Introduction
Climate change has been a topic of debate and serious concern for, the last 5 decades. The urgency of addressing this issue has led many countries to approach the issue with innovative and efficient ideas to prevent declining environmental conditions. Among the approaches one of the approaches is called ‘green taxation or Ecotax’. It is a charge in the form of a tax which is levied upon the goods and activities which harm the environment directly or indirectly. This tax aims to ensure eco-friendly practices by people and a penalty for those who pollute the environment. Through this method, the government can influence the behavior of taxpayers by putting financial liability in the pockets of those who pollute or harm nature in any way.
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History of Green Taxation
The history of green taxation leads back to the early 19th Century with the concept of Pigovian theory of tax which was named after English economist Arthur Pigou. This theory simply states that the businesses and individuals who are engaged in activities which puts a negative effect on nature should be charged with tax for such actions of. Every business produces some externalities of production on the society and environment but those which put such externalities of nature which harm the eco-system are called ‘negative externalities’. Such externalities producing privates/businesses shall be charged with tax for the compensation of the same was advocated by this tax system.
Then again at the Stockholm Declaration on ‘human environment’ in 1972 the concept of ‘polluter pays’ was coined which aimed to make the polluter of the environment liable to pay for the charges for its fixation and duty to return it to its original state. This concept was firmly established by the OCED and was further enunciated in the Rio Summit of 1992.
Many landmark judgments like Indian Council for Envirolegal Action vs. Union of India (Supreme Court on 13.02.1996 in WRIT PETITION (C) NO.967 OF 1989) and Vellore Citizen Welfare Forum v. Union of India (Supreme Court on 28.08.1996 in AIR 1996 SUPREME COURT 2715), were given based on this concept and they did set a precedent for the liabilities of a polluter for the damage caused to the environment by them.
Today in the modern day, the concept of green taxation is yet another effort by the states to reduce the harm caused to the environment by putting tax as a ‘financial liability’ on the pockets of the taxpayers who pollute the environment. This tax policy ultimately aims to promote environment-friendly acts by the citizens of a state via economic methods of taxation.
Types of Eco Taxes
1. Energy Taxes
Globally, the most prominent environmental taxes are categorized as “energy” taxes. Energy taxes differ notably because they can be imposed on the production, distribution, or usage of energy sources, mainly derived from fossil fuels that include coal, oil, natural gas, and, in some cases, electrical power. They frequently try to influence energy consumption patterns and behaviors, promote energy efficiency, and encourage the shift to cleaner, more environmentally friendly energy sources. Higher tax rates can be levied upon non-renewable energy resource consumption as they emit harmful greenhouse gases (GHGs) and are also exploited highly. Such high rates of tax shall encourage higher demand for renewable energy resources like wind, solar, and hydroelectric which are abundant and do not cause harm to nature.
2. Pollution Taxes
This type of tax is charged on measured emission of pollution to air and water. The example of Ireland’s ‘plastic tax’ is an ideal example in this category: Ireland levies € 0.22 tax on the sale and purchase of each plastic bag. Through this, the nation was able to influence the behaviour of its consumers as the sale of paper bags increased drastically and the nation was able to generate € 200 million in revenue for the government.
3. Resource Taxes
Resource taxes are levied upon utilization or the extraction of natural resources like water, wildlife, forests, and other forms of flora and fauna. All the activities that lead to the depletion of natural resources and these taxes do not specifically come into execution as most of them are covered by government fees.
4. Transportation Taxes
The tax that you pay at the time of registration of a newly bought automobile is called transport tax. Such tax is paid based on the weight fuel efficiency and fuel emission of the vehicle. The more refined the engine, the better fuel efficiency it will have, and the lesser fuel consumption will happen thus the consumer shall pay lesser tax for the fuel under the Energy Tax. Efficient engines shall also produce less smoke from the vehicle and will induce cleaner usage of means of transport and a healthier environment.
A new kind of tax on ‘congestion’ on highways has also started in huge cities like New York due to the rising number of vehicles on the roads. This tax is charged via electronic tax machines using cameras that scan the number plates of the cars and deduct a certain amount of tax from its owner’s income when there is a surge in the number of vehicles on the road. This aims to reduce congestion and jams on roads which cause noise and air pollution at a high volume, especially in big cities and their connecting highways.
Impact of Green Taxation in India
The concept of green taxation has gained significant momentum in the last 2 decades as the rise of environmental degradation here. In addition to ratifying the Paris Agreement on CO2 emission control, India finds itself in a place where it has to embrace sustainable, environment-friendly practices to tackle the growing issue of droughts, ground-level water source depletion, and rising issues of smog (smoke+fog) in its territory. Below are a few of the policies taken up by India to combat such environmental issues using the concept of taxation.
- GST: With the enforcement of a common tax on goods and services, the opportunity to incorporate an environmental tax system increased. Goods and services relating to environment-friendly nature are taxed less than others and examples are, solar panels and wind turbines. This initiative motivates investment in cleaner energy fuels and methods.
- Environmental Cess is another kind of tax that many states in India charge upon the externalities of activities that directly relate to nature. Mining, quarrying, fishing, and other such activities are charged with this, and the revenue generated from such tax is used for the conservation of the environment and pollution control measures.
- Lower GST rates on electronic vehicles also promote sustainable transportation as the ideal means of transport for the future. Financial incentives and aids for people aiming to buy electronic vehicles (EVs) are also given to promote green transportation.
Challenges
While green taxation is a great initiative to tackle both environmental degradation by human conduct and reduce the financial burden that the state faces to fix such damages, it also faces some challenges that affect its proper implementation. Here are some of them:
- Resistance from industries as they fear increased production and procurement costs in the usage of all eco-friendly raw material as all of it is not readily available and its extraction, processing, and transportation costs are high. This may lead to the relocation of these industries to places where they get relaxed environmental regulations thus, leading to ‘carbon leakage’.
- Inflation of natural commodities and services will severely impact the pockets of low-income households leading to social injustice and decreased equity in society.
- Rigid enforcement of such a tax system requires complex administrative schemes, high-level monitoring, reporting, and data management. SMEs may struggle to comply with such complex mechanisms and developing nations with limited resources may find it difficult to keep track of such complex and diverse data.
- Lack of public awareness and communication is another challenge in the successful implementation of Eco-tax as the same can only be effective with the support of the public. Making the public at large understand the aims and motive behind such taxes and creating a sense of responsibility in their mind is a big challenge. Also, people employed in industries that are based on high levels of chemical release and carbon or other GHG emissions may oppose such taxes as it is against the industries through which they earn their livelihoods.
- Reduction of competitiveness of industries at the international level may reduce the international investments and standing of the industrial sector of a country and the state may hesitate in implementing such strict taxation measures in the favour of the environment.
Conclusion
In conclusion, whilst green taxation has incredible potential as a policy tool for promoting environmental sustainability, its performance depends on overcoming a number of economic, administrative, political, and social problems. Countries may use green taxation to achieve positive environmental change and create a more sustainable future for everybody if they resolve these difficulties through robust policy design, stakeholder engagement, and global collaboration.
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