ecological tax reform
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An environmental tax, ecotax (short for ecological taxation), or green tax is a
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. A notable example is
carbon tax A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...
. Such a policy can complement or avert the need for regulatory (
command and control Command and control (abbr. C2) is a "set of organizational and technical attributes and processes ... hatemploys human, physical, and information resources to solve problems and accomplish missions" to achieve the goals of an organization or en ...
) approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes (e.g. taxes on human labor and
renewable resources A renewable resource, also known as a flow resource, is a natural resource which will replenish to replace the portion depleted by usage and consumption, either through natural reproduction or other recurring processes in a finite amount of ti ...
); such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of
free market In economics, a free market is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any ot ...
s to consider
environmental impact Environmental issues are effects of human activity on the biophysical environment, most often of which are harmful effects that cause environmental degradation. Environmental protection is the practice of protecting the natural environment on t ...
s. Ecotaxes are examples of
Pigouvian tax A Pigouvian tax (also spelled Pigovian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price). The tax is normally set by the governme ...
es, which are ''taxes that attempt to make the private parties involved feel the social burden of their actions''. An example might be philosopher
Thomas Pogge Thomas Winfried Menko Pogge (; born 13 August 1953) is a German philosopher and is the Director of the Global Justice Program and Leitner Professor of Philosophy and International Affairs at Yale University. In addition to his Yale appointment, h ...
's proposed Global Resources Dividend.


Taxes affected

Examples of taxes which could be lowered or eliminated by a green
tax shift Tax shift or Tax swap is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others while keeping the overall revenue the same. The term can refer to desired shifts, such as towards Pigovian taxes (typi ...
are: *
Payroll A payroll is the list of employees of some company that is entitled to receive payments as well as other work benefits and the amounts that each should receive. Along with the amounts that each employee should receive for time worked or tasks pe ...
,
income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. Fo ...
, and, to a lesser extent, sales taxes. * Corporate taxes (taxes on investment and entrepreneurship). *
Property tax A property tax or millage rate is an ad valorem tax on the value of a property.In the OECD classification scheme, tax on property includes "taxes on immovable property or net wealth, taxes on the change of ownership of property through inhe ...
es on buildings and other infrastructure. Examples of ecotaxes which could be implemented or increased are: *
Carbon tax A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...
es on the use of fossil fuels by greenhouse gases produced. Old
hydrocarbon tax A carbon tax is a tax levied on the carbon emissions required to produce goods and services. Carbon taxes are intended to make visible the "hidden" social costs of carbon emissions, which are otherwise felt only in indirect ways like more sev ...
es don't penalize greenhouse gas (GHG) production. *
Duties A duty (from "due" meaning "that which is owing"; fro, deu, did, past participle of ''devoir''; la, debere, debitum, whence "debt") is a commitment or expectation to perform some action in general or if certain circumstances arise. A duty may ...
on imported goods containing significant non-ecological energy input (to a level necessary to treat fairly local manufacturers) *
Severance tax Severance taxes are taxes imposed on the removal of natural resources within a taxing jurisdiction. Severance taxes are most commonly imposed in oil producing states within the United States. Resources that typically incur severance taxes when e ...
es on the extraction of
mineral In geology and mineralogy, a mineral or mineral species is, broadly speaking, a solid chemical compound with a fairly well-defined chemical composition and a specific crystal structure that occurs naturally in pure form.John P. Rafferty, ed. (2 ...
,
energy In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of hea ...
, and
forest A forest is an area of land dominated by trees. Hundreds of definitions of forest are used throughout the world, incorporating factors such as tree density, tree height, land use, legal standing, and ecological function. The United Nations' ...
ry products. * License fees for
camping Camping is an outdoor activity involving overnight stays away from home, either without shelter or using basic shelter such as a tent, or a recreational vehicle. Typically, participants leave developed areas to spend time outdoors in more na ...
, hiking,
fishing Fishing is the activity of trying to catch fish. Fish are often caught as wildlife from the natural environment, but may also be caught from stocked bodies of water such as ponds, canals, park wetlands and reservoirs. Fishing techniques inclu ...
and
hunting Hunting is the human practice of seeking, pursuing, capturing, or killing wildlife or feral animals. The most common reasons for humans to hunt are to harvest food (i.e. meat) and useful animal products ( fur/ hide, bone/tusks, horn/antler, ...
and associated equipment. * Specific taxes on technologies and products which are associated with substantial negative
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
. *
Waste disposal Waste management or waste disposal includes the processes and actions required to manage waste from its inception to its final disposal. This includes the collection, transport, treatment and disposal of waste, together with monitorin ...
taxes and refundable fees. *
Steering tax {{Taxation A steering tax or ecological incentive tax is a tax which aims to change the behaviour of the tax payer, as defined by lawmakers, and not particularly to increase tax revenue. The term is not sharply definable because many tax related la ...
es on effluents,
pollution Pollution is the introduction of contaminants into the natural environment that cause adverse change. Pollution can take the form of any substance (solid, liquid, or gas) or energy (such as radioactivity, heat, sound, or light). Pollutants, the ...
and other hazardous wastes. * Site value taxes on the unimproved value of land.


Economic frameworks and strategies employing tax shifting

The object of a green tax shift is often to implement a "
full cost accounting Environmental full-cost accounting (EFCA) is a method of cost accounting that traces direct costs and allocates indirect costs by collecting and presenting information about the possible environmental, social and economical costs and benefits or ad ...
" or " true cost accounting", using fiscal policy to internalize market distorting externalities, which leads to sustainable
wealth Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word , which is from an I ...
creation. The broader measures required for this are also sometimes called ecological fiscal reform, especially in
Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...
, where the government has generally employed this terminology. In some countries the name is
eco-social market economy The eco-social market economy (ESME), also known as the socio-ecological market economy (SEME) or social and ecological market economy, aims at balancing free market economics, the strive for social fairness and the sustainable use and protection o ...
. Tax shifting usually includes balancing taxation levels to be revenue-neutral for
government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is ...
and to maintain overall progressiveness. It also usually includes measures to protect the most vulnerable, such as raising the minimum income to file income tax at all, or an increase to pension and social assistance levels to offset increased costs of fuel consumption. Basic economic theory recognizes the existence of
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
and their potential negative effects. To the extent that green taxes correct for externalities such as pollution, they correspond with mainstream economic theory. In practice, however, setting the correct taxation level or the tax collection system needed to do so is difficult, and may lead to further distortions or
unintended consequences In the social sciences, unintended consequences (sometimes unanticipated consequences or unforeseen consequences) are outcomes of a purposeful action that are not intended or foreseen. The term was popularised in the twentieth century by Ameri ...
. Taxes on consumption may take the "
feebate Feebate is a portmanteau of "fee" and "rebate". A feebate program is a self-financing system of fees and rebates that are used to shift the costs of externalities produced by the private expropriation, fraudulent abstraction, or outright destructi ...
" approach advocated by
Amory Lovins Amory Bloch Lovins (born November 13, 1947) is an American writer, physicist, and former chairman/chief scientist of the Rocky Mountain Institute. He has written on energy policy and related areas for four decades, and served on the US Nationa ...
, in which additional fees on less sustainable products—such as
sport utility vehicle A sport utility vehicle (SUV) is a car classification that combines elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive. There is no commonly agreed-upon defini ...
s—are pooled to fund subsidies on more sustainable alternatives, such as
hybrid electric vehicle A hybrid electric vehicle (HEV) is a type of hybrid vehicle that combines a conventional internal combustion engine (ICE) system with an electric propulsion system (hybrid vehicle drivetrain). The presence of the electric powertrain is intended ...
s. However, they may simply act as incentives to change habits and make capital investments in newer more efficient vehicles or appliances or to upgrade buildings. Small changes in corporate tax rates for instance can radically change
return on investment Return on investment (ROI) or return on costs (ROC) is a ratio between net income (over a period) and investment (costs resulting from an investment of some resources at a point in time). A high ROI means the investment's gains compare favourably ...
of capital projects, especially if the averted costs of future fossil fuel use are taken into account. The same logic applies to major consumer purchases. A " green mortgage" such as a Location Efficient Mortgage, for example, recognizes that persons who do not drive cars and live generally energy-efficient lifestyles pay far less per month than others and accordingly have more to pay a heftier mortgage bill with. This justifies lending them much more money to upgrade a house to use even less energy overall. The result is a bank taking more per month from a consumer's income as utilities and car insurance companies take less, and housing stock upgraded to use the minimum energy feasible with current technology. Aside from energy, the refits will generally be those required to be maximally accommodating to remote work,
permaculture Permaculture is an approach to land management and settlement design that adopts arrangements observed in flourishing natural ecosystems. It includes a set of design principles derived using whole-systems thinking. It applies these principle ...
gardens (for example
green roof A green roof or living roof is a roof of a building that is partially or completely covered with vegetation and a growing medium, planted over a waterproofing membrane. It may also include additional layers such as a root barrier and drainage ...
s), and a lifestyle that is generally localized in the community not based on commuting. It raises real estate valuations for not only the neighborhood but the entire surrounding region. Consumers living sustainable lifestyles in upgraded housing will generally be unwilling to drive around aimlessly shopping, for instance, to save a few dollars on their purchases. Instead, they'll stay nearer to home and create jobs in grocery delivery and small organic grocers, spending substantially less money on gasoline and car operation costs even if they pay more for food.


Progressive or regressive?

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 tax A consumption tax is a tax levied on consumption spending on goods and services. The tax base of such a tax is the money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a value-added tax. However, a consumpti ...
es can be regressive. In 2004, research by the Policy Studies Institute and
Joseph Rowntree Foundation The Joseph Rowntree Foundation (JRF) is a charity that conducts and funds research aimed at solving poverty in the UK. JRF's stated aim is to "inspire action and change that will create a prosperous UK without poverty." Originally called the ...
indicated that flat rate taxes on domestic rubbish, energy, water and transport use would have a relatively higher impact on poorer households. However, conventional regulatory approaches can affect prices in much the same way, while lacking the revenue-recycling potential of ecotaxes. Moreover, correctly assessing distributive impact of any tax shift requires an analysis of the specific instrument design features. For example, tax revenue could be redistributed on a per capita basis as part of a
basic income Universal basic income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive an unconditional transfer payment, that is, without a means test or need to work. It would be received independently of a ...
scheme; in this case, the poorest would gain what the average citizen pays as ecotaxes, minus their own small contribution (no car, small apartment, ...). This design would be highly progressive. Alternatively, an ecotax can have a "lifeline" design, in which modest consumption levels are priced relatively low (even zero, in the case of water), and higher consumption levels are priced at a higher rate. Furthermore, an ecotax policy package can include revenue recycling to reduce or eliminate any regressivity; an increase in an ecotax could be more than offset by a decrease in a (regressive) payroll or consumption tax. Some proponents claim a second benefit of increased employment or lower health care costs as the market and society adjust to the new fiscal policy (these claims, as with the claim "tax cuts create jobs," are often difficult to prove or disprove even after the fact). Furthermore, pollution and other forms of environmental harm are often felt more acutely by the poor, who cannot "buy their way out" of being receptors of air pollution, water pollution, etc. Such losses, although
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
, have real economic welfare impacts. Thus by reducing environmental harm, such instruments have a progressive effect.


Ecotax policies enacted

An ecotax has been enacted in
Germany Germany,, officially the Federal Republic of Germany, is a country in Central Europe. It is the second most populous country in Europe after Russia, and the most populous member state of the European Union. Germany is situated betwe ...
by means of three laws in 1998, 1999 and 2002. The first introduced a tax on electricity and petroleum, at variable rates based on environmental considerations; renewable sources of electricity were not taxed. The second adjusted the taxes to favor efficient conventional power plants. The third increased the tax on petroleum. At the same time,
income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...
es were reduced proportionally so that the total tax burden remained constant. The regional government of Balearic Islands (then held by an
ecosocialist Eco-socialism (also known as green socialism or socialist ecology) is an ideology merging aspects of socialism with that of green politics, ecology and alter-globalization or anti-globalization. Eco-socialists generally believe that the expansi ...
coalition) established an ecotax in 1999. The Balearic Island suffer a high human pressure from tourism, that at the same time provides the main source of income. The tax (
The euro sign () is the currency sign used for the euro, the official currency of the eurozone and unilaterally adopted by Kosovo and Montenegro. The design was presented to the public by the European Commission on 12 December 1996. It consists ...
1.00 per person per day) would be paid by visitors staying at tourist resorts. This was criticized by the conservative opposition as contrary to business interests, and they abolished the tax in 2003 after seizing back the government. A variety of ecotaxes (often called "severance taxes") have been enacted by various states in the United States. The Supreme Court of the United States held in ''
Commonwealth Edison Co. v. Montana ''Commonwealth Edison Co. v. Montana'', 453 U.S. 609 (1981), is a 6-to-3 ruling by the Supreme Court of the United States that held that a severance tax in Montana does not violate the Commerce Clause or the Supremacy Clause of the United States ...
'', 453 U.S. 609 (1981), that in the absence of federal law to the contrary, states may set ecotaxes as high as they wish without violating the
Commerce Clause The Commerce Clause describes an enumerated power listed in the United States Constitution ( Article I, Section 8, Clause 3). The clause states that the United States Congress shall have power "to regulate Commerce with foreign Nations, and amon ...
or the
Supremacy Clause The Supremacy Clause of the Constitution of the United States ( Article VI, Clause 2) establishes that the Constitution, federal laws made pursuant to it, and treaties made under its authority, constitute the "supreme Law of the Land", and thu ...
of the United States Constitution.Elison, Larry M. and Snyder, Fritz. ''The Montana State Constitution: A Reference Guide.'' Santa Barbara, Calif.: Greenwood Publishing Group, 2001.


Registration taxes

The Netherlands, Portugal, Canada, Spain and Finland have introduced differentiations into their car registration taxes to encourage car buyers to opt for the cleanest car models. In the Netherlands, the new registration taxes, payable when a car is sold to its first buyer, can earn the owner of a hybrid a discount up to
The euro sign () is the currency sign used for the euro, the official currency of the eurozone and unilaterally adopted by Kosovo and Montenegro. The design was presented to the public by the European Commission on 12 December 1996. It consists ...
6000. Spain reduced taxes for cars that produced less CO2 (some of which will be exempted), while the more consuming, like
SUVs A sport utility vehicle (SUV) is a car classification that combines elements of road-going passenger cars with features from off-road vehicles, such as raised ground clearance and four-wheel drive. There is no commonly agreed-upon definitio ...
and 4WDs saw their taxes increased. Austria has had a registration tax based on fuel consumption for several years.


Worldwide implementation


United Kingdom

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.Weizsäcker, Ernst Ulrich and Jesinghaus, Jochen. ''Ecological Tax Reform.'' London: ZED Books, 1992. Onlin

/ref> 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 Party (UK), Labour government, despite
Gordon Brown James Gordon Brown (born 20 February 1951) is a British former politician who served as Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 to 2010. He previously served as Chancellor of the Exchequer in Tony B ...
’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. 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."'' 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."''


Ukraine

Starting in 1999, the Ukrainian government has been collecting an ecological tax, officially known as Environmental Pollution Fee ( uk, 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.


India

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.


France

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.


The Carbon tax

The carbon tax was implemented in 2014 after two unsuccessful attempts. It is not a specific tax but a component of domestic consumption taxes on fossil fuels, proportional to their carbon content. It is based on the "polluter pays" principle, ‘’ according to which all persons must contribute to the repair of the damage they cause to the environment ‘’. It puts a price on each ton of emitted to encourage consumers to move away from certain products or behaviors with high greenhouse gas emissions. In other words, to reduce the use of fossil fuels. It is a
Pigouvian tax A Pigouvian tax (also spelled Pigovian tax) is a tax on any market activity that generates negative externalities (i.e., external costs incurred by the producer that are not included in the market price). The tax is normally set by the governme ...
that encourages quantifying the costs of negative
externalities In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity. Externalities can be considered as unpriced goods involved in either co ...
of goods and services. The carbon tax is in fact a "carbon component" integrated into the more global calculation of the domestic consumption tax on energy products (TICPE), natural gas (TICGN) and coal (TICC). It is indexed to the carbon price, which serves as a climate reference for investment choices by public and private economic actors and is expressed in euros per ton of . The carbon tax takes the form of a
fee A fee is the price one pays as remuneration for rights or services. Fees usually allow for overhead, wages, costs, and markup. Traditionally, professionals in the United Kingdom (and previously the Republic of Ireland) receive a fee in cont ...
ratger than a
tax A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or n ...
or an environmental tax in the strict sense of the word. It is a non-mandatory levy paid only by the use of a polluting service or good


= Tax payers

= The tax is paid by households (on gasoline or gas for example), companies and administrations. However, there are many exceptions: the most polluting large industries are subject to European regulations; air and sea transport are exempted by virtue of international agreements and European directives; national river transport, cabs, road transport of goods, public transport as well as agricultural uses are also exempted from this tax.


= Results

= Nearly 4 million tons of were avoided by France in 2018 thanks to its carbon tax, according to an OECD study, which represents a 5% reduction in emissions from the manufacturing sector between 2014 and 2018.


= Reception by the public

= The rapid increase in this tax (from 7 euros per ton in 2014 to 14 in 2015 and 44.6 euros in 2018) caused gasoline prices to explode, which, coupled with the increase in the price of petroleum products and natural gas, contributed to the birth of the yellow vest movement. Other debates take place on the transparency of the tax, indeed, although the receipts are estimated at 8 billion euros per year, the citizens do not really know what is done with it, which makes it even more difficult to accept.


See also


References


External links


Green Taxes
encyclopedia.com
Environmental taxation
Encyclopedia of the Environment
carbon tax
britannica.com
Sightline Institute's research and resources on green taxes

A Distributional Analysis of Green Tax Reforms
- Gilbert E. Metcalf
STERN REVIEW: The Economics of Climate Change
- An executive summary of a report by economist Nicholas Stern (27pg pdf file)
Climate change fight 'can't wait'
2006, bbc.co.uk -- on economist Sir Nicholas Stern's report
Environmental Accounting: Environmentally related transfers - environmental taxes
umweltgesamtrechnung.at

ecotippingpoints.org {{Authority control Environmental law