Green Levy

DEFINITION of '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.

BREAKING DOWN 'Green Levy'

Green levies, or 'Ecotaxes', are described its proponents as a way for governments to address the failure of markets to factor in the environmental costs 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.

Some of the ways that people have proposed 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. Other proposals have included duties on non renewable energy imported from outside of a country and taxes for the extraction of raw materials like minerals, lumber, energy. It's been argued by proponents of these plans that these taxes would replace those that are already in place like payroll, corporate, land value, and property taxes.

Some of examples of green levies imposed in countries across the world include Canada's tax on cars whose fuel consumption was greater than three gallons for every 62 miles. Germans have passed taxes on electricity and petroleum, while renewable sources of electricity were not taxed. Germany also imposed a new tax designed to favor more efficient power plants and increased petroleum taxes while decreasing income tax. Not all of these taxes have been successes when implemented. As early as 1993 the U.K. imposed a fuel price escalator, but it was put to an end after protests across the nation when their petrol prices were higher than anywhere in Europe.

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 poorer households according to a study by 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. There also have been criticism of the idea that these taxes allow the rich to buy their way out of taxes while the poor, who are more adversely effected by climate change don't have the ability to.