4. Green Tax and Budget Reform (GTBR)
Green Tax and Budget Reform (GTBR) is a fundamental fiscal policy instrument for: reducing poverty; raising fiscal revenues; and improving eco-efficiency, public health, and environmental quality. It is a key driver for sustainable infrastructure, greening business, and sustainable consumption and production. GTBR entails two major complementary policy initiatives that should be implemented in coordination to maximize effectiveness. The first, green taxation, involves levying taxes on environmentally relevant activities and products, such as the extraction of natural resources or pollution. Green subsidy reform, the second component, consists of gradually eliminating counterproductive subsidies that favor unsustainable development and redirecting fiscal funds towards areas that support Green Growth and poverty reduction. The combination of such actions sends a price signal to consumers that more correctly reflects the real cost of production, or in economic terminology, internalizes negative externalities. In efforts to reduce the tax burden and correct the distortionary effect of traditional tax structures, GTBR aims to be revenue neutral, whereby income taxes, pension payments, and/or the VAT are reduced to compensate for increased green taxation.
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5. Eco-efficiency Indicators
To enable countries in the region to improve the ecological efficiency of the national, system-wide economic development planning, UNESCAP has identified the need to develop a new set of Eco-efficiency Indicators (EEI). The purpose of the EEI is to measure and compare the eco-efficiency of economic growth of different countries and to identify policy measures to improve this. The EEI will strengthen the role of the public sector and will provide a powerful policy formulation tool to increase its influence on the pattern of economic growth at a national system-wide level.
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6. Investment in Natural Capital
Natural capital in the form of ‘green’ infrastructure underpins human well-being and socio-economic progress. It is the “stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future” (Costanza 2008). Natural capital, such as mangrove forests, act as carbon sinks and a buffer against the impacts of climate change, providing a crucial service to mankind. Ecosystem services thus represent a critical component of natural capital, and can be broadly defined as the benefits that people receive from ecosystems.
Investments in natural capital can take many forms. Any expenditure that results in the improved sustainable management of ecosystems that support socio-economic progress can be viewed as an investment in natural capital. Investments to reduce soil erosion and nutrient loading through improved watershed management would be a “natural capital investment” alternative to an investment in a water treatment plant.
In many ecosystem service markets, such as in Viet Nam and Indonesia, the economic impacts of declining ecosystem services flows are real, immediate and quite local. Such scenarios create ideal opportunities for payments for ecosystem services (PES) to be implemented— which work to preserve and enhance the services these ecosystems provide and also to augment rural incomes and provide alternative livelihoods. Specific investment mechanisms can allow multiple stakeholders to invest in the sustainable management of environmental systems that support the economy and society. Innovations in the Costa Rican Payments for Ecosystem Services (PES) system, for instance, allow the private sector and individuals to make payments through a website to invest in forest management. Tourists can also make a similar investment through airlines flying to Costa Rica and through Costa Rican hotels. International payments for ecosystem services through forest carbon markets can complement investments from local beneficiaries (e.g. water and energy users) to ensure that services such as carbon sequestration and watershed protection continue to benefit the local economy and communities, but also mitigate climate change.

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