What is Environmental Taxation?
People often think of taxation and the environment as two entirely different worlds—two circles that do not intersect. Governments impose taxes to raise the revenues they need to operate; governments get involved in environmental matters to protect the public interest. However, the two circles do intersect. Governments can—and do—use tax policies to achieve environmental goals. Environmental taxes come in many different forms, but as a general matter environmental tax measures either impose a tax cost on some product or activity that is environmentally damaging, or they give a tax benefit to some product or activity that is environmentally beneficial. For example, the federal government imposes a significant excise tax on ozone-depleting chemicals, and it offers a tax credit to people who buy electric vehicles. In both instances, the tax code has altered the “price” of the commodity, injecting an important signal into the economic calculations that affect behavior. All types of tax sys
