Environmental taxes

What is an environmental tax or levy?

A tax is a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services and transactions.

To levy can mean to impose a tax on an individual or a business or to impose a penalty.

HM Treasury has defined an environmental tax as one which meets the following three principles:

1. •

   the tax is explicitly linked to the government's environmental objectives

2. •

   the primary objective of the tax is to encourage environmentally positive behaviour change, and

3. •

   the tax is structured in relation to environmental objectives—for example, the more polluting the behaviour, the greater the tax levied

Fuel duty, vehicle excise duty and air passenger duty are not classed as environmental taxes.

Types of environmental tax