Europe’s environmental taxes in decline, despite potentially crucial role — European Environment Agency

The EEA briefing ‘The role of environmental taxation in supporting sustainability transitions’ looks at recent trends in taxes related to pollution, resource use and greenhouse gas emissions. It also considers the potential of these taxes in raising revenues and supporting Europe’s sustainability ambitions.

Shifting from labour taxes to taxing activities that harm the environment or climate has for long received support from economists and politicians alike. However, as with phasing out environmentally harmful subsidies, substantial increases in environmental tax revenues have largely not been realised, the EEA briefing notes.

In the EU, revenues from environmental taxes were 330 billion EUR in 2019. The share of environmental taxes of total tax revenues declined from 6.6%, in 2002, to 5.9%, in 2019. The trend varies across Europe but, critically, the share declined in frontrunner countries implementing environmental taxes, such as Denmark, Norway, and Sweden, the EEA briefing notes.

The observed trends highlight the problem that effective environmental taxes end up eroding the tax base in the long term. Thus, the primary focus of environmental taxes needs to shift from revenue generation to support achieving environment and climate objectives, the EEA briefing concludes.