Environmental tax
An environmental tax, ecotax, 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 alternatives via economic incentives. One notable example is a carbon tax. Such a policy can complement or avert the need for regulatory approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes ; such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.
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.
Categories of environmental taxes
The term, environmental tax, encompasses an array of different types of taxes used to internalize negative environmental externalities, promote sustainable development, support environmental preservation, and generate revenue. Specifically, environmental taxes can be divided into four main categories, under which all the ecotaxes fall. The categories are energy, transport, pollution and resource taxes.Energy taxes
The first type of ecotax, energy taxes, can vary greatly as they can be levied on the production, distribution, or consumption of energy sources, particularly fossil fuels like coal, oil, natural gas, and sometimes electricity. They are often aimed at influencing energy consumption patterns and behaviors, promoting energy efficiency, and encouraging the transition to cleaner and more sustainable energy sources. For example, they can influence energy consumption by levying larger ecotax rates on nonrenewable energy sources, which have a greater negative impact on the environment and contribute to high levels of CO2 emissions. This reduces the demand for unclean energy sources, and it can make renewable energy sources relatively more competitive, encouraging investment and consumption in clean energy technologies like solar, wind, hydroelectric, and geothermal power. Globally, the most commonly used environmental taxes fall in the category of "energy" taxes. Energy taxes can be narrowed down further to "energy taxes for stationary purposes", such as taxes on natural gas, coal and biofuels, "energy taxes for transport", with petrol and diesel as the two most relevant examples, and lastly "greenhouse gasses". Apart from the most common energy tax, carbon tax, another popular energy tax is the "coal excise tax" in the United States. The tax is levied on the producers, at the coal's initial sale. Currently, the tax rate, after being increased by over 50% in 2020, is $1.10 per ton for coal from subsurface mines and $0.55 per ton for coal from surface mines.The revenue is generated for a more specific purpose, which is to fund the Black Lung Program and the Black Lung Disability Trust Fund. These entities pay benefits to miners who suffer from black lung disease. The tax continues to generate hundreds of millions of dollars each year despite the coal mining industry contracting, as the yearly revenue has shrunk from $644 million in 2008 to $177 million in 2022. It is important to note that governments, when imposing ecotaxes for the central purpose of revenue, generally tend to prefer energy taxes when levying environmental taxes due to the fact that energy demand tends to be quite inelastic in the short run, meaning that the government can use such taxes to gain immense revenue. This revenue can be used to reduce the budget deficit, where the majority of it goes to the general fund. However, the revenue earned can also be used to subsidize positive externality generating activities, which is called the "double dividend" of environmental tax. Furthermore, these taxes can reduce deadweight losses caused by negative externalities. For such reasons, many economists support energy taxes along with Environmentalists, where activists often highlight the importance of energy taxes in reducing greenhouse gas emissions and mitigating the impact of climate change, while economists highlight the benefits of the taxes on the economy. Opponents, however, argue such taxes increase the cost of daily necessities, which harm the average consumer, especially those under the poverty line. Additionally, a strong argument against energy taxes is that they can be counterproductive, as it may encourage producers who are being taxed to relocate to countries in which there are weaker, or nonexistent energy taxes. This would negatively impact the domestic economy, as well as the climate, as a result of overambitious energy taxes. This is known as carbon leakage.Transport taxes
The second most notable form of environmental tax globally is transport taxes. Such taxes range from being implemented on airplane tickets, to car purchases, or even motor registration. Transport fuels are, however, included in energy taxes.The category mostly consists of taxes on the usage or ownership of vehicles. An example of a common transport tax is the tax placed on vehicle registration. This tax is levied on registrations based on factors such as weight, fuel efficiency, or emissions, and it is used to both generate revenue, and to promote the ownership and usage of cleaner, and more fuel efficient vehicles. Another example is the tax imposed on cars entering areas of congestion, such as certain areas in New York City, and this can even be coupled with an additional ecotax on the usage of certain roads, for example through electronic tolling systems. Collectively, energy and transportation taxes make up the majority of the ecotaxes imposed globally. In 2021, the two taxes made up 96% of the ecotaxes implemented in the EU. The remaining 3% is made up of pollution and resource taxes.Resource and pollution taxes
Pollution taxes incorporate taxes on measured emissions to air and water, and the management of waste and noise pollution. An exception is CO2 taxes. A successful pollution ecotax is the "plastic bag tax" in Ireland. The country levies a €0.22 tax on plastic bags at the point of sale, with the hope of reducing consumption by reducing the demand for the bags due to the increase in cost. They successfully changed the consumer's behavior, as can seen by the increase in the use of paper bags, a greener substitute, and due to the fall of plastic bags' contribution to the total litter pollution in Ireland from 5% to 0.13% in 14 years. It has also generated over €200 million in revenue, proving to be a huge revenue source for the government. The final categorization of ecotaxes, and arguably the least important form of ecotaxes is resource taxes. Within the category of resource ecotaxes lie taxes associated with the extraction or utilization of natural resources like water, forests, wildlife, and other forms of flora and fauna. These levies are imposed on activities leading to the depletion of natural resources. Resource taxes are the least prevalent ecotaxes. Resource depletion is usually covered by government fees, for example, determined by the amount and the type of resource extracted, as opposed to imposed taxes.Taxes affected
Examples of taxes which could be lowered or eliminated by a green tax shift are:- Payroll, income, and, to a lesser extent, sales taxes.
- Corporate taxes.
- Property taxes on buildings and other infrastructure.
- Carbon taxes on the use of fossil fuels by greenhouse gases produced. Old hydrocarbon taxes don't penalize greenhouse gas production.
- Duties on imported goods containing significant non-ecological energy input
- Severance taxes on the extraction of mineral, energy, and forestry products.
- License fees for camping, hiking, fishing and hunting and associated equipment.
- Specific taxes on technologies and products which are associated with substantial negative externalities.
- Waste disposal taxes and refundable fees.
- Steering taxes on effluents, pollution and other hazardous wastes.
- Site value taxes on the unimproved value of land.
Economic frameworks and strategies employing tax shifting
Tax shifting usually includes balancing taxation levels to be revenue-neutral for government 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 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.
Taxes on consumption may take the "feebate" approach advocated by Amory Lovins, in which additional fees on less sustainable products—such as sport utility vehicles—are pooled to fund subsidies on more sustainable alternatives, such as hybrid electric vehicles.
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 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 gardens, 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.