Green Levy

What Is a Green Levy?

A green levy is a tax imposed by a government on sources of pollution or carbon emission. A green levy is aimed at discouraging the use of inefficient sources of energy and encouraging the implementation of environmental-friendly alternatives. The term is most commonly used in relation to a tax on fuel-inefficient vehicles.

Understanding a Green Levy

Green levies, or ecotaxes, are described by proponents as a way for governments to address the failure of markets to factor in the environmental costs of using non-renewable resources or energy-inefficient practices. They are versions of Pigovian taxes, whose intent is to make private enterprise have some connection to the social burden of their business practices.

The goal is to create a shift away from using destructive energy sources, such as oil and coal, towards environmentally friendly ones, such as wind, solar, geothermal, and hydro.

One of the ways that governments apply green levies has been through carbon taxes; a system in which a business or private citizen has to pay a fee associated with the size of their carbon footprint. It's been argued by proponents of these plans that these taxes might replace those that are already in place, like payroll, corporate, land value, and property taxes.

Criticism of Green Levies

There has been some disagreement as to whether these taxes when implemented would be progressive or regressive. While not intended to be the case, taxes on consumption may inadvertently hurt the poor who end up saving less of their income and consuming more. Flat taxes would also have an outsized effect on poorer households, according to a study by the Joseph Rowntree Foundation and Policy Studies Institute.

Some critics of green levies claim that they amount to stealth taxes that hurt consumers by pushing up vehicle prices but do little to curb emissions. Critics contend that these levies allow corporations and the rich to buy their way out of the effects of their activity while the poor, who are more adversely affected by climate change, don't have the ability to.

Real-World Examples

Some examples of green levies imposed in countries across the world include Canada's tax on cars that are fuel inefficient. The tax applies only to passenger vehicles purchased from Canada or the United States that must meet two criteria: "A car, SUV, or van with a weighted average fuel consumption of 13 liters per 100 km or higher and was put into service after March 19, 2007." The vehicles are taxed at the following rates:

Germany has passed taxes on electricity and petroleum, while renewable sources of electricity were not taxed. Germany also imposed a tax designed to favor more efficient power plants and increased petroleum taxes.  As early as 1993, the U.K. imposed a fuel price escalator, but it was ended after protests across the nation when fuel prices were higher than anywhere in Europe.