What are Green Taxes, and How Can They Keep Businesses Accountable?

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It’s no secret that our planet is heading towards a warmer future. 

Climate experts predict that over the next few decades, rising average global temperatures will cause more wildfires, floods, and droughts around the world. One of the best ways to prevent these future scenarios, according to the experts, is to tax the greenhouse gases emitted by the global business community.

These so-called green taxes would put a price on all environmentally damaging activities done in the pursuit of profit. Oil and gas companies would have to pay for the resources they extract, and manufacturers would be liable for the carbon dioxide emitted from their factories and vehicles. 

The hope is that by making the cost of environmentally damaging activities transparent, governments and consumers can hold businesses accountable for the pollution they create.

In this article, we explore what green taxes are and how they can keep businesses accountable.

Green taxes 

You’ve probably heard governments and regulators call for the widespread implementation of green taxes. 

Often hailed as one of the most important tools in the fight against climate change, green taxes have the potential to help us reduce greenhouse gas emissions and keep average global temperatures below the 1.5°C limit.

What are they? 

Green taxes are essentially taxes that put a price on behavior that’s harmful to the planet’s health. This includes mostly corporate activities like fossil fuel extraction, logging, and the release of carbon dioxide and methane into the atmosphere.

Climate experts and policymakers developed the concept of green taxation after realizing that the transportation, manufacturing, and energy generation sectors were, and are still, responsible for more than 70% of environmental pollution.

To put it simply, green taxes make polluters pay for the environmental damage they cause. 

Climate agencies hope that green taxes will encourage corporations to consider the environmental impacts of their current and future operations, and put in place climate mitigation measures that help offset their carbon emissions.

Who can they be applied to? 

Green taxes are generally applied to corporations. They are the organizations that profit most from the extraction of natural resources and the products created from them. 

Very few other organizations have the same capability as corporations to operate international supply chains and manufacturing networks. By applying green taxes to corporations, regulators hope that they will become more liable for any environmental and human rights violations they commit.

How do green taxes help the economy and the environment? 

If green taxes can be successfully applied to corporations all over the world, they could help create a sustainable, decarbonized economy. 

The heavy tax on fossil fuel-generated energy could encourage firms to seek cheaper, renewable energy sources and adopt energy-energy efficient technology. It might also motivate corporations to create long-lasting products from recycled materials.

Some climate experts are optimistic that a rise in carbon taxes could reduce the need for capital, labor, and consumer taxes, effectively subsidizing the income from these other internal revenue streams. The achievement of this system could be a win-win for the global economy. Green taxes would encourage corporations to invest in low-carbon assets and give governments more funds to invest in economic and social programs.

Importance of accountability

The debate around green taxes touches significantly on the topic of accountability. For the global economy to transition to a low-carbon future, governments, corporations, and regular citizens alike have to be accountable for their environmental impacts.

Why green taxes are important for the future of the corporate sector

It’s been seen time and time again that corporations will often do whatever they can to rid themselves of environmental and social responsibility. From oil spills to widespread deforestation, corporations tend to find ways to absolve themselves of any liability to pay for damages and violations.

The introduction of green taxes aims to change that culture. Policymakers are trying to package green taxes as a form of social responsibility that corporations must abide by if they want to continue doing business decades into the future. Industrial activity has already caused an increase in global average temperatures. Left unchecked, it could cause severe climate change that disrupts supply chains and damages infrastructure.

Legal accountability 

To this day, very few companies have engaged in meaningful change to reduce their carbon emissions. Many continue to resist the societal and economic transformations necessary to adapt to climate change. One reason for this is that corporations are not usually held accountable for their environmental actions; governments sometimes overlook environmental violations in the name of economic development.

It’s more likely for corporations to be held liable for financial abuses than environmental ones. That’s historically been the case to some extent with the events of the 2008 Great Recession and all previous financial scandals. But if we are to successfully reduce climate change, corporate accountability has to include both financial and environmental responsibility.

Governments and international regulators play a key role in enforcing the legal mechanisms to penalize environmental violations. Sustainable development is central to a nation’s future. Continued environmental degradation will only serve to erode it.

Other types of accountability 

It’s not only governments that have the power to hold corporations accountable – company shareholders also have a stake in deciding their companies’ policies.

They have the ability to do what’s known as impact investing, which is a form of investing that focuses on creating positive, measurable social and environmental impact in addition to financial gain. It’s considered to be one of the most underutilized tools in the fight for corporate accountability. 

In impact investing, shareholders press company leaders to adopt long-term policies on sustainability and climate mitigation. It’s a movement that encourages the 137 million Americans who own stock to stand up for their environmental beliefs and aggressively demand change in the companies they own.

Alongside the growth of the impact investing movement is the call for the creation of international sustainability metrics. These metrics will measure the corporation’s energy consumption, the amount of carbon it emitted, and its impact on natural ecosystems.  To be enforced like financial metrics, these sustainability metrics would be overseen by national regulators and audited by private accounting firms.

Types of green taxes

There are several green taxes currently being implemented at various levels in the global economy. 

Three taxes that are gaining traction are severance taxes, Pigouvian taxes, and carbon taxes. Each targets a different area of corporate climate pollution. 

Severance taxes

Severance taxes are taxes levied on the extraction of nonrenewable natural resources. They’re often incurred when oil, natural gas, coal, uranium, and timber are removed from private land.

The revenue from these taxes is considered to be very volatile because it fluctuates with the price and production of these natural resources. In America, state and local governments collect about $10 billion in revenue from severance taxes each year. Resource-rich states such as North Dakota, Wyoming, and Alaska earn a large percentage of their resource revenue from these taxes.

Severance taxes may also be collected as deposits for possible cleanup costs after a corporation abandons its resource extraction projects. They help state and local governments control the amount of natural resources corporations can use within their jurisdictions.

Pigouvian tax

Governments place Pigovian taxes on any activity that creates socially harmful externalities. Taxes on tobacco, sugar, and noise pollution are Pigouvian taxes you might be familiar with – they negatively impact the health of those exposed to these materials and activities.

Within the environmental movement, Pigouvian taxes are usually used against private businesses that damage the environment and reduce the quality of life for animals and humans living nearby. 

They may be levied against logging companies whose 18-wheeler trucks create dangerous potholes on local roads. Or they might be applied to fracking companies that overuse and pollute freshwater sources. Pigouvian taxes redistribute the cost of these socially harmful activities back to the organizations that produce them.

Carbon tax

Carbon taxes are probably the best-known type of green tax. They’re applied to all users of fossil fuels, from big manufacturers to drivers of traditional vehicles, to motivate them to switch to cleaner sources of energy.

They may also be used as tools to penalize those who discharge greenhouse gases above the carbon limit that has been set for them. 

Some U.S.-based climate experts are proposing a carbon tax of $25 per metric ton to reduce U.S. carbon emissions by more than 40% over the next decade. Several fossil fuel companies, including ExxonMobil and British Petroleum, have expressed their support for this tax. If passed, this policy would make America the latest in a long line of mostly industrialized countries to have a carbon tax system. 

Climate experts estimate that companies would pay more than $2 trillion for their carbon emissions in the first ten years of this program. The government plans to use that revenue to expand the adoption of renewable sources of energy across the country.

The Aspiration Zero can help you shop responsibly

While we wait for a carbon tax to be passed, you could reduce your carbon footprint with an environmentally friendly credit card. 

The Aspiration Zero is a carbon credit card issued by Aspiration, a sustainable neobank, that tracks the carbon emissions of your purchases and plants a carbon offset tree each time you make a purchase.

When you’ve planted 60 or more trees with your spending in a month, Aspiration considers you to have reached your monthly carbon neutral goal. As a reward, Aspiration gives you 1% cashback on all purchases made in that month.

Try the Aspiration Zero today and start fighting climate change with your money.

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