production and use of certain hazardous substances, and in health protection.

2.5.3. It is obvious that taxes on certain emissions, waste and environmentally-harmful materials will require economic redeployment for some sectors, most probably with immediate negative short-term consequences for employment. At the same time, new areas of activity - particularly concerning the development of environmental technologies - will be able to expand and new specializations will emerge. The rhythm and intensity of these changes will, of course, vary from region to region.

2.5.4. This creates the need for back-up measures and policies, as stressed in the Opinion on packaging and packaging waste, which called for 'an accurate forecast of trends' so that 'early action can be taken to promote redeployment schemes and vocational training to meet the new requirements' (), particularly for SMEs and the promotion of new environmental technologies.

2.5.5. A fair distribution of redeployment costs cannot, then, be left to market forces alone: participation, dialogue and policy definition are required.

2.5.6. The 'double dividend' mentioned in the Communication - meaning quality gains for the environment and job-creation benefits - is a long-term, global strategic aim, and cannot be pursued on an ad hoc measure by measure basis.

2.5.7. In its 1983 Opinion on the implementation of job-creating environmental measures (), the Committee warned against subordinating environmental policy to employment policy, or vice versa, since each pursues its own objectives.

2.5.8. At this stage, both sustainable development and growth in employment are firmlyfixed objectives, requiring strong, political initiative and the responsible participation of all partners. In this context, the Committee would emphasize the positive role the new environmental technologies and industries could play in boosting economic growth and creating jobs.

3. Review of previous ESC standpoints on economic growth and the environment

3.1. Rather than clutter the Opinion with references to views expressed elsewhere, there follows a summary of the thrust of Committee Opinions on issues touched on in the Commission Communication. The Committee feels this is relevant to the debate the Communication aims to foster.

3.1.1.

Involving the socio-economic partners

The ESC, in its capacity as a forum for conflicting interests and viewpoints to work out a common approach, has long been concerned with the need to involve the social and economic partners in defining environmental policy.

In point 1.5 of its 1987 Opinion on the Fourth Action Programme on the Environment (), and

'bearing in mind the relevance of this environmental programme to economic, social and employment policy, the Committee urge[d] the Commission, in connection with the implementation of the programme, to involve employers' and workers' organizations and representative consumer and environmental groups. The groundwork should be done at Community level for collaboration at national, regional and local level.'

This approach was adopted in the 5th programme, which stressed 'participation' and 'partnership' and worked on the premise that no 'sustainable development' policy was possible without public participation on the broadest and most democratic of scales.

3.1.2.

The Single Market and the Environment

Committee activity in this field has increased as a result of the completion of the Single Market and the growing influence of environment considerations on harmonization measures put forward under Article 100a, para. 3 (inserted in the Treaty by the Single Act).

Prompted by the urgent need to think more carefully about the links between the environment and socio-economic development in order to use the completion of the Single Market as an opportunity to launch an ambitious environmental policy, the Committee decided to draw up an Own-initiative Opinion on 'Environmental policy, a fundamental aspect of economic and social development'. ()

The Committee felt that there was increasing awareness of the limitations of the present mode of development and consumption, and an increasing conviction that, instead of defending the status quo, it would be better to give production a more environmental bent, which could stimulate a new phase of growth.

The impact of environmental deterioration on living conditions, quantifiable in terms of the economic costs of a 'non-environment' policy, highlighted the need for a 'deferred productivity' policy, which reconciled cost-effectiveness with environmental compatibility.

Point 4 of the Own-initiative Opinion emphasized the need to redeploy the Structural Funds in order to bolster the environmental compatibility of actions, and the need to create a special budget appropriation to be used to support environmental investment schemes not subject to regional limitations.

Following on this Own-initiative Opinion, the Committee returned to the same themes in 1990 and 1991, with its analysis of the Task Force report on the Environment and the Single European Market (), and the Green Paper on the Urban Environment ().

In its 1994 assessment of the operation of the Internal Market, the Committee expressed its concern at the continuing differences in environmental provisions for products, and recommended greater balance between the requirements of higher environmental standards and the completion of the Internal Market ().

3.1.3.

Use of market mechanisms and development of a research policy to cope with the environmental challenge

In these Opinions the Committee paid special attention to the use of economic instruments to launch structural change and ensure ecologically and socially sustainable growth.

The Committee felt that environmental levies and taxes would be effective in promoting environmentally-friendly behaviour on the part of consumers and manufacturers.

These instruments, however, 'require the introduction of parallel measures to ensure that the economically weaker sections of the population are not placed at a disadvantage'.

'Environment taxes and levies cannot produce immediate effects; they have to be regarded as a long-term strategy, in particular because of the need to calculate investment decisions on a long-term basis'.

In its Opinion on research and technological development in the field of the environment, adopted on 4 September 1990 (), the Committee welcomed the introduction of the new research area of 'the economic and social aspects of environmental issues' (point 3.3), and emphasized in point 4.11, prominent issues 'such as how to incorporate environmental parameters into economic methodology, cost-risk-benefit analysis' and the definition of the term 'sustainable development' with a view to formulating a fully integrated environment policy.

3.1.4.

1992: the Rio Conference and the 5th environment programme: the pre-Maastricht debate and the inclusion of 'sustainable development' in the Treaty

1992 marked a turning point in worldwide awareness of the environment problem. The international agreements signed in that year created a new benchmark for cooperation between the peoples of the world. For the European Community in particular, 1992 saw the establishment of an environment programme based on a new, integrated approach requiring the participation of the economic and social partners. It was also the year in which the concept of 'sustainable development' was included in the Treaty on European Union.

The new approach, endorsed by the Committee Opinion of 1 July 1992 (), was based on the realization that regulation alone was not enough. It included concepts such as participation, responsibility and dialogue, and envisaged the use of economic and fiscal instruments, incentives and tax schemes, in order to put the economy on a more environmentally-friendly course.

From now on, the aim was to ensure environmental control of products throughout their life cycle, from the start of the production process to their utilization and their final disposal as waste. One of these measures was the 'Eco-label' for the most environment-friendly products, and the regulation on the environmental 'Audit' - a voluntary system for measuring firms' environmental compatibility, and the set of Directives on waste management, particularly on packaging waste.

In its Opinion () on the latter, the Committee again looked into the relationship between environmental measures, competitiveness and employment.

In keeping with its tradition of dialogue, the Committee considered the views of all the parties concerned when it examined this specific issue. In point 2.5 it emphasized the need to pay attention to the consequences restructuring of the sector would have on employment, 'in terms both of job losses and of the emergence of new sectors and specializations that can generate new jobs'.

The Committee felt that 'an accurate forecast of trends means that early action can be taken to promote redeployment schemes and vocational training to meet the new requirements'.

It also emphasized that 'in a period of economic difficulty, recovery cannot be divorced from "sustainable development"; indeed, such development can encourage it.'

The Committee therefore noted 'with satisfaction the recent Council Resolution on industrial competitiveness and environmental protection' (), and in particular the Council's invitation to the Commission 'to give greater emphasis to the development of environmental technologies including cleaner technologies'. The Committee went on to state that 'technological innovation to improve the environment can bolster competitiveness and development, thus also boosting employment'.

3.1.5.

Chapter 10 of the White Paper: towards a new development model?

Several Committee Opinions dealt with the various aspects of the White Paper on Growth, Competitiveness, Employment () and particularly with the 'sustainable development' mode outlined in Chapter 10.

In point 3.2.7 and 3.2.8 of its Opinion on the economic and financial aspects (), the Committee declared that it was prepared to give sympathetic attention to the theory that an eco-tax and an energy tax could alleviate the burden of obligatory non-wage levies affecting the cost of labour, and at the same time would help to create new job opportunities in the environment protection and clean technology sector.

The Committee recommended that there should be an in-depth discussion of these issues, including the possible consequences of the various schemes, and that stock should be taken of schemes already under way in some Member States.

The Opinion on industrial aspects () stated in its point 3.3.5.6, that 'a dynamic industrial development must necessarily be based on the strategic concept of "sustainable development" '. It followed that private and public investment in the environmental field helped to safeguard competitiveness, growth and employment.

Investment in the following fields was to be given priority:

-

shifting some basic research to environmentally-friendly sectors;

-

promoting the development of new clean technologies which meet the following criteria:

higher energy efficiency;

a lower level of consumption of raw materials;

longer product life;

improved operational methods

-

investment in the priority areas of transport, energy and waste management.

Furthermore, point 3.3.5.6.2 stated that environmental policy considerations had to be seen as forming an integral part of the extension of the trans-European networks proposed in the White Paper.

This was followed by a list of environmental and infrastructure projects, such as the expansion of the capacity of public transport systems; recycling plants; renewal of water supply systems and urban sewage systems; and the implementation of energy conservation plans in the residential housing sector and in industry.

The Committee went on to advocate eliminating the current disproportion between the consumption of natural resources and their scarcity through the introduction of new types of incentives and taxation, so that market prices would reflect the actual costs of the consumption of the resources and the damage to the environment.

In view of the wide range of problems involved, point 3.4 emphasized the need for the dialogue between the economic and social groups to be extended, not just to the 'traditional' social partners, but also to representatives of SMEs, agriculture, consumer and environmental organizations, and the scientific community.

Done at Brussels, 27 April 1995.

The President

of the Economic and Social Committee

Carlos FERRER

() Cf. the list of Committee Opinions in Chapter 3 of this document.

() OJ No C 332, 31. 12. 1990, p. 107 et seq., published by the Economic and Social Committee as 'The Environment and the Single Market' (CES 91-016).

() COM(94) 670 final.

() OJ No C 133, 16. 5. 1994.

() Cf. 'The potential for employment opportunities from pursuing sustainable development', the European Foundation for the Improvement of Living and Working Conditions, Dublin, October 1994, and 'Potential Benefits of Integration of Environmental and Economic Policies', prepared for DG XI by DRI, in conjunction with DHV, TME, IVM, REM, Ecotec, Travers Morgan and M+R, 1994.

() OJ No C 108, 19. 4. 1993.

() OJ No C 129, 10. 5. 1993.

() OJ No C 341, 19. 12. 1983, p. 43.

() OJ No C 180, 8. 7. 1989, p. 26.

() OJ No C 56, 7. 3. 1990.

() OJ No C 332, 31. 12. 1990.

() OJ No C 269, 14. 10. 1991.

() CES 999/94, point 7.6.

() OJ No C 332, 31. 12. 1990.

() OJ No C 287, 4. 11. 1992.

() OJ No C 129, 10. 5. 1993.

() OJ No C 331, 16. 12. 1992.

() OJ No C 295, 22. 10. 1994.