Environmental and public finance aspects of the taxation of energy

This paper reviews potential applications of environmental taxes in the ene rgy sector Theoretical and practical arguments for using environmental taxe s are reviewed, and possible arrangements outlined for levying environmenta l taxes on energy. In contrast to most environmental taxes, taxes on energy have the potential to raise revenues sufficient to alter the constraints a nd opportunities in fiscal policy. A carbon tax levied at a rate of pound 2 00 per tonne could raise revenues equivalent to about 11 per cent of total UK tax receipts, allowing income tax to be halved, or corporation tax aboli shed Inappropriate use of the revenues, or their unnecessary dissipation, c an greatly add to the costs of environmental policy. But, environmental tax es are unlikely reduce the overall excess burden from taxation below the cu rrent level, and the case for ecotaxes must thus primarily be made in terms of their environmental benefits.