Prospects for European Environmental Tax Reform

Abstract

In previous chapters of this book specific proposals for economic instruments in environmental policy, such as environmental taxes and tradeable permits, have been suggested and discussed. All of these proposals are directed towards achieving environmental targets set by the EU itself and by its Member States. Moreover, they also fit into calls for green taxes which sometimes appear in debates about environmental regulation and tax policy. Interestingly though, these claims usually do not ask for just a rise in environmental taxes but, rather, a shift in the overall tax burden of society. By giving an inevitable rise in the proceeds for the government, environmental taxes offer opportunities for reductions in other taxes. If other taxes - such as income taxes - are cut back with the revenues raised by the environmental tax, this shift is said to be ‘neutral’ with respect to the government budget.2 We call these ideas of shifting from direct taxes on income towards taxes on energy and materials an exercise in environmental tax reform.