|Definition||A tax on products or services that damage the environment that is designed to change consumption behavior and spark green innovation.|
|Related Concepts||Regressive TaxCircular EconomySustainabilityEconomics|
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What is an Ecotax?
John Spacey, updated on June 27, 2016
An ecotax is a tax designed to increase the cost of economic activity that damages the environment. It is typically levied against products or services that create waste that is known to have damaging effects on the environment. Avoiding taxes tends to be a powerful motivator that can drive innovation and consumption changes that benefit the environment. Ecotaxes are typically regressive meaning that they impact people who have a lower income more than those with a high income. For example, a tax on fossil fuels may impact low income families as they may spend a meaningful percentage of their income on energy. A wealthy individual may spend a very small percentage of their income on energy. Ecotaxes can be implemented as a tax shift as opposed to a tax increase. For example, an ecotax can be accompanied with reduced income taxes, particularly at low income levels to account for the regressive nature of the tax.
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