Ecotax

An Ecotax (short for ecological taxation) is a tax levied on activities which are considered to be harmful to the environment and is intended to promote environmentally friendly activities via economic incentives. Such a policy can complement or avert the need for regulatory (command and control) approaches. Often, an ecotax policy proposal may attempt to maintain overall tax revenue by proportionately reducing other taxes (e.g. taxes on human labor and renewable resources); such proposals are known as a green tax shift towards ecological taxation. Ecotaxes address the failure of free markets to consider environmental impacts.

Ecotaxes are examples of Pigouvian taxes, which are taxes that attempt to make the private parties involved feel the social burden of their actions. An example might be philosopher Thomas Pogge's proposed Global Resources Dividend.

Examples of taxes which could be lowered or eliminated by a green tax shift are:

Examples of ecotaxes which could be implemented or increased are:

The object of a green tax shift is often to implement a "full cost accounting" or "true cost accounting", using fiscal policy to internalize market distorting externalities, which leads to sustainable wealth creation. The broader measures required for this are also sometimes called ecological fiscal reform, especially in Canada, where the government has generally employed this terminology. In some countries the name is eco-social market economy.

Tax shifting usually includes balancing taxation levels to be revenue-neutral for government and to maintain overall progressiveness. It also usually includes measures to protect the most vulnerable, such as raising the minimum income to file income tax at all, or an increase to pension and social assistance levels to offset increased costs of fuel consumption.

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