Environmental Tax and Its Effect on Environmental Goals

Environmental taxes are designed to pay for a variety of programs and projects that promote environmental cleanup, restoration, and maintenance of our environment. The Environmental Protection Agency (EPA) and each state have different definitions and restrictions for what constitutes an environmental tax. A tax that is defined as a ‘regulatory fee’ is not necessarily environmental. When used to define or compare taxes, the term tax should be defined as a collection of payments that a taxpayer expects to receive from a governmental agency for the performance of specific tasks.


categories of environmental taxes: fuel; transportation; pollution; and natural resources

Transportation and fuel taxes are typically associated with vehicle use and fuel consumption, while pollution taxes are targeted at emissions from various sources. Pollution and natural resource taxes represent 3% of the state’s overall environmental tax revenue in the fiscal year 2021, and taxes on resource extraction and management represent the bulk of the cost of environmental programs. Taxing sources such as petroleum, coal, and other solid wastes produced through the combustion of fuel are considered pollutants that need to be addressed.

the National Environmental Policy Act

The EPA is responsible for determining which taxes fall under the purview of the National Environmental Policy Act (NPPA). NPPA was enacted by the US Congress as part of the Clean Air Act, which governs how environmental issues are regulated. NPPA established the National Highway Traffic Safety Administration (NHTSA) to address traffic-related concerns and prepare standards for manufacturing, transportation, and construction. NHTSA also administers the Coast Guard’s regulations about navigable vessels, nuclear facilities, and Federal lands.


The EPA is currently examining ways to reduce carbon emissions

Several recent studies have confirmed that NPPA and similar statutes governing greenhouse gas emissions may have unintended consequences. For example, high levels of carbon dioxide have been shown to lead to increased temperatures and elevated precipitation amounts, which exacerbate climate change risks. While some of the effects of climate change may be slowed with emissions limits for cars and other vehicles, the long-term result is less oxygen in the atmosphere, which adversely affects plant and animal life. The EPA is currently examining ways to reduce carbon emissions and recently proposed a carbon budgeting plan that would give agencies a specific amount of money to cut from other programs if carbon emissions go above the agency’s recommended levels. Similarly, the EPA is exploring other options for reducing greenhouse gas emissions, including the regulation of sources of methane gas and other natural pollutants, and the planting of vegetation to mitigate climate change risks.


introduce a hybrid version of a car payment

In addition to addressing climate change, the UK government is examining various ways to reduce the amount of fuel duty charged on individuals’ vehicles. The Department for Transport (DfT) recently conducted a review of vehicle tax, recommending several changes, such as raising the level of the standard rate and increasing proportionate tax thresholds. Additionally, DfT is examining whether to introduce a hybrid version of a car payment, currently designated as Flexible Fuel. Currently, all vehicles are charged according to fuel weight and vehicle size, with higher tax rates for larger vehicles. The Flexible Fuel option would allow people to choose from three different payment options: a fixed rate, a premium, or a combination of both.


Other countries have also taken measures to address environmental tax measures

Australia implemented a Carbon Pollution Reduction Scheme, requiring large industrial emitters to purchase offsetting credits. Spain introduced a similar scheme. The UK’s independent Office for Budget Responsibility has also reported that the UK government is reviewing policies to reduce greenhouse gas emissions and considering ways to adjust tax measures to address the mitigation of climate change costs.

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