One way of keeping pollution down is to price it. Governments can establish a direct link between environmental degradation and those who cause it by imposing environmentally-related, or green, taxes, whether it be on fossil fuels to discourage their use or a landfill tax on waste disposal.
Not all such taxes are deliberately green; raising VAT on petrol has an environmental effect, but the intention may simply be to raise revenue. Still, estimates suggest that a 10% increase in energy prices would reduce energy use by 5% in the long term.
And the OECD Environmental Outlook indicates that applying a tax on fuel use and removing all energy subsidies could reduce carbon dioxide emissions by 25% by 2020 in OECD countries and 11% worldwide compared with a business-as-usual scenario.
Denmark’s "green" taxes accounted for 5% of GDP in 1998, up from little more than 4% in 1994, but while Turkey more than doubled its green tax level to more than 3% of GDP over the four years, the United States, Germany and France actually reduced their green tax ratio.
On average, OECD environmentally-related taxes came to about 2.7% of GDP in 1998 and 7.2% of the total tax take.
©OECD Observer No 226/227, Summer 2001