Ecotax

Ecotax

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Ecotax refers to taxes intended to promote ecologically sustainable activities
Sustainability
Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...

 via economic incentives. 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 human labor and renewable resources); such proposals are known as a green tax shift
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...

 towards ecological taxation.

Ecotaxes are examples of pigovian tax
Pigovian tax
A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity...

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 Pogge
Thomas Winfried Menko Pogge is a German philosopher and is currently the Director of the Global Justice Program and Leitner Professor of Philosophy and International Affairs at Yale University...

's proposed Global Resources Dividend
Global Resources Dividend
The Global Resources Dividend is a method of tackling global poverty advanced by the philosopher Thomas Pogge. Under the scheme nations would pay a dividend on any resources that they use or sell, resulting in a sort of "tax on consumption"...

.

Taxes affected



Examples of taxes which could be lowered or eliminated by a green tax shift are:
  • Payroll
    Payroll tax
    Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...

    , income
    Income tax
    An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

    , and, to a lesser extent, sales tax
    Sales tax
    A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....

    es.
  • Corporate tax
    Corporate tax
    Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...

    es (taxes on investment and entrepreneurship).
  • Property tax
    Property tax
    A property tax is an ad valorem levy on the value of property that the owner is required to pay. The tax is levied by the governing authority of the jurisdiction in which the property is located; it may be paid to a national government, a federated state or a municipality...

    es on buildings and other infrastructure.


Examples of ecotaxes which could be implemented or increased are:
  • Carbon tax
    Carbon tax
    A carbon tax is an environmental tax levied on the carbon content of fuels. It is a form of carbon pricing. Carbon is present in every hydrocarbon fuel and is released as carbon dioxide when they are burnt. In contrast, non-combustion energy sources—wind, sunlight, hydropower, and nuclear—do not...

    es on the use of fossil fuel
    Fossil fuel
    Fossil fuels are fuels formed by natural processes such as anaerobic decomposition of buried dead organisms. The age of the organisms and their resulting fossil fuels is typically millions of years, and sometimes exceeds 650 million years...

    s by greenhouse gas
    Greenhouse gas
    A greenhouse gas is a gas in an atmosphere that absorbs and emits radiation within the thermal infrared range. This process is the fundamental cause of the greenhouse effect. The primary greenhouse gases in the Earth's atmosphere are water vapor, carbon dioxide, methane, nitrous oxide, and ozone...

    es produced. Old hydrocarbon taxes don't penalize green house gas (GHG) production.
  • Duties
    Duty (economics)
    In economics, a duty is a kind of tax, often associated with customs, a payment due to the revenue of a state, levied by force of law. It is a tax on certain items purchased abroad...

     on imported goods containing significant non-ecological energy input (to a level necessary to treat fairly local manufacturers)
  • Severance tax
    Severance tax
    Severance taxes are incurred when non-renewable natural resources are separated from a taxing jurisdiction. Industries that typically incur such taxes are oil and gas, coal, mining, and timber industries....

    es on the extraction of mineral
    Mineral
    A mineral is a naturally occurring solid chemical substance formed through biogeochemical processes, having characteristic chemical composition, highly ordered atomic structure, and specific physical properties. By comparison, a rock is an aggregate of minerals and/or mineraloids and does not...

    , energy
    Energy
    In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...

    , and forest
    Forest
    A forest, also referred to as a wood or the woods, is an area with a high density of trees. As with cities, depending where you are in the world, what is considered a forest may vary significantly in size and have various classification according to how and what of the forest is composed...

    ry products.
  • License fees
    License
    The verb license or grant licence means to give permission. The noun license or licence refers to that permission as well as to the document recording that permission.A license may be granted by a party to another party as an element of an agreement...

     for camping
    Camping
    Camping is an outdoor recreational activity. The participants leave urban areas, their home region, or civilization and enjoy nature while spending one or several nights outdoors, usually at a campsite. Camping may involve the use of a tent, caravan, motorhome, cabin, a primitive structure, or no...

    , hiking, fishing
    Fishing
    Fishing is the activity of trying to catch wild fish. Fish are normally caught in the wild. Techniques for catching fish include hand gathering, spearing, netting, angling and trapping....

     and hunting
    Hunting
    Hunting is the practice of pursuing any living thing, usually wildlife, for food, recreation, or trade. In present-day use, the term refers to lawful hunting, as distinguished from poaching, which is the killing, trapping or capture of the hunted species contrary to applicable law...

     and associated equipment.
  • Specific taxes on technologies and products which are associated with substantial negative externalities.
  • Waste disposal taxes and refundable fees.
  • Taxes on effluent
    Effluent
    Effluent is an outflowing of water or gas from a natural body of water, or from a human-made structure.Effluent is defined by the United States Environmental Protection Agency as “wastewater - treated or untreated - that flows out of a treatment plant, sewer, or industrial outfall. Generally refers...

    s, pollution
    Pollution
    Pollution is the introduction of contaminants into a natural environment that causes instability, disorder, harm or discomfort to the ecosystem i.e. physical systems or living organisms. Pollution can take the form of chemical substances or energy, such as noise, heat or light...

     and other hazardous waste
    Hazardous waste
    A hazardous waste is waste that poses substantial or potential threats to public health or the environment. According to the U.S. environmental laws hazardous wastes fall into two major categories: characteristic wastes and listed wastes.Characteristic hazardous wastes are materials that are known...

    s.
  • Site value taxes
    Land value tax
    A land value tax is a levy on the unimproved value of land. It is an ad valorem tax on land that disregards the value of buildings, personal property and other improvements...

     on the unimproved value of land.

Economic frameworks and strategies employing tax shifting and ecotaxes


The object of a green tax shift is often to implement a "full cost accounting
Full cost accounting
Full cost accounting generally refers to the process of collecting and presenting information - about environmental, social, and economic costs and benefits/advantages - for each proposed alternative when a decision is necessary. It is a conventional method of cost accounting that traces direct...

" or "true cost accounting", using fiscal policy to internalize market distorting externalities, which leads to sustainable
Sustainability
Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...

 wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

 creation. The broader measures required for this are also sometimes called ecological fiscal reform, especially in Canada
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...

, where the government has generally employed this terminology.

Tax shifting usually includes balancing taxation levels to be revenue-neutral for government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

 and to maintain overall progressiveness
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

. 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
Feebate
"Feebate" is a portmanteau of "fee" and "rebate". In general, 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 destruction of public goods onto those market...

" approach advocated by Amory Lovins
Amory Lovins
Amory Bloch Lovins is an American environmental scientist and writer, Chairman and Chief Scientist of the Rocky Mountain Institute. He has worked in the field of energy policy and related areas for four decades...

, in which additional fees on less sustainable products — such as sport utility vehicle
Sport utility vehicle
A sport utility vehicle is a generic marketing term for a vehicle similar to a station wagon, but built on a light-truck chassis. It is usually equipped with four-wheel drive for on- or off-road ability, and with some pretension or ability to be used as an off-road vehicle. Not all four-wheel...

s — are pooled to fund subsidies on more sustainable alternatives, such as hybrid electric vehicle
Hybrid electric vehicle
A hybrid electric vehicle is a type of hybrid vehicle and electric vehicle which combines a conventional internal combustion engine propulsion system with an electric propulsion system. The presence of the electric powertrain is intended to achieve either better fuel economy than a conventional...

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
Return on investment is one way of considering profits in relation to capital invested. Return on assets , return on net assets , return on capital and return on invested capital are similar measures with variations on how “investment” is defined.Marketing not only influences net profits but also...

 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
Location Efficient Mortgage
Location Efficient Mortgage is a mortgage available to people who buy a home in locations where they don't need to rely on automobiles as much or at all for transportation. Location efficient mortgages allow people to buy more expensive homes than they normally would be able by factoring in the...

, 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 telework, permaculture
Permaculture
Permaculture is an approach to designing human settlements and agricultural systems that is modeled on the relationships found in nature. It is based on the ecology of how things interrelate rather than on the strictly biological concerns that form the foundation of modern agriculture...

 gardens (for example green roof
Green roof
A green 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 and irrigation systems...

s), and a lifestyle that is generally localized in the community not based on commuting. The last, especially, raises real state 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
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

 (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, any shift towards consumption tax
Consumption tax
A consumption tax is a tax on 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...

es can be regressive. In 2004, research by the Policy Studies Institute
Policy Studies Institute
The Policy Studies Institute is a British think-tank. It was formed in 1978 through the merger of the former Centre for the Study of Social Policy and Political and Economic Planning. Since 1998 it has been an independent subsidiary of the University of Westminster...

 and Joseph Rowntree Foundation
Joseph Rowntree Foundation
The Joseph Rowntree Foundation is a British social policy research and development charity, that funds a UK-wide research and development programme. It seeks to understand the root causes of social problems, to identify ways of overcoming them, and to show how social needs can be met in practice...

 seemed to confirm this view.

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
Basic income
A basic income guarantee is a proposed system of social security, that regularly provides each citizen with a sum of money. In contrast to income redistribution between nations themselves, the phrase basic income defines payments to individuals rather than households, groups, or nations, in order...

 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, 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
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...

 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
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

es were reduced proportionally so that the total tax burden remained constant.

The regional government of Balearic Islands
Balearic Islands
The Balearic Islands are an archipelago of Spain in the western Mediterranean Sea, near the eastern coast of the Iberian Peninsula.The four largest islands are: Majorca, Minorca, Ibiza and Formentera. The archipelago forms an autonomous community and a province of Spain with Palma as the capital...

 (then held by an ecosocialist 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 (€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
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...

 held in Commonwealth Edison Co. v. Montana
Commonwealth Edison Co. v. Montana
Commonwealth Edison Co. v. Montana, 453 U.S. 609 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 Constitution....

, 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
Commerce Clause
The Commerce Clause is an enumerated power listed in the United States Constitution . The clause states that the United States Congress shall have power "To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." Courts and commentators have tended to...

 or the Supremacy Clause
Supremacy Clause
Article VI, Clause 2 of the United States Constitution, known as the Supremacy Clause, establishes the U.S. Constitution, U.S. Treaties, and Federal Statutes as "the supreme law of the land." The text decrees these to be the highest form of law in the U.S...

 of the United States Constitution
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...

.

Registration taxes


The Netherlands, Portugal, 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 €6000. Spain reduced taxes for cars that produced less CO2 (some of which will be exempted), while the more consuming, like SPV and 4WD
Four-wheel drive
Four-wheel drive, 4WD, or 4×4 is a four-wheeled vehicle with a drivetrain that allows all four wheels to receive torque from the engine simultaneously...

 saw their taxes increased.

Austria has had a registration tax based on fuel consumption for several years.

United Kingdom


In 1993, the conservative government introduced the Fuel Price Escalator
Fuel Price Escalator
The Fuel Price Escalator was the practice of automatically increasing hydrocarbon oil duty in the United Kingdom ahead of inflation. The escalator was introduced as a measure to stem the increase in pollution from road transport and cut the need for new road building which was then a politically...

, featuring a small but steady increase of fuel taxes, as proposed by Weizsäcker and Jesinghaus in 1992. 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 Blair-Brown government, despite Gordon Brown’s
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...

 promise to the contrary, green taxes as a percentage of overall taxes have actually fallen from 9.4% to 7.7%, according to calculations by Friends of the Earth
Friends of the Earth
Friends of the Earth International is an international network of environmental organizations in 76 countries.FOEI is assisted by a small secretariat which provides support for the network and its agreed major campaigns...



In a 2006 proposal, the U.K.'s then-Environment Secretary
Secretary of State for Environment, Food and Rural Affairs
The Secretary of State for Environment, Food and Rural Affairs is a UK cabinet-level position in charge of the Department for Environment, Food and Rural Affairs, and the successor to the positions of Minister of Agriculture, Fisheries and Food and Secretary of State for the Environment, Transport...

 David Miliband
David Miliband
David Wright Miliband is a British Labour Party politician who has been the Member of Parliament for South Shields since 2001, and was the Secretary of State for Foreign and Commonwealth Affairs from 2007 to 2010. He is the elder son of the late Marxist theorist Ralph Miliband...

 had the government in discussions on the use of various green taxes to reduce climate-changing pollution
Global warming
Global warming refers to the rising average temperature of Earth's atmosphere and oceans and its projected continuation. In the last 100 years, Earth's average surface temperature increased by about with about two thirds of the increase occurring over just the last three decades...

. 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 , 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.

See also

  • Electronic Waste Recycling Fee
    Electronic Waste Recycling Fee
    The Electronic Waste Recycling Fee is a fee imposed by the government of the state of California in the United States on new purchases of electronic products with viewable screens. It is one of the key elements of the Electronic Waste Recycling Act. Retailers submit the collected fees to the Board...

  • Energy Tax Act
    Energy Tax Act
    The Energy Tax Act is a law passed by the U.S. Congress as part of the National Energy Act. The objective of this law was shift from oil and gas supply toward energy conservation; thus, to promote fuel efficiency and renewable energy through taxes and tax credits.- Tax credits for conservation...

  • Environmental crime
    Environmental crime
    Environmental crime can be broadly defined as illegal acts, which directly harmthe environment. International bodies such as the G8, Interpol, EU, UN Environment Programme and the UN Interregional Crime and Justice Research Institute have recognised the following environmental crimes:* Illegal...

  • Feebate
    Feebate
    "Feebate" is a portmanteau of "fee" and "rebate". In general, 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 destruction of public goods onto those market...

  • Free-market environmentalism
    Free-market environmentalism
    Free-market environmentalism is a position that argues that the free market, property rights, and tort law provide the best tools to preserve the health and sustainability of the environment...

  • Green politics
    Green politics
    Green politics is a political ideology that aims for the creation of an ecologically sustainable society rooted in environmentalism, social liberalism, and grassroots democracy...

  • Pigovian tax
    Pigovian tax
    A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity...

  • Environmental Tariff
    Environmental tariff
    An Environmental tariff, also known as a green tariff or eco-tariff, is an import or export tax placed on products being imported from, or also being sent to countries with substandard environmental pollution controls...


External links

  • http://www.sightline.org/research/taxesSightline Institute
    Sightline Institute
    The Sightline Institute is an independent, non-profit organization based in Seattle, Washington, U.S..Focusing on environmental policy, it was founded in 1993 by activist and author Alan Durning...

    '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
    Nicholas Stern
    Nicholas Herbert Stern, Baron Stern of Brentford, Kt, FBA is a British economist and academic. He is IG Patel Professor of Economics and Government, Chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics , and 2010 Professor of Collège de...

     (27pg pdf
    Portable Document Format
    Portable Document Format is an open standard for document exchange. This file format, created by Adobe Systems in 1993, is used for representing documents in a manner independent of application software, hardware, and operating systems....

    file)
  • BBC article on Stern's Report