How to make the environment taxes more effective?

One of the most fundamental principles behind environment policies is that the party that emits pollutants should pay for the damage that they cause. In Sweden, we have a number of environment taxes or charges that reflect this, such as on carbon dioxide, sulphur and oxides of nitrogen.

An environment tax leads to a reduction in emissions, as the party that pays has a reason to reduce their emissions. it also leads to the government getting money that can be used for activities beneficial to society, such as providing healthcare to treat illnesses caused by such emissions. It also acts as a way of driving new technology less environmentally harmful and therefore cheaper than traditional technology. You can also view it from a kind of justice perspective. If you pollute the air and water, and get permission to do this, you should at least pay for the privilege.

But how does this all work in practice? So-so, is probably one way of summarising the situation.

While there are taxes and charges on many substances, there are numerous others that are not touched upon. Such as particulates and hormone disruptors, for example. Certain emission sources are taxed, but not others.

One example is that we have a carbon dioxide tax on the emission of certain substances that contribute to the greenhouse effect, but not on other sources, such as methane from food production. A third reason is that even when you pay a tax, this is often too low. For example, the Swedish carbon dioxide tax is probably too low to cover the damage that climate changes can cause. A fourth situation is that various types of tax relief are sometimes given to certain types of industries.

There can be good reasons to offer tax relief and other exemptions. One reason can be that society wishes to protect an industry in a very competitive sector. Then it is ultimately a political decision as to how the various effects you want to achieve should be balanced, such as reduced emissions and a strong export industry. Perhaps it may also not have been possible to introduce a tax if different types of exemptions had not been introduced at the same time. And while it can often be better to have a tax with exemptions than no tax at all, a solution with various types of exemptions can still be good. However, in the long run, all polluters need to pay for their emissions if we are to be able to have a cost-effective environment policy.

Tip of the week: KTH Sustainability Research Day is on 28 November this year on the theme of partnership and cooperation for sustainable development. Sign up here.