Environmental Tax Reform: Principles from Theory and Practice

Posted: 22 Sep 2012

See all articles by Ian Parry

Ian Parry

International Monetary Fund (IMF)

John Norregaard

Formerly with International Monetary Fund (IMF); Independent

Dirk Heine

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics; University of Hamburg - Institute of Law and Economics; University of Bologna - Department of Economics; World Bank, Macroeconomics, Trade and Investment Global Practice

Date Written: August 2012

Abstract

On the basis of the environmental tax literature, this article recommends a system of upstream taxes on fossil fuels, combined with refunds for downstream emissions capture, to reduce carbon and local pollution emissions. Motor fuel taxes should also account for congestion and other externalities associated with vehicle use, at least until mileage-based taxes are widely introduced. An examination of existing energy/environmental tax systems in Germany, Sweden, Turkey, and Vietnam suggests that there is substantial scope for policy reform. Policy options include harmonizing taxes for pollution content across different fuels and end users, better aligning tax rates with (albeit crude) values for externalities, and scaling back excise taxes on vehicle ownership and electricity use that are redundant (on environmental grounds) in the presence of more targeted taxes.

Suggested Citation

Parry, Ian and Norregaard, John and Heine, Dirk, Environmental Tax Reform: Principles from Theory and Practice (August 2012). Annual Review of Resource Economics, Vol. 4, Issue 1, pp. 101-125, 2012. Available at SSRN: https://ssrn.com/abstract=2149997 or http://dx.doi.org/10.1146/annurev-resource-110811-114509

Ian Parry (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

John Norregaard

Formerly with International Monetary Fund (IMF) ( email )

700 19th Street, NW
Washington, DC 20431
United States

Independent ( email )

No Address Available

Dirk Heine

Erasmus University Rotterdam (EUR) - Rotterdam Institute of Law and Economics ( email )

Burgemeester Oudlaan 50
PO box 1738
Rotterdam, 3000 DR
Netherlands

University of Hamburg - Institute of Law and Economics ( email )

Johnsallee 35
Hamburg, 20148
Germany

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

World Bank, Macroeconomics, Trade and Investment Global Practice ( email )

1818 H Street, NW
Washington, DC 20433
United States

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