New Instruments On Old Turf: The Institutional Challenges Of Environmental Taxation

Abstract

Abstract When the environmental movement started in the United States, the federal government turned first and foremost to regulatory regimes, such as the Clean Water Act2 and the Clean Air Act.3 For the last three decades, however, the United States has also used its federal tax code to pursue environmental goals. In 1978, Congress created the tax on gas-guzzling cars.4 In 1980, it designed excise taxes on chemicals to help finance the Superfund.5 In 1989, it enacted an excise tax on ozone-depleting chemicals.6 In recent years, it has increasingly used tax expenditures to encourage environmentally beneficial behaviour. The Energy Policy Act of 2005,7 for example, created or expanded numerous tax incentives to promote the use of alternative energy and to encourage energy conservation.8 In fiscal year 2006 alone, far more than US$4 billion in tax incentives for environmentallyrelated behaviour flowed through the tax code9—the equivalent of more than half of the US$7.6 billion annual budget for the Environmental Protection Agency (EPA).10 Environmental taxation is a hybrid discipline, combining both environmental policy and tax policy, yet tax matters are clearly in the hands of tax authorities. The tax measures mentioned above fall under the primary jurisdiction of the taxwriting committees in Congress, the Department of Treasury (Treasury) and Treasury’s Internal Revenue Service (IRS), not the environmental committees, the EPA, or the Department of Energy. The tax committees are setting environmental policy and the tax agents are administering it, bringing new environmental instruments onto the old tax turf.