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Despite the essential role of environmental taxation for the transition to a greener economy the share of environmental taxes in total revenues from taxes and social contributions in the EU decreased from 6% in 2010 to 5.4% in 2021. The share may increase by 2030 as a result of the plans to increase the ambition and scope of EU emissions trading. This is relatively uncertain because increased revenues from emission trading schemes may be offset by decreased revenues from energy taxation as future greenhouse gas emissions reductions erode the tax base.
Environmental taxes encourage producers and consumers to pollute less and use resources more sustainably. Making polluters pay is at the core of EU environmental policy , and both the Eighth Environment Action Programme and the European Green Deal acknowledge that environmental taxation is crucial for driving the transition to a greener, more sustainable economy.
Despite this, the share of total tax revenue accounted for by environmental taxes fell from 6% in 2010 to 5.4% in 2021. This lack of progress is mainly attributed to the social and economic difficulties that countries can face in maintaining or increasing environmental taxes, which can have the effect of increasing the cost of necessary goods such as food and energy. The marked decline in environmental tax revenue in 2020 can be largely attributed to restrictions (e.g. on transport) related to the COVID-19 pandemic. Environmental tax revenue had increased again in 2021, by 5.9% compared with 2020, but was still lower than before the pandemic.
In 2021, energy and transport taxes combined accounted for 96% of total environmental tax revenue, with energy taxes, including revenue from the EU Emissions Trading System (EU ETS), accounting for 78% and transport taxes for 18% .
Whether or not environmental taxes will account for a larger share of total tax revenue by 2030 is uncertain. On the one hand, changes as part of the Fit for 55 policy package are expected to increase EU ETS revenue, as sectors already covered by the EU ETS will have more ambitious greenhouse gas (GHG) emission reduction targets and new sectors (road transport, heating of buildings, fuel use in certain industrial sectors) will be included in a new EU ETS . On the other hand, this revenue is expected to reach a peak and then decline as more stringent GHG emission reduction requirements are introduced and drive down emissions. Moreover, technological breakthroughs in the energy and transport sectors are expected to further drive the EU’s transition to a low-carbon, green economy. The resulting erosion of the environmental tax base will make it difficult to increase environmental tax revenue during the 2030s.
Research and analysis suggest that environmental taxation schemes are more likely to succeed, with minimal negative economic and social impacts, if they are carefully planned and based on widespread consultation . This should be borne in mind when devising environmental taxation strategies for the coming years.
Trends in the share of total tax revenue accounted for by environmental taxes vary across the Member States. Between 2010 and 2021, this share increased in only five Member States (Greece, Croatia, Italy, Belgium and France). The largest increase, from 7.7% to 9.5%, occurred in Greece, although this level was still lower than its share in the mid-1990s, which was more than 10%. The largest fall between 2010 and 2021 — of more than 2 percentage points — occurred in Ireland, followed by Denmark, Luxembourg, Malta, Slovenia, Cyprus and Estonia.