Environmental taxes

Publish Date:

December 12, 2021

Environmental taxes make way to protect the environment

Environmental taxes are those designed to tax behavior that is harmful to the planet’s health. They are based on a simple principle — those who pollute, pay — and are essential to halting climate change. Here we tell you their advantages, how much they collect and some of the criticisms. Climate change is the greatest environmental threat we face as human beings. The global average temperature has already risen by 1.1 °C since pre-industrial times, and if the Paris Agreement target – to keep the increase below 2 °C and try to limit it to 1.5 °C – is not met, the consequences could be catastrophic. We therefore need, to reduce the emission of greenhouse gas globally and international bodies such as the International Monetary Fund (IMF), environmental organizations and many economists agree that a key tool for fighting climate change is environmental taxation.

THE BENEFITS OF ENVIRONMENTAL TAXES

Each country has its own design regarding Environmental taxes. In spite of this, at the international level the main taxable facts with environmental interest are:

  The emissions of nitrogen monoxide (NO) and nitrogen dioxide (NO2) which are produced, above all, by combustion vehicles.

  The emissions of Sulphur dioxide (SO2) —the main cause of acid rain—especially produced by the combustion of petroleum products and the burning of coal.

  Waste management (domestic, commercials, industrials, construction, etc.)

  The noise made by the take-off and landing of aircraft.

  Energy products (petrol, diesel, natural gas, coal, electricity generation from fuels, etc.) which generate CO2 emissions when burned.

  Sources of water pollution (pesticides, artificial fertilizers, acids, etc).

  Earth manipulation and the extraction and use of natural resources.

  The emissions of carbon dioxide (CO2).

  Products that reduce the ozone layer.

  Transport (polluting vehicle registration, use, import or sales).

In terms of industries, the one most affected by environmental taxation is energy. According to Eurostat, in 2017 energy taxes accounted for 76.9% of revenue from Environmental taxes in the European Union (EU), well ahead of the other two categories: taxes on transport (19.7%) and on pollution and resources (3.4%).

On what are environmental taxes applied?

Each country has its own design regarding Environmental taxes. In spite of this, at the international level the main taxable facts with environmental interest are:

  The emissions of nitrogen monoxide (NO) and nitrogen dioxide (NO2) which are produced, above all, by combustion vehicles.

  The emissions of Sulphur dioxide (SO2) —the main cause of acid rain—especially produced by the combustion of petroleum products and the burning of coal.

  Waste management (domestic, commercials, industrials, construction, etc.)

  The noise made by the take-off and landing of aircraft.

  Energy products (petrol, diesel, natural gas, coal, electricity generation from fuels, etc.) which generate CO2 emissions when burned.

  Sources of water pollution (pesticides, artificial fertilizers, acids, etc).

  Earth manipulation and the extraction and use of natural resources.

  The emissions of carbon dioxide (CO2).

  Products that reduce the ozone layer.

  Transport (polluting vehicle registration, use, import or sales).

In terms of industries, the one most affected by environmental taxation is energy. According to Eurostat, in 2017 energy taxes accounted for 76.9% of revenue from Environmental taxes in the European Union (EU), well ahead of the other two categories: taxes on transport (19.7%) and on pollution and resources (3.4%).

Principles for proper environmental taxation

According to the OECD, good environmental regulations should follow these principles:

Environmental taxes should be targeted to the pollutant or polluting behavior, with few exceptions.

The scope of an environmental tax should be as broad as the scope of the damage.

The tax rate should be commensurate with the environmental damage caused.

The tax must be credible and its rate predictable in order to motivate behaviors that help protect the environment.

Environmental tax reform revenues can be used as additional revenue or help to reduce other taxes.

Distributional impacts should be addressed through other policy instruments.

Competitiveness concerns need to be carefully assessed, not to obstruct taxes but to offer the possibility of coordinating policies and establishing transitional relief periods.

Clear communication is critical to public acceptance of environmental taxation.

Environmental taxes may need to be combined with other environmental policy instruments to address certain issues.

However, the implementation of the various taxes and the way environmental taxation is coordinated often fail to reflect these principles. Some of the most common criticisms include:

Lack of connection towards the negative externalities that generated the tax.

Lack of environmental consistency in the design due to not being based on environmental damage.

Lack of consideration regarding the spatial scope of taxable events, subjecting technologies and premises rather than damage and consumption.

Rates too low to discourage the agents causing environmental damage.

Coal taxes are often zero or almost non-existent, according to the OECD’s 2018 Energy Tax report.

The complexity and diversity of the taxes to which the most affected sector of all, the energy sector, is subjected.

The lack of international or regional diversity in respect with environmental taxation leads to disparity in revenue collection.

Environmental taxation is commonly referred to as a key element in slowing climate change and this is why experts in the field, international organizations — such as the OECD or the European Commission — criticize the lack of commitment to environmental taxation in many countries and urge them to make environmental tax reforms. Experts are very concerned about the fact that the percentage collected for Environmental taxes has declined worldwide over the period 2000-2017. For example, the collection of Environmental taxes in the EU in 2003 represented 2.56% of GDP compared to 2.4% in 2017.

source : iberdrola.com

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