Although the need for environmentally related taxes, charges, and tradable permits is widely recognized, in practice command-and-control types of regulations still dominate the environmental landscape. Moreover, green taxes and other environmentally related levies on motor fuel, electricity, packaging, and landfill waste still exhibit a large number of shortcomings. In most cases, the externality-tax linkage is weak, the rates are low, the bases are riddled with exemptions (for example, for coal, which is often subsidized, and electricity), taxes overlap with regulations, and international coordination, required to contain border-crossing externalities, is not forthcoming. Two main fears seem to stall further progress — the perceived regressivity of environmental levies and their negative impact on sectoral competitiveness. However, the regressivity issue can be tackled by ex-post compensation measures and the loss of competitiveness by ex-ante exemptions and reduced rates. Green tax reform is unlikely to make much progress unless some minimum level playing field is agreed upon between OECD countries.
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