Ecotax

A policy that introduces taxes intended to promote ecologically sustainable activities via economic incentives. Such a policy can complement or avert the need for regulatory approaches. Often, such a policy intends to maintain overall tax revenue by proportionately reducing other taxes, e.g. on human labor and renewable resources, in which case it is known as the green tax shift towards ecological taxation. The Pigovian taxes that are introduced by such a policy - see below.

1 Taxes affected
2 Economic frameworks and strategies employing tax shifting and ecotaxes
3 Progressive or Regressive?
4 Ecotax policies enacted
- 4.1 Registration taxes
5 See also
6 References
7 External links

Taxes affected

Examples of taxes which could be lowered or eliminated by a green tax shift:

Payroll, income, and (to a lesser extent) sales taxes.
Corporate taxes (taxes on investment and entrepreneurship).
Property taxes on buildings and other infrastructure.

Examples of ecotaxes which could be implemented or increased:

Carbon taxes on the use of fossil fuels by greenhouse gases produced. Old hydrocarbon taxes don't valorate the GHG production.
Severance taxes on the extraction of mineral, energy, and forestry products.
Licence 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.
Taxes on effluents, pollution and other hazardous wastes.
Site value taxes 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" or "true cost accounting", using fiscal policy to internalize market distorting externalities, which leads to sustainable wealth creation. The broader measure required for this are also sometimes called ecological fiscal reform, especially in Canada where the government has generally employed this terminology.

Tax shifting usually includes balancing taxation levels to be revenue-neutral for government and to maintain overall progressivity. 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" for instance recognizes that persons who don't 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 gardens for example green roofs, 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 (a tax with a marginal 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 taxes can be regressive. In 2004, research by the Policy Studies Institute and Joseph Rowntree Foundation seemed to confirm this view.^[1]

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, 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

Environmental Law

Eco-taxes
Environmental impact assessment
Intergenerational Equity
Polluter pays principle
Precautionary principle
Public trust doctrine
Sustainable development
Specific issues
Brownfields
Asbestos and the law
Illegal logging
Poaching & unlawful fishing
Mitigation of global warming
International environmental law
War and environmental law

An ecotax has been enacted in Germany 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 are 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 taxes were reduced proportionally so that the total tax burden remained constant.

Registration taxes

The Netherlands, Portugal, UK 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.

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