There are a number of ways to influence environmental good conduct – one is to make sound practices profitable, another is to make bad practices taxable. This OECD report by environmental experts and fiscal specialists shows how.
Environmentally related taxes reinforce the “polluter pays principle”, by which the costs of pollution are reflected in the price and output of goods and services that pollute. For instance, the US levies a “gas-guzzler” tax on cars that pollute heavily, varying between US$1 000 and 7 700 on the sale of energy-inefficient vehicles. Taxes on non-refillable beverage containers encourage recycling and reduce waste.
Over the past decade, most OECD countries have integrated environmentally related taxes into environmental policy, for several reasons. They are relatively easy to administer and may help tackle global warming, because they can provide incentives for both technological innovation and further reductions in polluting emissions. They also feed government coffers: revenue from environmentally related taxes averages roughly 2% of GDP in OECD countries, and 6% of total tax revenues.
Still, there are problems to overcome. Industry has been coddled with exemptions and rebates, for fear that the burden of extra fees and charges will drive companies to relocate to green-tax “havens”. The result is that households and transport take the burden of most of these taxes.
Yet business should not be frightened by environmentally related taxes, and the report suggests several options for imposing them more effectively without reducing competitiveness. For instance, a two-tier rate structure, rather than the use of full exemptions, could be used, with lower rates for the more internationally exposed sectors.
In any case, while some businesses may become less competitive with a burden of green taxes, others, more benign, could be made more competitive. Ecological accountability can eventually be made profitable, so that industry is less taxing on the environment.
©OECD Observer No 229, November 2001