Edited by Janet E. Milne and Mikael S. Andersen
Chapter 2: Introduction to environmental taxation concepts and research
The late twentieth century marked the rise of the use of economic instruments to protect the environment. As later chapters will explore, governments started looking for ways to move beyond ‘command-and-control’ regulation by also harnessing market forces in a manner that would improve environmental quality. Economic instruments ‘affect costs and benefits of alternative actions open to economic agents, with the effect of influencing behavior in a way that is favorable to the environment.’ Environmental taxes and permit trading regimes emerged as two dominant approaches. They are called economic instruments because they are founded on economic theories about how adjusting price signals can influence behavior, and they are also called market-based instruments because they operate through the daily workings of the market. Environmental taxation embodies the concept of using the tax system to adjust prices in a way that will influence behavior in an environmentally positive manner. That relatively simple concept, however, has been supported by different theories at different points in time, and environmental taxation has assumed a wide variety of names and subcategories. This chapter briefly summarizes the evolution of the theories and vocabulary of environmental taxation as the concept of environmental taxation moved from theory to practice, and highlights key developments in research that influenced this evolution.
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