Abstract
Purpose
The sustainable development challenge that many economies are facing worldwide requires stronger measures because some environmental issues (e.g. global warming) are becoming exponentially worse. If we do not act at once, this negative trend has the potential to keep on radically changing the living conditions on the Earth. One of the most effective ways to address this challenge might be developing new Market Based Instruments (MBIs) by adopting a life cycle perspective. In this paper, we propose a new fiscal framework based on Value Added Tax (VAT) and life cycle thinking. This framework might have the potential to drastically change the current consumption and production patterns towards a product life cycle oriented economy.
Methods
To identify the elements of a new framework enabling to improve the eco-efficiency of the current consumption and production patterns, firstly we have screened the potential of MBIs to face the sustainable development challenge in relation to the existing EU policy framework. Among MBIs, particular emphasis was given to VAT due to its potential to affect market prices. The key research advances for establishing a green VAT framework were then tracked down to outline the state-of-the-art. Moreover, how to use Life Cycle Assessment (LCA) results for differentiating VAT rates has been investigated. On this basis, a range of methodology proposals to change the current VAT framework have been outlined. A hypothetical case study has been simulated to test these proposals.
Results
Some relevant changes to the current VAT taxation system are proposed in this paper bearing in mind the LCA principles and, in a broad sense, the “getting prices right” policy. Special emphasis was given to the methodological framework needed to differentiate VAT rates according to the environmental footprint performance of products. In this context, fiscal neutrality issues related to State budgets have been also taken into account by conceptualising more cautious approaches for differentiating VAT rates.
Conclusions
This piece of research has identified life cycle thinking as possible perspective on which basis product VAT rates might be differentiated. Further studies and a policy impact assessment procedure are needed to evaluate the actual feasibility of this new taxation framework. If the response of that assessment were positive, policy makers, companies and other stakeholders concerned should set out a suite of measures to further fine-tune, test, establish and facilitate the implementation of such green VAT framework.
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Acknowledgements
The authors thank the anonymous reviewers for their valuable inputs.
Camillo dedicates this paper to Paolo Frasca, graduated in environmental economics and died prematurely in July 2006.
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Responsible editor: Bastian Wittstock
The views expressed in the article are personal and do not necessarily reflect an official position of the European Commission.
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De Camillis, C., Goralczyk, M. Towards stronger measures for sustainable consumption and production policies: proposal of a new fiscal framework based on a life cycle approach. Int J Life Cycle Assess 18, 263–272 (2013). https://doi.org/10.1007/s11367-012-0460-5
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DOI: https://doi.org/10.1007/s11367-012-0460-5