Environmental taxation has the potential to play a key role in delivering on the European Green Deal objectives and incentivising the shift towards a sustainable, decarbonised economy.

The European Commission has explicitly highlighted that well-designed tax reforms can “play a direct role by sending the right price signals and providing the right incentives for sustainable behaviour by producers, users and consumers”. However, in 2020 environmental taxes constituted less than 6% of all Member States’ revenue from taxes and social contributions. Of the total of environmental taxes, more than three quarters were taxes on energy, while less than 4% were taxes on pollution or the use of resources.

Such limited application of taxation to address resource consumption appears to be a missed opportunity given that approximately half of global emissions are associated with production and consumption. Material production and consumption alone accounts for 23% of total global emissions while food production and consumption accounts for a further 26%.

Using taxation to reduce material consumption and the related embodied emissions through promoting activities consistent with a circular economy should thus be a priority for effective climate action. The European Environmental Bureau commissioned this study to raise awareness among practitioners and policymakers of the nascent concept of ‘circular taxation’ and of its potential to incentivise a shift towards a circular economy.

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