What is an ‘Environmental tax’

Green Tax
Green Tax Ahead…

Maybe it is not an issue that has exercised your mind recently, as most environmentalists have a good grasp of what is and isn’t an environmental tax.

Say “Vehicle Excise Duty” and “Air Passenger Duty” & most environmentalists would tell you that they are not environmental taxes but are often portrayed as such by politicians of all colours and persuasions.

Now the Treasury has published a long-awaited definition of an ‘environmental tax’. This follows uncertainty and criticism by stakeholders including Parliament’s Environmental Audit Committee about the absence of a definition.

Why the big issue now, well the UK Government has stated that as part of its mission to be the greenest government“The Coalition Agreement pledged to increase the proportion of revenue raised from environmental taxation by the end of this Parliament. This definition will provide a baseline against which to measure delivery”.

It is forecasted by the Office of Budget Responsibility that the proportion of revenue from these taxes is expected to double by 2015-16.

Additionally, at the European Union level, there have been calls for better application of environmental taxation especially in relation to the European Commission’s Roadmap to a Resource Efficient Europe (COM(2011) 571/3). This document advocated “green tax reforms”, increasing the share of environmental taxes. The proposed milestone is “By 2020 a major shift from taxation of labour towards environmental taxation, including through regular adjustments in real rates, will lead to a substantial increase in the share of environmental taxes in public revenues, in line with the best practice of Member States.”

So just to be clear, the UK definition of an “environmental tax” must meet all of the following three criteria:-

(1) “The tax must be explicitly linked to the Government’s environmental objective”

(2) “The primary objective of the tax is to encourage positive behaviour change”

(3) “The tax is structured in relation to environmental objectives and the more polluting the behaviour the greater the tax levied”

So by applying these criteria, the following taxes are “environmental taxes”:

CRC Energy Efficiency Scheme,
Aggregates Levy,
Landfill Tax,
Climate Change Levy, and
Carbon Price Support

and these taxes are not:

Vehicle Excise Duty,
Fuel Duty, and
Air Passenger Duty

For a copy of the original announcement by the Treasury, please see http://bit.ly/MyWcM8

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