This Issue Summary is based on recent work conducted by Sustainable Prosperity that categorizes environmental taxes in Canada based on their goals and objectives. The research shows that while environmental taxes are used across Canada, the vast majority of environmental taxes are not designed with a specific environmental objective.
Environmental taxes are policy mechanisms designed to increase the price on activities and products that are harmful to the environment. Environmental taxes are found in economies around the world and are levied on bases such as energy, transportation, natural resources and pollution.
While the balance sheets of Canadian federal and provincial budgets reflect some use of environmental taxes, a consistent methodology for identifying, categorizing and calculating such pricing policies has not been identified.
The lack of a consistent methodology may be partly due to unclear definitions of environmental taxes, as these definitions vary in theory and in practice. In theory, environmental taxes limit environmentally harmful behaviour through a price incentive. In practice however, many taxes labelled as environmental are strictly revenue-raising tools that are not designed to provide any environmental benefit. The calculation of environmental taxes can be easily misinterpreted based on these definitional complexities.
Sustainable Prosperity’s recent paper introduces a set of definitions to categorize environmental taxes based on theory. Applying these definitions in the Canadian context shows that only a small subset of environmental taxes is designed with an environmental purpose. Data collected for the fiscal year 2012-2013 estimates the value of all environmental taxes in Canada to be approximately $16 billion, while the value of taxes specifically designed for environmental benefit represents only a small subset of the overall value.