This guide is based on the OECD‟s recently issued book Taxation, Innovation and the Environment.
Overview
Environmental challenges are increasing the pressure on governments to find ways to reduce
environmental damage while minimising harm to economic growth. Governments have a range of tools at
their disposal, including regulations, information programmes, innovation policies, environmental subsidies
and environmental taxes. Taxes in particular are a key part of this toolkit.
Environmental taxes have many important advantages, such as environmental effectiveness, economic
efficiency, the ability to raise public revenue, and transparency. Also, environmental taxes have been
successfully used to address a wide range of issues including waste disposal, water pollution and air
emissions. Regardless of the policy area, the design of environmental taxes and political economy
considerations in their implementation are crucial determinants of their overall success.