Climate Change and Taxation Law

Celeste Black and Elen Seymour

While the primary purpose of taxation is to raise revenue, governments have long understood that tax design can influence behaviour — either by discouraging certain activities through taxation or encouraging others through concessions such as deductions or discounts. As a result, taxation can play a significant role in a state’s climate policy mix.

This chapter first examines the role of carbon taxes, widely regarded as one of the most effective climate policy tools, and compares them with emissions trading schemes, which impose a price on greenhouse gas (‘GHG’) emissions in a less direct way. We also explore how existing taxes can be redesigned to support climate goals.

Building on the traditional principles used to evaluate tax systems, we propose an additional criterion: climate impact. As a case study, we focus on three Australian taxes that affect emissions from road transport — a major source of the country’s GHG emissions. These are the fuel tax, the fringe benefits tax on car benefits, and the luxury car tax.