Impose taxes to combat climate change

Environmental sustainability is a major theme across the globe. It has largely been driven by climate change and global warming and is in line with the United Nation’s Sustainable Development Goal (SDG) No.13. This requires stakeholders to take urgent action to combat climate change and its impacts.

Governments are deploying different legislative and policy tools to encourage investments in products and activities that are environmentally friendly. This could be in the form of tax incentives among other viable methods.

At the same time, disincentives in the form of taxes, levies or other related fees are being imposed on products and activities are harmful or have a negative effect on the environment.

The European Union has agreed to reduce greenhouse gas emissions by at least 55 per cent by 2030. This is set to be achieved through increased use of renewable energy, efficient energy use, promoting the roll-out of low emission transport modes, alignment of taxation policies, introduction of measures to prevent carbon leakage and provision of tools to prevent and grow natural carbon sinks.

According to Eurostat, an environmental tax is generally defined as a tax whose base is a physical unit (or a proxy of a physical unit) of something that has a proven, specific negative effect on the environment. The tax is expected to directly or indirectly increase the cost of a good or an activity that is deemed to be harmful to the environment relative to other less harmful activities or goods.

They are classified into four main categories namely, energy taxes, transport taxes, pollution taxes and resource taxes. Energy taxes are focused on energy production and energy products.

These include petrol and diesel. Transport taxes largely focus on ownership and use of motor vehicles among other transport apparatus. Pollution taxes, on the other hand, are focused on emissions to air and water, management of solid waste and noise. Lastly, resource taxes are linked to the extraction or the use of natural resources.

Environmental taxes can be levied on the final product or on the raw materials that are used to manufacture the final product. The taxes are levied based on the quantity of output or the sale price of environmentally harmful products.

Alternatively, the taxes are targeted at increasing the variable and fixed costs of inputs that are used to produce environmentally harmful goods or activities.  On the other hand, targeted tax incentives such as tax deductions, allowances or rebates are granted to persons who are engaged in activities or the production of products which are deemed to have a positive effect or reduce negative effects on the environment.

Some of the common issues that policy makers have been addressing are pollution which could take various forms. For instance, non-biodegradable plastics contribute greatly to land and water pollution through landfills and destruction of sea life. Petroleum products, on the other hand, produce emissions that have been said to be a major cause of global warning and climate change.

Robert Maina, Nairobi