Why Green Taxation?

Abstract

According to economists, solving environmental problems is simple. Politicians should simply impose a uniform tax on harmful emissions. However, the actual design of such green taxation shows that politicians do not follow their advice. CO₂ taxation in OECD, for example, is highly differentiated and greatly favours industry. In fact, CO₂ tax rates for industry are, on average, six times lower than those for households. We argue that the reason for this tax differentiation is that industry, in contrast to households, has a strong capability to lobby. Therefore, green taxation is effectively blocked and the desired environmental results are not being achieved. Why then is green taxation persistently applied in relation to industry? We argue that strong fiscal incentives drive this policy choice at the expense of environmental concerns because this allows environmental bureaucracies to maximize budgets.