Environmental Bed Taxes as a Driver of Sustainable Tourism Infrastructure Development in Cuba

Abstract

Cuba’s tourism growth has outpaced the global tourism market over the last several decades, growing at an annualized rate 7.4% from 2000-2014 and 17.39% in 2014-2015 ((UNWTO), 2016) versus the trailing global annualized growth rate of ~4% ((WTO), 2016). After Canada and Germany, the United States is the third most frequent country of origin for Cuba tourists, comprising 5% of annual visitors in 2015 and growing at a rate of 77% annually between 2014-2015 ((UNWTO), 2016). Executive changes enacted during the Obama administration designed to ease restrictions on US-Cuba travel have the potential to increase American tourist traffic in Cuba further over the coming decades, though recently announced intentions of the new Trump administration to reverse this easing may dampen this trend. An initial premise of the proposed research is that if tourism infrastructure development is properly managed to accommodate increased demand, Cuba has the potential to direct resultant capital inflows towards improving the long term social and economic welfare of the Cuban people and long-term sustainability of the Cuban tourism economy. On the other hand, if this development is poorly managed, it may degrade the environmental resources that draw tourists, sacrificing long term economic, social and environmental sustainability for short-term gain. While Cuba has many unique natural and sociopolitical conditions that make it an ideal candidate for sustainable development, a lack of funding is cited by researchers and Cubans themselves as a barrier to implementing environmentally-friendly tourism development and conservation practices (e.g. to create and administer protected areas and measure the environmental impacts of tourism activities) ((UNDP), 2012; Cabello et al., 2012; Vázquez, n.d.; Whittle, Lindeman, & Tripp, 2003). Case studies of other economies that depend heavily on tourism have shown that an environmental tax can be an efficient and effective tourism taxation method (e.g. Iceland’s accommodation tax and dedicated Tourism Site Protection Fund; Belize’s multiple tourism taxes and Protected Areas Conservation Trust), and multiple international research and development organizations have supported this view. The United Nations Development Programme (UNDP)’s Guidebook of Environmental Finance Tools highlighted multiple case studies of environmental financing tools and found that among all options taxes and fees related to direct tourism activities such as departure or accommodation taxes have the “biggest opportunity for increased revenue with minimal associated costs” ((UNDP), 2012). However, no Cuba-specific research has been done to assess the potential direct revenues that could be raised as a result of the tax or the impact such a tax would have on overall tourist foreign currency inflows. This research seeks to address this knowledge gap and add to the body of knowledge applicable to Cuba’s unique situation in two ways: first, by reviewing current environmental taxation and fund management systems that could inform best practices for implementation in Cuba, and second, by conducting a contingent valuation study of Cuban tourists’ willingness to pay an environmental fee and estimating the potential funding that could be raised by such a fee to fund environmental protection and sustainable tourism infrastructure development. The study found that on average, tourists would be willing to pay an environmental fee equal to 5.3% of their nightly accommodation budget and, if an environmental fee were enacted would spend 2.1% more total in-country including the environmental fee and incremental spending in other areas. Projecting these results forward would yield between $1.7-2.8 billion in environmental fees collected and $1.8-2.8 billion in incremental tourist revenue inflows excluding environmental fees, for a total of $3.5 -5.6 billion in total incremental tourist spending in country including both environmental fees and incremental spending in other budget categories over 10 years, and depending on growth rate assumptions and excluding inflation. Based on these results and research on best practices for environmental taxation from other countries, preliminary recommendations include implementing a 5% environmental bed tax, the proceeds of which are managed and distributed via an independent trust. Limitations of the study include the efficacy of contingent valuation studies and the fact that the majority of survey respondants were American and therefore the data set could be skewed. Further research is needed to determine whether willingness to pay conclusions can be assigned to all demographics of tourists visiting Cuba as well as the legal and logistical feasibility for the Cuban government to implement and enforce an environmental bed tax and independent trust. The purpose of this research is to provide preliminary results that help the Cuban Ministries of Tourism and the Environment and other researchers understand the potential efficacy and economic impact of an environmental bed tax and independent trust on the Cuban tourism sector as a basis for future research. The research seeks to present a possible avenue to supplement and grow funding for Cuba’s current policies and systems for re-investment in conservation, which could in turn bridge the current environmental management funding gap and contribute to Cuba’s environmental protection. As a result, Cuba could improve the long-term sustainability of the tourism sector and the country’s social and financial health, and these findings could potentially be applied to other countries as well.