A broader use of environmental taxation or emission trading systems would be one of the most efficient and effective ways of promoting green growth. The OECD has been analysing and promoting the use of marked-based instruments for many years; for the last 15 years, under the auspices of the Joint Meetings of Tax and Environment Experts, where experts primarily from ministries of finance and of environment meet twice a year. The meetings are being served by the OECD’s Centre for Tax Policy and Analysis and the Environment Directorate, with contributions also from other parts of the organisation.
The Policy Brief Environmental Taxation: A Guide for Policy Makers sums up OECD’s findings and recommendations regarding the use of environmental taxation.
Environmental taxes have had a clear positive impact on the environment – to the extent that such taxes have been applied. The positive impacts have been documented in several OECD publications; most recently in the book on Taxation, Innovation and the Environment. The book also discusses economic impacts of environmental taxes; among them, the important impacts such taxes – and emission trading systems – can have on innovation, thus making the achievement of more ambitious environmental policy targets less costly. For a summary of the book, please see this Policy Brief.
In spite of the many advantages of environmental taxes, their use rests relatively limited in many countries – but the use is growing. When taking into account all taxes on environmentally related tax bases (energy, motor vehicles, emissions to air and water, wastes, hazardous chemicals, etc.), they raise revenues on average in OECD countries in an amount equal to about 1.7% of GDP. However, a tax can have an important impact on the environment also without raising much revenue; from an environmental perspective, one would like to see the tax bases in question being significantly reduced.
In 2010, 70% of all the revenues from environmentally related taxes were raised on various energy products, especially on motor vehicle fuels. On top of that, 27% of the total revenues were raised via taxes on motor vehicles and various transport activities. This means that taxes on all other environmentally related tax-bases – for which the price elasticities in many cases are large than for energy and vehicles – only raise about three per cent of the total amount of revenue.
Part of the explanation that environmental taxation is not even more in use is that policy makers fear that they could have a negative impact on income distribution or on the competitiveness of the most affected firms. In general, there are ways to adequately address such concerns, without compromising the environmental benefits that such taxes could entail. These issues were discussed in the book The Political Economy of Environmentally Related Taxes – and new work in this regard is foreseen during 2013 and 2014.
The current use of environmentally related taxes (and a number of other environmental policy instruments) is documented in a freely available database. In addition to the revenues raised, the database gives information on the tax-base covered, the tax rates applied, important exemptions and refund mechanisms, etc. The database is much used by civil servants, academics, industry representatives, etc., and OECD draws heavily on it, both for regular assessments of policies in member countries and partner countries, as well as in the preparation of separate book on environmental taxation.
As mentioned, taxes on energy products play an important role – and a clear impact of the taxes on energy efficiency has been documented. Work is currently going on to ‘map’ graphically the different tax rates that are applied to different energy uses, with expected publishing in the first part of 2013.
Work is also being done specifically on the tax exemptions and other support measures that are being applied, both in relation to fossil fuels, and in relation to environmentally benign products or activities. While a first Inventory of Estimated Budgetary Support and Tax Expenditures for Fossil Fuels have been published, additional material will be issued in 2013.
Working papers and reports
- Tax Preferences for Environmental Goals: Use, Limitations and Preferred Practices (2014)
- Environmental and Related Social Costs of the Tax Treatment of Company Cars and Commuting Expenses (2014)
- Personal Tax Treatment of Company Cars and Commuting Expenses: Estimating the Fiscal and Environmental Costs (2014)
- The Diesel Differential: Differences in the Tax Treatment of Gasoline and Diesel for Road Use (2014)
- Lessons from 15 Years of Experience with the Dutch Tax Allowance for Energy Investments for Firms (2013)
- Interactions between Emission Trading Systems and Other Overlapping Policy Instruments (2011)
- Innovation effects of the Swedish NOx charge (2010)
- Environmental and Eco-Innovation: Concepts, Evidence and Policies (2010)
- Fuel Taxes, Motor Vehicle Emission Standards and Patents Related to the Fuel-efficiency and Emissions of Motor Vehicles. (2010)
- The impacts of the SOx charge and related policy instruments on technological innovation in Japan (2010)
- The influence of regulation and economic policy in the water sector on the level of technology innovation in the sector and its contribution to the environment: The case of the State of Israel (2010)
- Effects of the VOC incentive tax on innovation in Switzerland - Case studies in the printing, paintmaking and metal cutting industries (2009)
- Econometric analysis of the impacts of the UK Climate Change Levy and Climate Change Agreements on firms' fuel use and innovation activity (2009)
- Survey of firms' responses to public incentives for energy innovation, including the UK Climate Change Levy and Climate Change Agreements (2009)
- The scope for CO2-based differentiation in motor vehicle taxes (2009)
- Incentives for CO2 Emission Reductions in Current Motor Vehicle Taxes (2009)
- Taxation, innovation and the environment - Spanish case study (2008)
- Environmentally Related Taxes and Tradable Permit Systems in Practice (2008)
- Impacts of environmental policy instruments on technological change (2007)
- The Political Economy of the Norwegian Aviation Fuel Tax (2005)
- The Competitiveness Impact of CO2 Emissions Reduction in the Cement Sector (2005)
- The United Kingdom Climate Change Levy: A Study in Political Economy (2005)
- The Window of Opportunity: How the Obstacles to the Introduction of the Swiss Heavy Goods Vehicle Fee have been Overcome (2005)
- Manure Policy and MINAS: Regulating Nitrogen and Phosphorus Surpluses in Agriculture of The Netherlands (2005)
- Environmental Policy in the Steel Sector: Using Economic Instruments (2003)
- Issues Paper for the Conference on Environmental Fiscal Reform, 27 June (2002)
- The Potential for Using Tax Instruments to Address Non CO2 Greenhouse Gases: CH4, N2O, HFCs, PFCs and SF6 (2000)
- Behavioral Responses to Environmentally-related Taxes (2000)
- Greening Tax Mixes in OECD Countries: A Preliminary Assessment (2000)