Economic instruments for pollution control and natural resource management are an increasingly important part of environmental policies in the EU Member States. The range of tools available includes environmental taxes, fees and charges, tradable permits, deposit-refund systems and subsidies. Eurostat defines the green tax as “a tax whose tax base is a physical unit of something that has a proven, specific negative impact on the environment, and which is identified in the European System of Integrated Economic Accounts (ESA) as a tax” (Environmental taxes: Statistical Guide, 2013).
Environmental taxation is often considered an effective instrument to achieve sustainability in the economy. It is imposed on environmental pollutants or on goods whose use produces pollutants and is meant to reduce their negative impact on the environment, providing incentives to polluters to reduce emissions and search for cleaner and sustainable alternatives. The European Environmental Agency (EEA) billed the Environmental Tax Reform (ETR) in Europe “a reform of the national tax system where there is a shift of the burden of taxes, for example on labour, to environmentally damaging activities, such as resource use or pollution”.
ETR has two primary goals: a) to discourage environmentally harmful activities by making them more costly; b) to recycle the revenues to create economic and social outcomes, such as increasing employment. Low or flat revenues from environmental taxes could result from high tax rates that had the (positive) effect of changing behavioural patterns of consumers. On the other hand, higher levels of environmental tax revenue could be due to low tax rates that incentivize to purchase taxed products across a border (e. g. petrol or diesel). The total revenue from environmental taxes in the EU-28 in 2014 was EUR 343.6 billion and equates to 2.5 % of gross domestic product (GDP) and to 6.3 % of the total revenues derived from all taxes and social contributions (Eurostat, 2016).
In 2014, the level of environmental tax revenues was more or less EUR 79 billion higher than in 2002. Environmental taxes exceeded 10.0 % of total revenue from taxes and social contributions in three Member States — Slovenia (10.6 %), Croatia (10.5 %) and Greece (10.2 %) — as well as in Serbia (10.8 %). They were followed by Bulgaria (9.8 %), Latvia (9.3 %), Cyprus and the Netherlands (both 9.0 %). About GDP, environmental tax revenues reached the highest value in Denmark with a ratio of 4.1 %, followed by Slovenia and Croatia (both 3.9 %), with Serbia (4.0 %). The lowest rates of environmental tax revenues to GDP were recorded in Lithuania, Slovakia and Spain, all three below 2.0 %. European statistics distinguish four different categories of environmental taxes relating to energy, transport, pollution and resources.
Energy taxes (which include taxes on transportation fuels) represents the highest share of overall environmental tax revenue, accounting for 76.5 % of the EU-28 total in 2014. Energy taxes were prominent in Lithuania, the Czech Republic and Luxembourg. By contrast, energy taxes slightly exceeded 50 % of the revenues from environmental taxes in Malta and Norway. Transport represented the second most significant contribution to total environmental tax revenues, with 19.9 % of the EU-28 total in 2014. Their importance was considerably higher in Malta (40.6 % of all income from environmental taxes) and even in Norway (42.6 %); the smallest shares of transport taxes in total revenues from environmental taxes were in Estonia (2.1 %) and Lithuania (3.5 %). Pollution and resource taxes represented a relatively small share (3.6 %) of total environmental tax revenues in the EU-28 in 2014. This category of taxes was implemented more recently in most European countries.
However, a much higher share of pollution and resource taxes was experienced in Croatia (17.4 %), and in the Netherlands (13.8 %). By contrast, in some EU Member States, Germany, Greece and Cyprus, no taxes of this category have been enacted. Tables below show the split of revenues from different types of environmental taxes suggested for implementation in the 28 Member States. The majority of the overall increase comes from additional taxes on transport excluding. transportation fuels (0.59% of GDP). The additional revenue generated from increasing energy duties amounts to 0.25% of GDP. Finally, an increase of 0.21% of GDP is estimated from increased taxes on pollution and resources.
The difference between “good practice” and “politically feasible” was around 0.08% GDP. For transport taxes, a greater proportion of the change was considered politically feasible: under good practice, the transport taxes would raise taxes equivalent to 0.57% GDP, whereas the politically feasible scenario generated taxes equal to 0.55% of GDP. For the pollution and resource taxes, the difference was between 0.22% GDP for the good practice situation and 0.18% GDP in the politically possible scenario. Environmental taxes have been increasingly used to influence the behaviour of economic operators, whether producers or consumers. The EU has frequently encouraged any policy aiming to affect, through environmental taxes, the conduct of main economic actors, whether they are producers or consumers. The use of financial instruments for the benefit of the environment is openly backed by the EU Environment Action Programme to 2020 — 7th environment action programme (EAP), the EU sustainable development strategy and the Europe 2020 strategy. The secretly added value of taxation is not so secret anymore.