Not so green

OECD Centre for Tax Policy and Administration
Page 20 

When Denmark pushed up a tax on very toxic nickel-cadmium rechargeable batteries, cynics might have quipped that it was just an attempt to raise more tax revenue. In fact, quite the opposite has occurred: a fall in revenue from the tax has been reported. The reason is that consumers finally switched to other less toxic alternatives, causing sales to drop.While this shows that taxes can help the environment, successful environmentally-related taxes can actually erode their own tax base.

But are environmentally-related taxes that significant in OECD countries? On balance, no. Not all taxes that have an effect on the environment were introduced for that purpose. For a start, governments derive their largest revenues from such charges as excise taxes on transport fuels. And despite pressures from the environmental lobby for higher taxes to stem the use of non-replaceable energy resources, the relative importance of these revenues has stayed fairly constant in industrialised countries over the past few years. In fact, between 1996 and 1998, 11 out of the 22 OECD countries that separately identify revenues from such taxes reported a reduction in their contribution to total revenue. Preliminary data for 1999 suggest that the contribution of these taxes to total revenue rose in more countries, but only six out of the 16 countries with data for 1999 showed an increase over 1996 levels.

Excluding fuel taxes, environmentally-related taxes make only a very minor contribution to government revenues. But, as the Danish case shows, this does not mean they are environmentally ineffective.


• Consumption Tax Trends: VAT/GST, Excise and Environmental Taxes, OECD, 2001.

• Environmentally Related Taxes in OECD Countries: Issues and Strategies, OECD, 2001.

©OECD Observer No 230, January 2002 

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