What is Ecotax?

Desperate times call for desperate measures and according to Mayor of London Boris Johnson, that’s exactly what’s needed to tackle the issue of air pollution in British cities. In fact, improving air quality and reducing pollution is currently a priority in the UK, as this article discusses further: Improving Air Quality and Reducing Transport Related Pollution. French authorities agree, introducing the controversial ‘truck toll’ designed to encourage heavy vehicles to adopt greener operations. These types of policies are gaining popularity across the globe and fall under a broader umbrella known as ‘ecotax.’

To help give you a better understanding of the term, we’ve put together this insightful guide covering what it is, where it’s used and whether or not it works.

What is ecotax?

Short for ecological taxation, ecotax is a government endorsed levy intended to protect the environment and the natural ecosystem. In general, ecotax schemes fall into two different categories:

1. Revenue-motivated taxation - Revenue motivated schemes are designed to actively change behaviour and slap a tariff on products or activities that are deemed environmentally harmful. The London congestion charge is a prime example of a revenue motivated ecotax scheme.
2. Incentive-motivated taxation - Incentive-motivated taxation schemes take a different approach and offer people tax cuts and reliefs in exchange for adopting greener operations. For example, the UK, Australia and a handful of other countries offers homeowners and businesses a number of tax incentives for constructing eco-friendly buildings and harvesting sustainable energy.

Why is it used?

Ecotax is primarily used by governments as a tool to achieve environmental targets and undo existing damage. Take the UK’s Feed-In Tariffs Scheme for example. While homeowners see it as a great way to earn a little extra cash, it is primarily designed to help the nation reach its target of reducing greenhouse gas emissions by 80% come 2050. Furthermore, the government has committed to sourcing 15% of its total energy from sustainable sources by 2020. These are ambitious goals which are greatly helped along by incentive-motivated ecotax schemes. India is also on board, with a recently introduced carbon tax designed to slash CO2 emissions by 25% come 2020.

Where is ecotax used?

Today, ecotax is used in countries across the globe. From the UK and Australia to India and Japan, governments are beginning to take more responsibility for the impact that their populations are having on the natural environment.

Does it work?

While ecotax schemes don’t always produce immediate results, in the long run the impact is largely positive. While the London congestion charge may put a hole in the pockets of commuters, locals and tourists alike, it has reduced vehicle traffic by 30% and slashed CO2 emissions by 20%. And while Swedes may pay an extra 20p per litre when filling up the tank, the country’s Environmental Minister maintains that the carbon tax has cut CO2 emissions by 20% since 1991.

To see what the emissions are like in London, this article, London Pilot Project Kick Starts a New Greenhouse Gas Emissions Measurement Service, takes a preliminary look at the measurements which came from the successful pilot study in 2012.