Environmental Fees

With the tremendous budget strains on state governments nationally, lawmakers are looking for ways to raise funds and improve tax fairness. Under these circumstances, lawmakers interested in fiscal reform can improve their state’s environment through its fiscal policy using an idea called environmental fees or “environmental tax shifting.”

Environmental fees are very simple – by raising taxes on pollution and waste we discourage those harmful practices while making cleaner and safer alternatives more competitive. The intent is to use basic economic principles to get the market to tell the ecological truth. If done properly, environmental fees can help make markets work better by incorporating more of the indirect costs of goods and services such as pollution clean-up or state healthcare costs into the prices of products or services. The change in prices can change consumer and producer behaviors accordingly.

By using these simple economic principles, you can improve environmental protection and create new economic opportunities. Far from hurting economies, environmental fees are just one strategy that may help us achieve a safer and more sustainable economy that is not detrimental to our environment and health.

Benefits of Environmental Fees

The most successful environmental fees act to end taxpayer subsidies of environmentally harmful behaviors by shifting the costs back to polluters. Often it is taxpayers who foot the bill for government monitoring and services that relate to waste and pollution. Legislators can improve their budgets and assist market forces to find cheaper alternatives by increasing the fees that polluters pay towards their own oversight and clean-up.

Key benefits of this approach include freeing up revenue for more critical programs or tax reductions, reducing government subsidies for pollution (see SERC’s Green Scissors State Activity page), and allowing the market to more clearly reflect the true costs of pollution. Imposing environmental fees on polluters increases opportunities for environmentally safer companies to become competitive and, thus, creates the potential for more jobs and revenues.

Any arguments which support government subsidies for polluters as a type of “economic development” tool ignore the overall costs to taxpayers of higher taxes, declining health, and environmental clean-ups. Ending pollution subsidies is a good way to combat all of these effects in a way that makes good fiscal sense.

Often the environmental benefits of a fee are derived more from the use the money is put to than the effect on a taxed item or market. Fees can be used to fund programs that pay for clean-ups, research, testing, education, project development, or demonstration projects.

These applications benefit the state by providing needed funds to quickly deal with potentially expensive accidents and long term clean-ups. In addition, the state can afford to develop and promote solutions and environmentally healthier alternatives to current harmful practices.