Implementation and effects of environmental tax

Author: European Environment Agency
Publisher:
Publication Date: 2000-06-01
Features: Main Conclusions:
(1) Although the Fifth Environmental Action Programme of the EU in 1992 recommended the increased use of economic instruments such as environmental taxes, little progress has been made at the EU level since then. However, at the level of Member States, the use of environmental taxes has shown an upward trend over the past decade, particularly in the last five years. This trend is especially evident in Scandinavian countries, as well as in Austria, Belgium, France, Germany, the Netherlands, and the United Kingdom.
(2) This report evaluates 16 types of environmental taxes. Within the studied scope, these taxes have environmental benefits, and the costs to achieve environmental objectives are reasonable. Successful examples include Sweden's sulfur dioxide tax and nitrogen oxide tax, Germany's hazardous waste tax, the Netherlands' water pollution tax, and Sweden's differential tax system for leaded and "clean" fuels.
(3) Most implementation obstacles, such as negative impacts on competitiveness, employment, and low-income groups, can be addressed through the following measures: careful design; incorporating the use of environmental taxes and their respective revenues as part of a broader policy package and green tax reform; gradual implementation; and extensive consultation and information gathering. As demonstrated by recent Scandinavian experience, potential negative effects can be mitigated through these measures. National competitiveness can be enhanced by well-designed taxes, as these can stimulate innovation and promote structural adjustments, although the latter remains a theoretical speculation.
(4) Concerns about environmental issues have expanded from point source emissions, such as industrial discharges from pipelines and chimneys, to diffuse and mobile source pollution, such as solid waste, agricultural pollution, and traffic pollution. The use of environmental taxes and other market-based instruments has been extended to a broader scope at both the Member State and EU levels.
(5) If environmental taxes are well-designed and effectively implemented, they can contribute to improvements in the following four key areas of public policy: the environment; innovation and competitiveness; employment; and the tax system. The above are the main conclusions of the report on environmental taxes, prepared by the European Environment Agency at the request of the European Parliament. The report provides an overview of the key issues related to environmental taxes, emphasizing their environmental effects and the political obstacles encountered during implementation. The report offers illustrative cases of environmental taxes; more detailed material can be obtained from the OECD.