ecological fiscal transfers: the portuguese case · 2017-02-04 · ecological fiscal transfers: the...

Ecological Fiscal Transfers: The Portuguese CaseRui Santos1, Irene Ring2, Paula Antunes1, Pedro Clemente1

1 CENSE, Center for Environmental and Sustainability Research/FCT/Universidade Nova de Lisboa, Portugal

2 Helmholtz Centre for Environmental Research – UFZ, Germany

Workshop on Innovative Financial Mechanisms,22 – 23 March 2011, Budapesthttp://www.scales-project.net/

Santos, Ring, Antunes and Clemente: Ecological Fiscal Transfers – the Portuguese case

Substantial source of income for municipalities: e.g., on average 60% in Portugal, 30% - 50% in Germany

Not considered:

Ecological services involving spatial externalities: spillover benefits

Urban agglomerations Rural and remote areas

Fiscal compensation today:

Intergovernmental Fiscal Transfers to the local level

Population

Economic activity


Spatial distribution ofconservation benefits and costs

Benefits

Goods and services of national and global relevance

Costs

Regionally and sectorally unequal distribution

Payments for ecological services at the local level:

§ Land users – private actors(e.g., agri-environmental programmes, conservation programmes)

§ Local governments – public actors (Intergovernmental fiscal transfers to the local level)

Ecological services involving spatial externalities: spillover benefits


Different possible rationales for Ecological Fiscal Transfers

• Compensation of expenses/supply costs for ecological public goods and services;

• Compensation of opportunity costs (e.g. loss of land-use revenue on municipal property; loss of tax revenues);

• Payments for external benefits to local governments for providing spillover benefits beyond their boundaries;

• Fiscal equalisation/distributive fairness (e.g. vertical equalisation between higher and lower levels of government)

Source: Irene Ring, Christoph Schroter-Schlaack, 2011, Instrument Mixes for Biodiversity Policies, POLICYMIX project report.


Ecological fiscal transfers: a realistic way to go?

• Ecological fiscal transfers may be introduced at different levels:

1. State level: e.g., Brazil or Saxony/Germany

2. National scale: e.g., Portugal

3. International transfers (IPES): e.g., Indonesia: Combining REDD and fiscal transfers to the local level based on cost and benefits of forest conservation. Voluntary – donating governments

Ecological fiscal transfers in Brazil

Brazil has gained positive experiences with ecological fiscal transfers: ICMS-Ecológico

§ Compensation for land-use restrictions§ Incentive to create and maintain protected areas

or commonly also called: Ecological value-added tax

States with ICMS-E legislation in Brazil (2008)

n “Conservation Units”: officially registered protected areas

n Watershed protection areas

n Different categories of protected areas are multiplied by a conservation factor reflecting the varying land-use restrictions

n Paraná and Minas Gerais have introduced a “quality indicator” –ranges from 0 (bad management; “paper park”) to 1


Consideration of conservation areas within the intergovernmentaltransfer system to the local level – possible scenarios:

Set aside a definite budget in advance and allocate according to share of conservation units within

municipal territory

Brazilian model:

Consideration of conservation units as part of the additional approach

to allocate lump-sum transfers (analogous to area, pupils, etc.)

Alternatively:

Corresponding scenarios are calculated at UFZ for the Free State of Saxony

Transfer potential of ecological fiscal transfers to Germany


The Portuguese case - Municipal revenues in Portugal

§ 308 municipalities in Portugal (278 in the mainland and 30 in Azores and Madeira)

§ Direct fiscal transfers from central government are an important source of revenues for the municipalities (around 60% in average).

§ E.g. for municipalities such as Barrancos and Porto Moniz, fiscal transfers in 2008, stand for 97% and 96%, respectively, of theirtotal revenues.

§ Transfers are based mostly on population, area, topography and development level. Until 2007, no land use or environmental criteria were considered

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Ecological fiscal transfers –Recent experience in Portugal

Rationale: recognizes that municipalities face preservation costs (including opportunity costs), while benefits extend over municipal boundaries; give financial incentives to local governments

Portugal started very recently (2007) an experience with ecological fiscal transfers - The Portuguese Local Finances Law (2/2007, January 15th)

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Ecological fiscal transfers in Portugal

Ecological fiscal transfers integrated in the annual transfers from the national general budget to the municipalities (Local Finances Law - LFL), in order to compensate them for land-use restrictions imposed by protected areas and Natura 2000 sites.

Idea was pushed by the Ministry for the Environment and acceptedby the Ministry of Finance

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12Santos, Ring, Antunes and Clemente: Ecological Fiscal Transfers – the Portuguese case

New Local Finances Law (2/2007, January 15th)

Art 6 – Promotion of Local Sustainability

Financial regime of municipalities shall contribute to the promotion of economic development, environmental preservation and social welfare;

This objective is assured namely by the:Positive discrimination of municipalities with area allocated to protected areas and Natura 2000, in the scope of FGM (General Municipal Fund)

>Concession of exemptions and fiscal benefits to taxpayers (municipal taxes) that promote activities according to given environmental standards

> Use of fiscal instruments (namely taxes) directed to the promotion of social objectives as well as contributing to the urban, territorial and environmental quality


Comparing the new LFL and the old Law

“Ecological Signal”


Ecological component in FGM

Local Finances Law establishes that 5 to 10% of FGM shall be distributed according to the area included in

Natura 2000 and national protected sites

Local Finances Law establishes that 5 to 10% of FGM shall be distributed according to the area included in

Natura 2000 and national protected sites

Municipal general fund (FGM) allocation criteria:

§ Equal allocation to all municipalities 5 % ca. 50 million €

§ Population 65% ca. 600 million €

§ Total Area 20 - 25% ca. 200 million €

§ Protected Areas & Natura 2000 5 - 10% ca. 80 million €

ØLump-sum paymentsmunicipalities decide upon use of money


Instrument evaluation

We analyzed the impact of this new mechanism for the period 2007-2009 considering all Portuguese municipalities.

UFZ-Diskussionspapiere Department of Economics

11/2010

Fiscal transfers for biodiversity conservation: the Portuguese Local Finances Law

Rui Santos, Irene Ring, Paula Antunes, Pedro Clemente November 2010


Some results for a sample of 26 out of the 308 municipalities in Portugal

Sample of Municipalities


Real transfers New Law 2008 Transfers New Law without ecological component

Districts Municipalities FGM (Euros) 2008 TOTAL real 2008 FGM W/ Eco

Comp (Euros)Difference

FGM (Euros)Effect on the Total real (%)

Comparing with the Real Transfers New

Law 2008

Municipalities with more than 70% of CAFARO VILA DO BISPO 2.268.729 3.767.189 1.574.000 -694.729 -18,4% Losers

MADEIRA PORTO MONIZ 1.307.800 3.710.556 1.056.420 -251.380 -6,8% LosersAVEIRO MURTOSA 1.715.879 3.693.300 1.493.042 -222.837 -6,0% LosersLEIRIA PORTO DE MÓS 3.177.573 6.847.121 2.490.821 -686.753 -10,0% Losers

MADEIRA RIBEIRA BRAVA 1.799.003 4.720.872 1.633.418 -165.585 -3,5% LosersFARO ALJEZUR 2.918.667 5.166.722 2.091.501 -827.166 -16,0% LosersBEJA BARRANCOS 1.646.411 3.203.738 986.277 -660.133 -20,6% Losers

PORTALEGRE CAMPO MAIOR 2.900.775 4.402.813 1.911.053 -989.722 -22,5% LosersBRAGA TERRAS DE BOURO 3.133.364 5.656.128 2.148.285 -985.080 -17,4% Losers

BRAGANÇA FREIXO DE ESPADA À CINTA 2.488.972 4.803.725 1.670.031 -818.940 -17,0% LosersBEJA CASTRO VERDE 4.380.527 5.677.218 2.766.919 -1.613.608 -28,4% Losers

Municipalities with less than 70% of CALISBOA LISBOA 29.462.536 62.579.750 29.686.321 223.784 0,4% WinnersAÇORES LAGOA 1.584.042 4.703.584 1.616.933 32.891 0,7% WinnersSETÚBAL GRÂNDOLA 3.684.789 6.732.129 3.958.834 274.044 4,1% WinnersLISBOA SINTRA 24.904.359 35.069.105 24.952.755 48.396 0,1% Winners

VIANA DO CAST. VIANA DO CASTELO 5.448.727 15.184.697 5.542.457 93.730 0,6% WinnersPORTO AMARANTE 4.002.500 14.374.890 3.991.956 -10.544 -0,1% Losers

SETÚBAL SESIMBRA 3.197.252 5.128.655 3.062.440 -134.813 -2,6% LosersAVEIRO AVEIRO 4.141.379 9.190.900 4.009.073 -132.306 -1,4% Losers

SANTARÉM ALMEIRIM 2.041.666 5.579.726 2.157.519 115.854 2,1% WinnersGUARDA AGUIAR DA BEIRA 1.673.334 5.175.695 1.800.706 127.372 2,5% Winners

VILA REAL PESO DA RÉGUA 1.715.636 6.179.792 1.751.558 35.922 0,6% WinnersVISEU LAMEGO 2 241 609 8.129.507 2.212.578 -29.031 -0,4% LosersÉVORA ÉVORA 6.273.406 13.799.015 6.794.807 521.401 3,8% Winners

CASTELO BRANCO COVILHÃ 4.546.231 12.582.090 4.499.461 -46.770 -0,4% LosersBRAGANÇA VIMIOSO 2.889.251 6.079.020 2.657.339 -231.912 -3,8% Losers

National Total 995.805.175 2.406.532.953 995.805.175

Effects of the Ecological Component


Share of the ecological

component

Ecological component per unit

Districts Municipalities Total Revenues

Fiscal Transfers

Estimated Ecological

Component (euros)

Population (inhabitants)

Total Municipal Area (ha)

Classified Area (ha) €/inhabitant

€/ha of Total Municipal

Area€/ha of CA

Municipalities with more than 70% of Classified AreasFARO VILA DO BISPO 3% 6% 873.332 5.423 17.900 17.423 161 49 50

MADEIRA PORTO MONIZ 3% 4% 353.343 2.706 8.300 7.049 131 42,6 50AVEIRO MURTOSA 4% 5% 294.729 9.804 7.300 5.880 30 40 50LEIRIA PORTO DE MÓS 3% 5% 1.002.546 25.022 26.200 20.000 40 38 50

MADEIRA RIBEIRA BRAVA 3% 4% 250.733 5.349 6.500 5.002 47 39 50FARO ALJEZUR 4% 6% 1.191.281 12.565 32.400 23.765 95 37 50BEJA BARRANCOS 5% 5% 843.298 1.767 16.800 16.823 477 50 50

PORTALEGRE CAMPO MAIOR 6% 7% 1.238.105 8.342 24.700 24.700 148 50 50BRAGA TERRAS DE BOURO 5% 6% 1.318.523 7.765 27.700 26.304 170 48 50

BRAGANÇA FREIXO DE ESPADA À CINTA 5% 5% 1.110.681 3.931 24.400 22.157 283 46 50BEJA CASTRO VERDE 7% 8% 2.167.498 7.772 56.900 43.240 279 38 50

Municipalities with less than 70% of Classified AreasLISBOA LISBOA 1% 2% 0 509.751 8.500 0 0 0 0AÇORES LAGOA 1% 2% 2.698 15.139 4.600 108 0,2 1 25SETÚBAL GRÂNDOLA 2% 3% 173.582 14.214 80.800 6.926 12 2 25LISBOA SINTRA 2% 4% 286.077 428.470 31.900 11.414 1 9 25

VIANA DO CAST. VIANA DO CASTELO 1% 2% 120.256 73.559 19.700 4.798 2 6 25PORTO AMARANTE 1% 1% 205.889 91.238 31.900 8.215 2 6 25

SETÚBAL SESIMBRA 1% 3% 259.978 61.471 30.100 10.373 4 9 25AVEIRO AVEIRO 1% 2% 240.676 48.110 19.500 9.603 5 12 25

SANTARÉM ALMEIRIM 1% 2% 0 22.766 22.200 0 0 00

GUARDA AGUIAR DA BEIRA 2% 2% 0 6.262 20.700 0 0VILA REAL PESO DA RÉGUA 1% 1% 28.369 17.492 9.500 1.132 2 3 25

VISEU LAMEGO 1% 1% 136.491 26.484 16.500 5.446 5 8 25ÉVORA ÉVORA 1% 2% 192.472 55.420 48.200 7.679 3 4 25

CASTELO BR. COVILHÃ 1% 2% 389.338 52.946 130.704 15.534 7 3 25BRAGANÇA VIMIOSO 2% 2% 522.381 4.975 55.600 20.842 105 9 25

Ecological Component Indicators


Final remarks

§ The Ecological component discriminates positively municipalities with high percentages of classified areas (protected areas + Natura 2000);

§ Ecological fiscal transfers can be significant for some municipalities in which the amount of land granted conservation status constitutes a large part of their overall territory;

§ However, it is not a very strong incentive - current fiscal transfers still do not seem to compensate for the opportunity costs in some municipalities. We are now studying how it is accepted by stakeholders;


Final remarks

§ The mechanism is too recent to be possible to evaluate the existence of direct or indirect impacts (positive or negative) on biodiversity & ecosystem services;

§ By simultaneously introducing a significant number of changes inthe Portuguese intergovernmental fiscal transfer scheme, however, the ecological component of the new LFL is difficult to grasp by the stakeholders affected due to the presence of many crossover effects;

§ Introducing this ecological component is an important step to change the mindset of the decision makers;


Final remarks

§ This is a first step that requires further improvements and that may lead to the development of other complementary instruments;

§ The developed exercise has shown that several options exist for improving the Portuguese LFL in order to strengthen the incentive to maintain existing conservation areas and to create new ones. The introduction of a “quality” criterion for the allocation of ecological fiscal transfers is an approach which complements the existing criteria, providing an additional incentive at the level f conservation management.


Final remarks

§ EFT has the potential to combine conservation policies with poverty alleviation objectives;

§ Governance issues: feasible; potentially transparent and accountable but it is important to guarantee access to the information and a clear evidence of the incentive;

§ No relevant transaction costs: implementation costs (cost of introducing and implementing the instrument itself – necessary institutions are already present) and decision-making costs

ecological fiscal transfers: the portuguese case · 2017-02-04 · ecological fiscal transfers: the...

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