Environmental tax
An environmental tax, ecotax (short for ecological taxation), or green tax is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. One notable example is a carbon tax. Such a policy can complement or avert the need for regulatory (command and control) approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes (e.g. taxes on wages and income or property taxes); such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.[1]
Ecotaxes are examples of Pigouvian taxes, which are taxes on goods whose production or consumption creates external costs or externalities. An example might be philosopher Thomas Pogge's proposed Global Resources Dividend.[2][3]
Examples of taxes which could be lowered or eliminated by a green tax shift are:
Examples of ecotaxes which could be implemented or increased are:
Progressive or regressive?[edit]
Some green tax shift proposals have been criticized as being fiscally regressive (a tax with an average tax rate that decreases as the taxpayer's income increases). Taxing negative externalities usually entails exerting a burden on consumption, and since the poor consume more and save or invest less as a share of their income, so that any shift towards consumption taxes can be regressive. In 2004, research by the Policy Studies Institute and Joseph Rowntree Foundation indicated that flat rate taxes on domestic rubbish, energy, water and transport use would have a relatively higher impact on poorer households.[17]
Worldwide implementation[edit]
United Kingdom[edit]
In 1993, the conservative government introduced the Fuel Price Escalator, featuring a small but steady increase of fuel taxes, as proposed by Weizsäcker and Jesinghaus in 1992.[20] The FPE was stopped in 2000, following nationwide protests; while fuel was relatively cheap in 1993, fuel prices were then among the highest in Europe.
Under the 1997–2007 Labour government, despite Gordon Brown’s promise to the contrary, green taxes as a percentage of overall taxes had actually fallen from 9.4% to 7.7%, according to calculations by Friends of the Earth.[21]
In a 2006 proposal, the U.K.'s then-Environment Secretary David Miliband had the government in discussions on the use of various green taxes to reduce climate-changing pollution. Of the proposed taxes, which were meant to be revenue-neutral, Miliband stated: "They're not fundamentally there to raise revenue."[22]
Miliband provided additional comments on their need, saying: "Changing people's behaviour is only achieved by "market forces and price signals", and "As our understanding of climate change increases, it is clear more needs to be done."[22]
Ukraine[edit]
Starting in 1999, the Ukrainian government has been collecting an ecological tax, officially known as Environmental Pollution Fee (Ukrainian: Збір за забруднення навколишнього природного середовища), which is collected from all polluting entities, whether it's one-time or ongoing pollution and regardless of whether the polluting act was legal or illegal at the time.[23][24][25]
India[edit]
The Ministry of Environment and Forests, Government of India, asked Madras School of Economics, Chennai, to undertake a study of taxes on polluting inputs and outputs in 2001. Raja Chelliah, Paul Appasamy, U.Sankar and Rita Pandey (Academic Foundation, 2007, New Delhi) recommended eco taxes on coal, automobiles, chlorine, phosphate detergents, chemical pesticides, chemical fertilizers, lead acid batteries and plastics. See Ecotaxes on polluting inputs and outputs, Academic Foundation, New Delhi,2007. The Finance Minister introduced a coal cess at the rate of Rs 50 per ton in 2010.
China[edit]
The Standing Committee of the National People's Congress enacted a set of environmental regulations[26] and taxes in 1979, labelled as the 'Pollutant Discharge Fee' (PDF). The Pollutant Discharge Fee, has proved to work in some parts of the country such as Northern China, however has shown adverse effects in parts such as the Karst region of Southwest China, as the area has had a boom in industrialisation and urbanisation, which has caused regional water shortage and pollution. [27]
On the 1st of January 2018, China replaced its existing, long-lasting "Pollutant Discharge Fee" system, with an environmental protection tax which was set to put in place a "green" financial and taxation system, whilst encouraging pollution control and the treatment of polluted areas.[28] The new tax has also helped battle problems from the Pollutant Discharge Fee, such as local governments exploiting loopholes in the system and sparing big companies from legal trouble.[28]This new law provides five types of exemptions, including, among others, exemptions for eligible agricultural pollution, pollution from transportation, and pollution from sewage and household waste. Taxpayers may also enjoy a 25% reduction in return for cutting down their air and water pollution by 30% or more, below the proscribed level.[19][29]
According to data released by the Ministry of Finance of China, China's environmental protection tax will collect 20.5 billion yuan (RMB, the same below) in 2023, and 5.1 billion yuan in January and February 2024. Before the environmental protection tax was levied, many Chinese companies had to pay pollution discharge fees. Six years ago, the finance department of a thermal power plant in Chongqing calculated that if the power generation remained unchanged, the environmental protection tax to be paid would double the original pollution discharge fee. Transformation is imminent. The reason why thermal power plants are criticised for "high pollution" is that the key is backward technology, such as incomplete coal combustion and lack of flue gas treatment equipment. The power plant has carried out ultra-low emission transformation on all six generating units and added wind and dust suppression nets in the coal yard. The effect is immediate. In 2018, the first year of the implementation of the Environmental Protection Tax Law, the pollution equivalents generated by power plants decreased by 73.1% compared with 2017, and the environmental protection tax paid was 2.14 million yuan, which was 73% lower than the pollution discharge fee of 7.96 million yuan paid in 2017. If the enterprise is identified as an advanced manufacturing industry, it can even enjoy the advanced manufacturing industry value-added tax additional deduction policy.[30]
France[edit]
The French government shared its intentions to establish a new fee on plane tickets with the purpose to fund environment-friendly alternatives, such as eco-friendly transport infrastructure, including rail. The proposed tax would range between 1.50 euros ($1.7) and 18 euros ($20) and apply to most flights departing in France. The French government expects the new tax to raise over 180 million euros ($200 million) from 2020.[31]