Achieving Environmental Sustainability through Fiscal Policy
Critical Issues in Environmental Taxation series
Edited by Larry Kreiser, Julsuchada Sirisom, Hope Ashiabor and Janet E. Milne
Many hundreds of environmentally related taxes are applied in OECD countries and elsewhere around the world (cf. www.oecd.org/env/policies/ database), addressing a broad spectrum of environmental problems, such as waste generation, use of hazardous chemicals, trafﬁc congestion, etc. – and, of particular relevance for this book, greenhouse gas emissions. There are many good reasons for their use, both from a theoretical and practical point of view. One well-known argument for their use is that they (in principle) can equalise the marginal cost of reducing emissions across polluters, which, in the context of climate change mitigation, would result in a given level of carbon emissions being obtained at the lowest possible cost to society as a whole. Those who can reduce their emissions at a cost per unit lower than the tax rate set will do so – and those who face higher abatement costs will pay the tax instead of abating. Importantly, the taxes give the polluters a large ﬂexibility to ﬁnd low-cost ways of reducing their emissions. It would in practice be an impossible task for a government to achieve a similar outcome by telling each polluter how much – and how – they should abate. In practice, however, governments rarely design environmental taxes in a way that provides an equal marginal abatement incentive to all sources contributing to a given problem – and this is also the case as regards carbon-related taxes. Certain polluters are often completely exempted, or face reduced tax rates; tax rates of ‘carbon taxes’ often vary between energy products...