• 11.17.15

Taxes On Pollution Are Falling, Even As The World Gets Hotter And Hotter

If governments want to protect us from environmental disaster, they could start with updating the tax code.

Taxes On Pollution Are Falling, Even As The World Gets Hotter And Hotter
[Top Photo: agsandrew via Shutterstock]

Given the general public concern about the environment these days, you might expect environment-related taxes–on emissions, pollution, and so on–to be on the rise. After all, the tax code is a reflection of what we, or our governments, think is good and bad for us: Cigarettes are bad, so we tax them more than things that are good for us.


But that’s not how it appears from a recent Organization for Economic Co-operation and Development report. It shows that the share of environmentally purposed taxes–which includes taxes on gas or carbon emissions from factories–is actually falling in richer countries.

Environmental taxes make up 5.2% of all tax revenue, or 1.6% of GDP across the OECD’s 29 member-countries. The U.S.’s share has fallen by 0.39% since 2000, Korea’s by 2.90%, and Mexico’s by 13.72%.

“The use of environmentally related taxes to influence consumer behavior and to internalize environmental costs is growing in OECD countries, but remains limited compared to labor taxes,” the report says. (There’s more total revenue from environmental tax today than in the past, but the share of overall tax revenue from environmental taxes is falling.)

Many economists think taxing carbon directly is the best way to cut emissions and reduce the threat of climate change. But few places have adopted carbon taxes (British Columbia is an exception, and it’s cut fuel consumption without harming growth). From China to Europe, countries have preferred the politically safer option of emissions trading or providing support for renewable energy.

Moreover, as well as not taxing pollution, governments are also actively subsidizing it. Though renewables get some help, fossil fuels subsidies were worth fare more: $550 billion in 2013, according to the International Energy Agency. “Such subsidies undermine the effectiveness of environmental taxation and of environmental policies more generally and encourage carbon emissions,” the OECD says.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.