Environmental Taxation and Economic Policy

Environmental taxation has emerged as a cornerstone of modern economic policy, designed to internalise the external costs of pollution and resource depletion. By levying charges on carbon emissions, energy consumption or waste generation, governments aim to steer markets towards cleaner technologies and more efficient resource use. Such taxes can yield a double dividend: environmental benefits from lower emissions and economic gains through revenue recycling, for instance to reduce labour taxes or to fund green innovation. Across advanced and emerging economies, the design of environmental tax systems varies in scope and stringency, reflecting differences in institutional capacity, industrial structure and political economy. Computable General Equilibrium (CGE) models, panel econometric analyses and cost–benefit appraisals have been deployed to assess effects on GDP, sectoral output, income distribution and emission abatement. Practical applications include carbon taxes in Nordic and EU states, energy levies in Asia-Pacific jurisdictions and pollution fees in rapidly industrialising regions. Recent policy debates focus on phasing out fossil-fuel subsidies, coordinating carbon pricing in trade blocs, and ensuring social equity through targeted compensation for vulnerable households. The global significance of environmental taxation lies in its potential to deliver cost-effective emission reductions, stimulate innovation in renewables and catalyse an orderly transition to a low-carbon economy.

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Environmental Taxation and Economic Policy publication trend

The graph below shows the total number of articles in environmental taxation and economic policy across all publications each year (not limited to Nature Index journals).

Technical terms

Carbon tax: A levy placed on the carbon content of fossil fuels to internalise greenhouse gas emission costs.

Double dividend: The hypothesis that environmental taxes can deliver both ecological improvements and economic gains through revenue recycling.

Computable General Equilibrium (CGE) model: A quantitative framework simulating how economies respond to policy changes across multiple sectors.

Panel ARDL model: An econometric approach combining cross-sectional and time-series data to estimate both short- and long-run relationships.

Revenue recycling: The practice of using tax proceeds to reduce other distortionary taxes or to fund public goods, enhancing overall welfare.

References

1. Exploring the Role of Carbon Taxation Policies on CO2 Emissions: Contextual Evidence from Tax Implementation and Non-Implementation European Countries. Sustainability (2020).
2. Do Environment-Related Policy Instruments and Technologies Facilitate Renewable Energy Generation? Exploring the Contextual Evidence from Developed Economies. Energies (2021).
3. Can Environmental Tax Policy Really Help to Reduce Pollutant Emissions? An Empirical Study of a Panel ARDL Model Based on OECD Countries and China. Sustainability (2019).
4. Environmental Fiscal Reform and the Double Dividend: Evidence from a Dynamic General Equilibrium Model. Sustainability (2018).
5. The Impacts of Environmental Tax in China: A Dynamic Recursive Multi-Sector CGE Model. Energies (2015).
6. Effects of an Energy Tax (Carbon Tax) on Energy Saving and Emission Reduction in Guangdong Province-Based on a CGE Model. Sustainability (2017).
7. The impact of environmental protection tax on sectoral and spatial distribution of air pollution emissions in China. Environmental Research Letters (2019).
8. The Contribution of Energy Taxes to Climate Change Policy in the European Union (EU). Resources (2019).
9. Energy Taxes, Carbon Dioxide Emissions, Energy Consumption and Economic Consequences: A Comparative Study of Nordic and G7 Countries. Sustainability (2019).