To understand the nature of environmental taxes, we turn to the generally recognized definition developed by Eurostat for the purpose of international statistical accounting 3. According to it, an environmental tax is a tax base of which is a physical characteristic of an object whose impact on the environment is recognized as negative, or a related object associated with it. This definition is used by many international organizations, such as the United Nations (UN), the European Commission (EC), the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD), the World Bank (WB) 4. It follows that environmental taxes are classified not so much for the purpose of their introduction as for the tax base, but also for environmental impact 5. In this definition, the features of environmental taxes are detailed, which include,
1.) The fact that the tax base is not the value, namely, the physical characteristics of the object of taxation,
2.) the fact that the tax should initially be levied on the source of pollution, and , third, the fact that, if this is not possible, the object of taxation may become another, associated with the source of pollution, the object.
The car’s exhaust gases, for example, are the direct source of air pollution, but it is impossible to measure the actual amount of their emissions for each car individually. Therefore, the tax will be levied either on a source that contains harmful substances – and this is motor fuel, or on a vehicle using which pollution occurs.
However, the above definition is not unique. Thus, the European Fund for the Improvement of Living Conditions and Work defines the environmental tax as an obligation imposed by the state on those who use the environment for such use 6. Unlike the previous definition, in which formal features are actually established, on which it is possible to distinguish ecological taxes from the others, this definition fixes the basic, basic principle of environmental taxes, called “polluter pays” 7. In the OECD statistical terminology dictionary, it is disclosed as the principle that the person responsible for the reduction of environmental damage, due to which the society suffers, must pay for the person that caused the pollution, in the amount of the damage, or in the amount, in which this damage exceeded the acceptable (established) level (standard) of contamination 8. This principle is based on the notion that the environment is the property of society, therefore anyone who harms it, causes damage to society and therefore must pay compensation to it for this damage.
3. The economic purpose of environmental taxes and the classical understanding of their nature
From an economic point of view, the introduction of environmental taxes expresses in monetary terms the losses to society that create the activities of the taxpayer because of its negative impact on the environment. The latter possesses the properties of a public good but its consumer can be any number of people and no one can be excluded from consumption. Since the environment does not have an owner, then the price in the market is not assigned to it, as a result the losses cannot be calculated 9. And the part of production and consumption that takes the form of environmental degradation, loss of environmental quality and sometimes irreversible damage to vital ecological processes, remains unpaid 10. But environmental taxes, charging from a taxpayer, force him to pay for this damage and further reduce its level. The concept of taxation, in which the amount of tax should be paid for the losses of society, was formed by Pigou, who said that a tax that corrects negative externalities (environmental pollution) should be equal to the marginal social costs 11.
Speaking about the negative impact on the environment, we should not forget that it is so only in relation to human health and the conditions of the life. The ecological problem is not the loss of nature, but the person’s loss arising from a violation of the quality of the environment. For example, pollution of the atmosphere is a harm insofar as it leads to lung diseases. The greenhouse effect generated by the mass use of cars, adversely affecting the climate, primarily worsens the conditions of society. There are other similar examples, but one thing is clear: the ecological tax is originally intended to compensate for damage not to nature, but to a person, therefore, it must be measured according to this.
Thus, the initial, or classical, view of environmental tax is based on the fact that such a tax is called upon:
– in monetary terms reflect damage caused by the taxpayer to a person or a set of persons as a result of environmental pollution;
– to reimburse the losses of these persons, i.e., to perform the function of monetary compensation for damage.
4. Limitations of the classical concept of building environmental taxes and a modern understanding of their nature
If we go back to the modern definition of the environmental tax given by Eurostat, it contains only one condition that is sufficient for recognizing the tax to be ecological: it is the existence of a taxable object that negatively affects the environment. It is enough to impose a tax on any source of pollution, if such payment is considered to be ecological regardless of the order of its calculation and the directions of spending its revenues. There is a situation when the essence of the ecological tax is extremely simplified.
This is largely due to the fact that the full implementation of the above provisions in the construction of environmental taxes faces serious obstacles in practice. For example, Baumol and Oates talked about significant difficulties in implementing the concept of the Pigouvian tax, since for its establishment it is necessary to have quantitative information about the losses of society, which is very difficult to achieve, especially considering the huge number of sources of pollution and those who are exposed to it 12 . A separate problem is the assessment of such consequences as harm to human health. Indeed, it is impossible, for example, to establish a specific number of persons who have been contaminated with motor vehicles, and to determine how much the health of each of them has worsened individually, and especially to express these losses in cash, given the large number of vehicles themselves, each of which is a source of pollution.
In some cases, the application of the basic principle for environmental taxes, the “polluter pays” principle is difficult or even impossible. So, the damage done to human health can be so serious that it will be irreparable, and then it is simply impossible to evaluate it in monetary terms. The tax can not compensate and compensate for something that can not be restored. The principle is violated and when it is difficult to identify the polluter for tax purposes, in this connection, the duty to pay tax is imposed on those who are not related to pollution. For example, the state can oblige firms to keep the adjacent street areas clean, although in fact, the cleaning should be paid by someone who throws rubbish on the streets. There are also ambiguous situations when the need to pay compensation in the form of a tax in itself raises doubts. An example is the situation where an individual builds a house near the airport, knowing in advance about the negative noise impact, and it is this impact that caused the cheapness of the land and, accordingly, the construction of the house on it 9.
In general, the main problem today is the receipt of reliable estimates of environmental damage. Their absence does not allow to establish an objective level of tax burden. However, it is possible that, if they exist, it would be necessary to make the tax rate so high that payment of the tax would be an unbearable burden for taxpayers. That is why environmental taxes are termed such as environmental taxes 13 and environmentally related taxes 14. This fundamental terminological distinction essentially pushes the boundaries of what may be called an environmental tax and allows for a much less strict division of taxes on environmental and non-environmental taxes. Ecological in this case can be recognized as a tax that has a regulatory impact on the taxpayer, but it is not a Pigouvian tax in its pure form 15.
In connection with the departure from the classical understanding of the nature of the environmental tax, every country in fact today is given freedom in interpreting this economic category. And in this respect, the definition of Eurostat sets the minimum condition for including taxes in the group of environmental payments, which should not be violated, but can be supplemented and refined. For example, the UK Treasury, as the main signs of an environmental tax, identifies its objective to achieve environmental policy objectives and the special taxation procedure that it has in place, built on the principle of greater tax burdens on those who are more polluting 16. Such tax should stimulate the taxpayer to seek ways to introduce environmentally friendly technologies, methods of production and consumption of environmentally friendly goods.
The purpose of the tax, its relationship with the state’s environmental policy and, accordingly, the direction of spending its revenues, also today play an important role in answering the question of whether a tax is ecological. For example, a number of economists in the US do not consider the gasoline tax in force in the country to be environmental, since more than 80% of its revenues go to finance road construction, which only contributes to the growth of pollution levels 17.
In addition, in modern conditions, an environmental tax is not considered as compensation paid to those who suffered from pollution, and its size does not correlate with the casualties of the victims. This problem was also mentioned by R. Coase in his article “The problem of social costs” 18. In his opinion, if the income from levying taxes is not paid to those who suffered from the activities of the taxpayer, then such taxes cannot be considered as compensation to the victims, despite the fact that payment of taxes and payment of compensation are usually identified.
However, environmental taxes can be returned to the public in the form of a public good if their income is expended on the development of the health care system. Or, for example, tax revenues can be used to finance specific environmental measures and programs to eliminate environmental damage caused by the activities of the taxpayer, and then the tax rate is set depending on the funds that need to be collected for this. In these cases, the tax can be regarded as compensation, but not direct, but indirect action.
The European Environment Agency, for the purpose of the introduction, divides environmental taxes into those that are necessary to recover government environmental protection costs; regulating, which are needed as a tool that corrects the behavior of taxpayers; and fiscal, designed to increase the tax revenue of the state 19. Thus, it is allowed here that the tax can be ecological independently, not only from the mechanism of its calculation, but even from the presence of a regulatory effect, which contradicts those signs of the environmental tax that the Treasury of Great Britain leads. Therefore, in some cases, the recognition of environmental taxes does not yet guarantee that it will be used to achieve the objectives of the country’s environmental policy.
Thus, due to the fact that at present there is no unity of approaches to the definition of the concept of environmental tax, the modern concept of the essence of this type of payment does not have unified, clearly formed semantic boundaries. And this means that the formation of such borders is the task of each state.
5. Author’s interpretation of the concept of “environmental tax”
To sum up previous opinions, an environmental tax is a tax whose amount depends on the level of environmental damage created when the object of taxation is used / consumed and taken into account through separate elements of the tax or a combination of them. This definition brings ecological taxes closer to their original economic meaning, because it is based on the rule: the one who pollutes more, pays the tax in a larger amount. If this rule is not executed, then the tax, cannot be considered truly ecological.
In order for a tax to be considered ecological, it must pursue environmental protection goals. And for this it is necessary that it fulfills not only fiscal but also regulating function, which manifests itself in creating incentives for taxpayers to use those objects of taxation that differ in the best environmental indicators. This effect is achieved through the differentiation of the tax burden in proportion to the level of pollution, which in turn can be ensured only when the amount of tax is dependent on the amount of environmental damage created by the taxpayer. For example, if owners of environmentally friendly cars levy a tax in a smaller amount, you can encourage others to switch to using the same vehicles.
Of course, taxes on sources of pollution are already capable of discrediting the processes of production and consumption that are undesirable for society, but thanks to their non-regulatory and fiscal function. And in this respect, they do not differ in any way from other taxes, for example, the same profit tax that burdens entrepreneurial structures and influences interest in doing business, including in areas where environmental pollution occurs. But at the same time the very fact of tax burdens will not force the taxpayer to abandon environmentally harmful types of entrepreneurial activity only if this burden is not made extremely high, which is economically inefficient. Therefore, if the amount of tax is not associated with the amount of pollution, the taxpayer will not do anything to reduce the scale of the negative impact on the environment.
Reforming taxes on an ecological basis is a greening of the tax system, when the same taxes receive a new destination – to be an instrument of environmental policy. In this case, the socio-economic role of tax in the country’s economy increases. He begins to correct the ways of production that are undesirable for society and reduce the scale of consumption of environmentally unsafe products. The allocation of environmental taxes from the total tax payments is important for a better understanding of the directions for further reforming the tax system, identifying taxes that should become environmental, addressing the need for new taxes and changing existing, more complete implementation of the country’s environmental policy, receipts and, finally, to ensure the correctness of international comparisons.
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