The design features of environmental taxes

Abstract

This dissertation aimed at assessing what environmental taxes are. It was argued clear policy guidelines for their design follow from understanding them as regulatory instruments aimed at environmental policy goals. Empirical evidence drawn from institutional practices in Denmark (waste tax), Portugal (energy tax) and Sweden (energy tax, CO2 tax, sulphur tax and the NOx charge) showed that compliance with such guidelines, which allow the distinction between environmental taxes and environmentally-related taxes, are paramount to the environmental effectiveness of these instruments. Both environmental taxes and pollution taxes or environmentally-related taxes are raised on polluting tax bases and highlight inefficiencies in abatement and opportunities for technological progress by putting a positive price on pollution, hence raising awareness and sharing responsibility. However, they are substantially different. Their underlying normative tax design is different following the different objectives they pursue. The more environmentally targeted tax design of environmental taxes makes them perform better than pollution taxes as instruments of environmental policy, producing stronger and quicker environmental effects than environmentally-related taxes raised on the same tax bases. Environmental taxes aim only or primarily at fulfilling precise environmental objectives via behavioural change and technological progress and must be ruled by environmental criteria. Their design induces behavioural change by promoting tax awareness and tax avoidance, as well as by adopting a ‘forward looking’ approach provided by its reference to the opportunity for improvement rather than mere pollution amounts. Therefore, they must be raised on specific polluting emissions or a proxy for them. Their tax rate needs to be referred to pollution abatement costs or relative polluting impacts taking into account a specific pollutant, and be set at the level required to induce the behavioural change necessary to attain the environmental objective pursued. And they must be charged to polluters who control the cause sine qua non of pollution and still did not explore all their opportunities for environmental improvement