Abstract
Environmental taxation is an important tool in the hands of member states to combat against climate change and promote environmental sustainability. This chapter describes in detail the taxes that are part of the Portuguese tax system and that have the social function of protecting the environment. For this purpose, a background of the Portuguese Green Tax Reform is provided and each of the environmental taxes considered to be the main burdens of the Portuguese tax system are explained. This study aims to contribute to providing academics and practitioners with more information on environmental taxation and to motivate regulators to develop more articulated green taxation strategies in the future.
TopIntroduction
Human beings are largely responsible for climate change and global warming. To control carbon dioxide emissions, consumers should be discouraged from excessive consumption of products, especially those that have negative effects on the environment. Action on climate change should be preventive and severe, because it is better to make a mistake that leads to a small climate change, than to deal with the consequences of not doing anything about the problem (Hassler et al., 2021).
It is therefore the responsibility of the State, not individuals or private companies, to take the lead in the fight against climate change. This chapter discusses some of the fiscal measures adopted by the Portuguese State to protect the environment, highlighting the social function of taxes. To this end, we will summarize the Portuguese path towards a more sustainable future and explain the implementation of the Green Tax Reform in Portugal, taking into account that it is a member of the European Union (EU) and has to follow the guidelines established by it.
Portugal ranks very high among the more ambitious countries when it comes to the topic of renewable energy targets, even though environment-related taxes reached over 5 billion euros of the Nacional Gross Domestic Product (GDP) in 2021. Environmental taxes represent 6.6 percent of the total revenue that comes from taxes and social contributions, and about 2.3 percent of the national GDP, according to the Portuguese National Statistics Institute (INE, 2022).
When it comes to climate change, around 33 percent of Europeans believe that their national state is not doing enough to tackle on this battle, according to the 2021 report released by the European Commission (2021). Portugal is no different, ranking second among the most dissatisfied countries, with 85 percent of the respondents believing that their national state is not doing enough to achieve a more sustainable future. In addition, the Portuguese State admits that the targets set by the European Commission are not ambitious enough (European Commission, 2021; INE, 2022).
The effects of fiscal measures, whether they have explicit environmental objectives, depends on whether they encourage or discourage certain behaviors (Avison, 2022). Empirical evidence showed that the impact of the environmental taxes on the environment and on consumer choices are difficult to measure.
Esen et al. (2021) examined the impact of environmental taxes on environmental performance for fifteen EU countries over the period 1995 to 2016. The authors analyzed the overall ecological balance and its main components. The results of the study showed that revenue from environmental taxes as a share of GDP significantly reduces ecological deficits after a certain threshold has been exceeded. Thus, well-designed environmental taxes at an optimal level have the potential to reduce environmental problems if they are not accompanied by policies such as tax exemptions, refunds or tax allowances that limit their impact. Aydin and Esen (2018) studied the impact of environmental taxes on carbon dioxide emissions for the EU member states. The research, which was conducted from 1995 to 2013, reveals an asymmetric relationship between environmental taxes and carbon dioxide emissions. The result shows that after a certain level, the effect of environmental taxes on carbon dioxide emissions changes from significantly positive to significantly negative. To investigate the link between green growth and carbon neutrality targets, Chien et al. (2021) examined the role of environmental taxes and green energy in the United States of America between 1970 and 2015. The findings showed a significant and negative impact of green growth and environmental taxes in determining the carbon dioxide (CO2) emissions. It was also found that green growth, environmental taxes, and renewable energy played an important role in reducing pollution.
Key Terms in this Chapter
Environmental Sustainability: The ability to maintain the ecological balance of the planet by conserving natural resources and protecting global ecosystems that support the health and well-being of present and future generations.
Green Tax Reform: The main objective is to contribute to a healthier environment and a more sustainable world, and this reform aims to achieve this with the support of other policies, that are directly or indirectly related to the environment. The assumptions for the Green Tax Reform are to achieve the triple dividend: 1) to achieve fiscal neutrality, which means that the net increase in the revenue that derives from the new environmental taxes created by the law must be used to reduce the revenue that derives from other types of taxes, particularly income taxes; 2) to protect the environment and dependence on foreign energy, to promote growth and empowerment; and 3) to contribute to fiscal responsibility and reduce external imbalances.
Polluter Pays Principle: The polluter pays principle states that those responsible for polluting the environment should bear the costs of implementing the pollution prevention and the control measures put in place by public authorities to ensure an acceptable state of the environment.
Green Tax Benefits: A set of situations, defined by the legislator, that allow taxpayers to benefit from certain environmentally friendly goods in their activity, by paying no tax or a lower amount of tax.
Social Function of Taxes: The social function of taxes is extended to the environmental area, so that the tax can also be used as an indirect form of environmental protection, to avoid economic, social, and environmental risks, and to safeguard resources for future generations.
Hybrid Electric-Petroleum Vehicles: Vehicles powered by an internal combustion engine and one or more electric motors, which use energy stored in batteries.
Autonomous Taxation: This taxation is levied on certain costs borne by companies which, by their very nature, may have a more ambiguous link with the realization of taxable income or the maintenance of the source of production. Autonomous taxation is intended to discourage certain types of excessive expenditure and their negative impact on the generation of tax income.
Environmental Taxation (or Green Taxation): Consists of using taxes and fees (negative incentives), or through tax benefits (positive incentives), to encourage taxpayers to adopt more environmentally friendly production and consumption patterns. Environmental or green taxes include taxes on energy, transport, pollution, and resources. It is seen by the State as an opportunity to adapt the tax system to a more resource-efficient economy, making it innovative, low-carbon, and more sustainable. It can take the form of tax incentives.