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The Bank of Spain asks to create more green taxes and reduce others


The Bank of Spain considers it “essential” to promote and improve the environmental taxation In our country so that the economy can advance efficiently and with lower costs in the ecological transition process, and maintains that an increase in revenue in this area could be used to reduce other taxes and offset the transition costs of the most vulnerable companies and families.

In a chapter on climate change contained in its Annual Report, the supervisor emphasizes that it is public policies, especially in fiscal matters and in the field of regulation of economic activity, which must play “a leading role” in the ecological transition.

This is so given that governments and parliaments enjoy the necessary legitimacy to establish the times and the way in which the economy and society must undertake structural transformation and have the “broader, more granular and adequate” set of instruments to achieve the proposed objectives in the most efficient way.

The Director General of Economy and Statistics of the Bank of Spain, Ángel Gavilán, has indicated that the main instrument that governments must use is environmental taxation, a field in which Spain has “a long way to go”, since it is persistently in the group of economies of the EU-27 in those with the lowest relative collection of environmental taxationl, with a gap of almost 1 percentage point compared to the average during the last two decades.

In 2019, the negative differential in Spain was 0.8 points, due, 67%, to lower taxes on energy and, in particular, on hydrocarbons, reports Europa Press.

Redesign taxation and lower other taxes

“Environmental taxation is key to the ecological transition. Progress must be made in this field, we must redesign and optimize environmental taxation”Gavilán insisted, pointing out that the White Paper on Tax Reform published last March is a starting point for assessing a possible comprehensive review of environmental taxation in Spain.

According to Gavilan, Greater environmental collection could make it possible to reduce the tax distortions generated by other taxes in the economy. “If at the same time that you increase environmental taxation, which allows you to collect more money, you reduce labor taxes, which are highly distorting, you can have a positive impact on activity”, explained the General Director of Economy and Statistics.

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On the other hand, the Bank of Spain has warned that the impact of physical and transition risks, with the foreseeable increase in the price of the most polluting goods and serviceswill be heterogeneous between sectors, companies and households.

In the case of families, the impact will be more pronounced on households with a lower income level, those whose head of family is between 35 and 45 years old, those who reside in rural areas, those with a lower educational level and those who have a larger number of members.

As for companies, the CATS model of the Bank of Spain reflects that, if the price of emission rights were to increase in a similar way to recent years (from 25 euros to 100 euros per ton of CO2 between 2019 and February 2022) , the most affected sectors, after energy, would be other non-metallic mineral products, air transport and paper.

If, in addition, a generalization of the coverage of the system were added to this, behind the energy sector, the transport sector (maritime, air and land) and the agriculture, livestock and fishing sector would be more affected. Likewise, smaller companies would be more affected than larger ones.

The Bank of Spain believes that It would be convenient for public policies to articulate mechanisms to compensate, on a temporary basis, the most vulnerable households and companies.

“For reasons of fairness, because they are not to blame and we should help them make this transition more durable in the short term, and for reasons of efficiency, because if the groups most affected by the ecological transition do not support this process, it will not be whether or not it will produce with the speed and intensity necessary to be efficient,” Gavilán warned.

In this context, the Bank of Spain indicates that part of the increase in revenue derived from greater environmental taxation could be used to deploy compensatory measures that reduce the costs of the ecological transition for the most vulnerable households and companies.

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Obtain funds for the ecological transition

In addition to discouraging the most environmentally damaging activities through environmental taxation, the Bank of Spain has highlighted that fiscal policy must also play a fundamental role in promotion of the large volume of investments that are necessary to facilitate the transition and sees “desirable” also encourage private investment in green technologies through subsidies.

The supervisor also proposes interventions by public authorities in the field of regulation to promote the ecological transition, such as initiatives that establish air quality objectives, energy performance standards in the promotion and renovation of buildings, standards required by certain standards in the manufacture of automobiles and the objectives of penetration of renewable energy sources in the generation of electrical energy.

The Bank of Spain report also emphasizes that, In order to mobilize the enormous volume of resources that the fight against climate change and the ecological transition require, the active participation of the financial sector is essential.

“In order to carry out this task efficiently, it is essential that all participants in the financial system and in the capital markets be able to correctly identify the degree of exposure that they themselves and the rest of the economic agents present to the different physical and security risks. transition associated with climate change and actively incorporate this information in their risk management”, he points out.

In matters of regulation and prudential supervision, the Bank of Spain recalls that it is working so that credit institutions are prepared to identify, measure, manage and adequately report on the financial risks associated with climate change, which contributes to the process of ecological transition.

The banking sector is exposed to the risks derived from climate change and the ecological transition, fundamentally through the credit granted to productive activities. In any case, the ‘top-down’ analysis of the Bank of Spain shows a moderate impact on the Spanish banking sector of climate risks in the short term.


Environment section contact: crisisclimatica@prensaiberica.es

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