Environmental Taxation

This chapter examines the comparative merits of environmental taxation as an environmental policy instrument. It first provides a brief background on the theoretical foundation for merging environmental protection with taxation before discussing two categories of environmental taxation instruments: environmental taxes (e.g. emissions or effluent taxes, product taxes, energy taxes, pollution taxes) and environmental tax expenditures (also known as tax preferences or tax incentives). It then considers the legal authority of governments to create and administer an environmental taxation instrument, along with the basic legal design features of environmental taxes. It also cites specific examples that illustrate the diversity of environmentally related taxes. Finally, it demonstrates the use of environmental taxation in practice by presenting case studies of carbon taxes in several jurisdictions such as British Columbia, Ireland, Japan, the United Kingdom, Canada, and the European Union, as well as the United States’ income tax credit for wind farms.