SUSTAINABILITY & TAX POLICY: FIXING A PATCHWORK OF
POLICIES WITH A COHERENT FEDERAL FRAMEWORK
Mystica M. Alexander, Adam J. Sulkowski, William P. Wiggins*
While the private sector undoubtedly has a vital role to play in creating
a sustainable economy, it can best do so with the aid of a clear, coherent
federal tax policy that will consistently encourage and reward sustainable
innovations. All stakeholders, ranging from advocates for ecosystems to
members of the investment and business community, prefer predictability
and coherence in regulatory environments. The alternatives—including
patchworks of contradictory incentives (among states, between state and
federal policy, and among federal agencies), ad hoc or short-term
policymaking, and crisis-to-crisis inaction followed by retroactive
disaster response—are counterproductive, illogical, and popular with no
one. This article offers a vision for a federal framework that is both
comprehensive and coherent and also efficient and expedient.
I. INTRODUCTION .......................................................................... 3
II. THE PATCHWORK OF STATE SUSTAINABILITY EFFORTS ARE
INADEQUATE TO BRING ABOUT MEANINGFUL LONG-TERM
CHANGE ................................................................................ 5
A. State and Local Sustainability Incentives ........................ 7
1. Green Building Incentives .......................................... 8
Table 1: State & Local Green Building Incentives .. 8
2. Recycling Efforts ...................................................... 10
Table 2: State and Local Recycling Efforts ............ 11
3. Renewable Energy .................................................... 13
Table 3: State & Local Renewable Energy
Incentives .......................................................... 13
B. State and Local Tax Incentives to Encourage Sustainable
Behavior ....................................................................... 15
1. The General Landscape of State & Local Tax
Measures ................................................................ 15
2. Examples of State & Local Tax Measures ............... 15
a. Renewable Energy .............................................. 16
* Mystica Alexander is an Assistant Professor at Bentley University. Adam Sulkowski is an
Associate Professor at Babson College. William Wiggins is a Professor at Bentley University. The
authors are grateful for the assistance of Caitlain Lewis, Nicole Marquez, and Michael Alexander-
2 Virginia Environmental Law Journal [Vol. 35:1
b. Green Building ................................................... 16
c. Transportation .................................................... 17
III. FEDERAL TAX INCENTIVES PLAY AN IMPORTANT ROLE IN
SUSTAINABILITY EFFORTS .................................................. 17
A. Residential Green Tax Incentives .................................. 20
1. Residential Energy Conservation Subsidy
Exclusion ................................................................ 21
2. Nonbusiness Energy Property Tax Credit ................ 22
3. Residential Energy Efficient Property Tax Credit ... 22
B. Commercial/Industrial Green Tax Incentives ............... 23
1. Business Energy Investment Tax Credit ................... 24
2. Renewable Electricity Production Tax Credit ......... 24
C. Green Buildings Tax Incentives ..................................... 26
1. New Energy Efficient Home Credit .......................... 27
2. Energy Efficient Commercial Buildings Tax
Deduction ............................................................... 27
D. Green Vehicle Tax Incentives ........................................ 28
E. The Problem with Subsidies ........................................... 29
IV. USING GREEN TAXES TO REGULATE BEHAVIOR ................... 29
A. Existing Green Taxes/Penalties in the United States .... 30
1. The Gas Guzzler Tax ................................................ 31
2. Ozone Depleting Substances Tax ............................. 31
B. An Argument for New Green Taxes in the United
States ............................................................................ 32
V. THE UNITED STATES CAN LEARN FROM THE EFFORTS OF THE
INTERNATIONAL COMMUNITY ............................................. 34
A. France ............................................................................ 35
B. Japan .............................................................................. 36
C. United Kingdom ............................................................. 37
D. China ............................................................................. 38
VI. A PROPOSAL FOR MOVING FORWARD: FORTIFYING THE USE
OF THE TAX CODE ............................................................... 40
A. Add New Green Taxes to the Internal Revenue Code .... 41
1. Increased and Targeted Food Taxes ........................ 43
a. The Meat Industry .............................................. 44
b. Products Made Possible by Water Reallocation 44
2. Building Taxes .......................................................... 45
3. Pollution Taxes ......................................................... 47
4. Carbon Tax ............................................................... 48
5. Increase the Gasoline Tax ........................................ 49
6. Shouldn’t We Have a Federal “Rainy Day Fund?” 50
B. Eliminate Harmful Subsidies ......................................... 51
2016] Sustainability & Tax Policy 3
1. Eliminate Corn Subsidies—The Farm Bill ............... 51
2. Mining on Public Lands ........................................... 53
3. Fossil Fuel Tax Breaks ............................................. 54
4. Deductibility of Environmental Fines ...................... 55
5. Subsidies that Appear to be Green but Are Not ....... 55
C. Interagency Cooperation ............................................... 56
VII. CONCLUSION ....................................................................... 57
There are limits to the planet’s available resources. Promoting
sustainability means working to ensure that our society, economy, and
businesses have the necessary means to continue for future generations.
Despite the broad necessity of sustainability efforts, recent legislative
progress in this regard has primarily been relegated to the state and local
arena. The patchwork of state efforts has met with varying levels of
success and falls short of meeting the need for a national commitment to
sustain the vitality of the environment and natural resources for
generations to come. Federal congressional action has been primarily
limited to a handful of tax incentives purported to encourage sustainable
behavior. Because of the lack of congressional will to institute more
robust sustainability incentives, the Obama administration has had to
utilize regulatory authority based on extant legislation, such as boosting
energy efficiency and emissions standards, to accomplish substantive
progress.1 While the private sector undoubtedly has a vital role to play in
creating a sustainable economy, it can best do so with the aid of a clear,
coherent federal tax policy that will consistently encourage and reward
Governments around the world, including the Unites States, have
green tax systems.2 Although particular aspects of green tax systems vary,
a common element is the use of tax incentives and taxes/penalties3 as
1 See, e.g., Alan Neuhauser, Obama’s Climate Authority Came Straight From Congress, U.S.
NEWS AND WORLD REP., Apr. 10, 2015, http://www.usnews.com/news/articles/
2015/04/10/obama-not-sidestepping-congress-on-climate-action-experts-say; Jehmal Terrence
Hudson, EPA’s Clean Power Plan Final Rule: What’s Next?, INFRASTRUCTURE, Winter 2016,
2 For example, in its 2013 Green Tax Index, KPMG identified 21 emerging and developed
countries that have notable green tax systems. See KPMG INT’L COOP., THE KPMG GREEN TAX
INDEX 2013 1 (2013).
3 The terms “green taxes” and “green penalties” are used interchangeably in this article, based
on the terminology adopted in KPMG 2013 Green Tax Index. For example, the KPMG Index
classifies the Gas Guzzler Tax in the United States as a green tax penalty. See id. at 27.
4 Virginia Environmental Law Journal [Vol. 35:1
tools to achieve national environmental and sustainability policy goals.4
Organizing and classifying tax incentives and penalties as part of a green
tax system5 is a relatively new phenomenon.6 As policy tools, green tax
incentives and green taxes/penalties aim to influence the behavior of
consumers and corporations to encourage them to act in a more
sustainable and environmentally responsible manner.7 Recognizing that
corporations play a major role in contributing to environmental and
sustainability problems and solutions, a green tax system encourages, and
in some cases forces, corporations to participate in the process of
improving energy efficiency, reducing greenhouse gas emissions, and
contributing broadly to the development of sustainability policies and
A coherent federal tax policy will provide the necessary government
support to make sustainable practices the rule rather than the exception.
Working alone, industry cannot accomplish the task of securing the
continuing vitality of our planet and its resources. Indeed, “[t]he issues
identified here cannot be addressed by the private sector and the free
market alone; they require government action . . . . The U.S. government
will need to assume global leadership of the transition to a sustainable
economy.”9 It is time to transition from simply focusing on environmental
4 For example, in preparing its 2013 Green Tax Index, KPMG determined that, in total, over
200 green tax incentives and penalties exist in the combined tax codes of the twenty-one countries
it analyzed. Of the 200 incentives, thirty have been incorporated into the various tax codes since
2011. See id. at 1.
5 For purposes of this article, the terms “green taxation,” “green tax incentives,” and “green tax
penalties” fall under the general concept of a green tax system.
6 Kali Waller, Environmental Tax Incentives: What the United States Can Learn from the
Netherlands and Japan, 8 GOLDEN GATE U. ENVTL. L.J. 155, 159 (2015). For a discussion of some
of the early thinking regarding the use of tax systems to influence environmental decisions, see
Janet E. Milne, Environmental Taxation in the United States: The Long View, 15 LEWIS & CLARK
L. REV. 417, 418–19 (2011) (reviewing the work of A.C. Pigou in the early part of the twentieth
century where Pigou observed that “[it is] possible for the State, if it so chooses, to remove the
divergence in any field [between trade and social net product] by ‘extraordinary encouragements’
or ‘extraordinary restraints’ upon investments in that field.” As Professor Milne noted based on
Pigou’s theory, “Taxes that increase the cost of environmentally damaging activities can serve as
‘extraordinary restraints’ that bring the external environmental costs back into the private sector’s
calculations. They can also reflect the polluter-pays principle and the concept of least-cost
abatement that evolved later in the 20th century. On the other side of Pigou’s coin, environmental
tax expenditures can serve as ‘extraordinary encouragements’ for environmentally positive
activities that otherwise might not occur, allowing society as the beneficiary to assume some of the
7 See KPMG INT’L COOP., supra note 2, at 1.
9 Steven Cohen, The Role of Government in the Transition to a Sustainable Economy,
HUFFINGTON POST, Apr. 12, 2014, http://www.huffingtonpost.com/steven-cohen/the-role-of-
2016] Sustainability & Tax Policy 5
protection as a means of minimizing harm to devoting time and resources
to promote sustainability.
Part II of this article provides an overview of some of the existing,
albeit inconsistent, state and local tax and non-tax sustainability efforts
that have developed in lieu of cohesive federal action to promote
behavioral changes in sustainability. Parts III and IV focus on federal tax
policies. Part III discusses the role that federal tax incentives have played
and should continue to play in ensuring a sustainable future. Part IV then
provides a look at an underutilized aspect of the U.S. federal tax system
in this regard—green taxes. Part V provides an overview of how other
countries—France, Japan, China, and the United Kingdom—have
successfully integrated the use of tax penalties into their tax systems to
achieve success in promoting sustainability. Drawing on these
international examples, Part VI proposes the United States be a leader in
sustainability efforts. The country needs a federal tax policy that
eliminates subsidies discouraging to sustainability and employs the use
of federal tax penalties. This article concludes that reform of the federal
tax system could be the single policy arena with the greatest potential to
encourage economic activity by creating wealth and well-being while
maintaining ecological life support systems.
II. THE PATCHWORK OF STATE SUSTAINABILITY EFFORTS ARE
INADEQUATE TO BRING ABOUT MEANINGFUL LONG-TERM CHANGE
It has been more than two decades since the United States has enacted
any new environmental laws at the federal level.10 In the decades since,
advancements have been made in our understanding of the planet, its
resources, and their degradation.11 It is apparent that Earth’s resources are
limited, and responsibility to future generations requires more than
simply preventing environmental harms. The government, in fact,
indicated as much by passing the National Environmental Policy Act of
1969. This Act “committed the United States to sustainability, declaring
it a national policy ‘to create and maintain conditions under which
humans and nature can exist in productive harmony, that permit fulfilling
the social, economic, and other requirements of present and future
generations.’“12 However, in the decades since, legislative actions
11 See, e.g., NAT’L RESEARCH COUNCIL, UNDERSTANDING THE CHANGING PLANET:
STRATEGIC DIRECTIONS FOR GEOGRAPHICAL SCIENCES (2010).
12 Learn About Sustainability, U.S. EPA, http://www.epa.gov/sustainability/learn-about-
sustainability (last visited Mar. 27, 2016).
6 Virginia Environmental Law Journal [Vol. 35:1
advancing sustainability efforts have been ineffective.13 Nonetheless,
“rules must prevent damage to the environment, but must also insure that
energy efficiency, recycling and water efficiency are integrated into our
structures, institutions, and daily routines.”14
Since its inception in 1970, the Environmental Protection Agency
(“EPA”) has engaged in research and monitoring as well as standard-
setting and enforcement activities to ensure environmental protection.15
Although one of the tools at the EPA’s disposal is adopting regulations,
“any further legislative changes to the EPA’s regulatory authority at this
time would be controversial.”16 In fact, even the EPA’s regulatory
rulemaking authority is under attack as indicated by the EPA’s recent
attempts to implement the Clean Power Plan (“CPP”). During the Obama
administration, the EPA issued the CPP, a set of greenhouse emission
guidelines for existing power plants and states under the Clean Air Act,
that would, in part, reduce plant emissions by 2030 to 32 percent below
the 2005 levels.17 The EPA considers the CPP to be “the most ambitious
climate-related undertaking in the agency’s history . . . that . . . would
lead to the complete restructuring of the energy sector.”18 In response to
the release of the CPP, twenty-four states and an energy company filed a
lawsuit in the Court of Appeals for the D.C. Circuit alleging that the EPA
exceeded its authority in issuing such onerous and extensive regulations.19
While awaiting a ruling in the case from the D.C. Circuit, five stay
applications were filed with the U.S. Supreme Court, requesting the Court
halt implementation of the Clean Power Plan until resolution of the
pending case.20 On February 9, 2016, the Supreme Court granted the stay,
preventing the EPA from enforcing CPP regulations until the D.C. Circuit
Court of Appeals decides the case on the merits.21
13 Cohen, supra note 9. For an explanation of why we do not have an effective national
renewable energy policy see, E. Donald Elliott, Why the United States Does Not Have a Renewable
Energy Policy, 43 ENVTL. L. REP. 10095 (2013).
14 Cohen, supra note 9.
15 EPA History, U.S. EPA, http://www.epa.gov/aboutepa/epa-history (last visited Mar. 27,
16 George B. Wyeth & Beth Termini, Regulating for Sustainability, 45 ENVTL. L. 663, 671–72
17 Jonathan H. Adler, Placing the Clean Power Plan in Context, WASH. POST, Feb. 20, 2015,
18 Jonathan H. Adler, Supreme Court Puts the Brakes on the EPA’s Clean Power Plan, WASH.
POST, Feb. 9, 2016, https://www.washingtonpost.com/news/volokh-conspiracy/wp/2016/02/09/
19 Cole Mellino, 24 States Sue Obama Over Clean Power Plan, ECOWATCH (Oct. 24, 2015,
9:18 AM), http://ecowatch.com/2015/10/24/clean-power-plan-lawsuits/.
20 Adler, supra note 18.
21 Adler, supra note 17.
2016] Sustainability & Tax Policy 7
Apart from actions taken by the EPA, at the federal level President
Obama has taken various actions to promote sustainability and to address
climate change. For example, in 2013, President Obama announced the
Climate Action Plan, a comprehensive strategy for addressing climate
change.22 One measure taken to help meet the goals set forth in the
Climate Action Plan is Executive Order 13693 (“Planning for Federal
Sustainability in the Next Decade”) signed by President Obama in 2015
to ensure that the federal government serves as a leader in sustainability
and greenhouse gas emission reductions.23 Per this Order, beginning in
2015 and ending in 2025, designated federal agencies, acting under the
direction of a Chief Sustainability Officer, will develop and implement
annual updates to integrated Sustainability Performance Plans.24
While actions at the executive level have been forthcoming, the lack
of cohesive and comprehensive federal legislative efforts has limited the
potential impact of such efforts. As a result, state and local governments
have been taking up the mantle by seeking to address sustainability
concerns independently. For example, in the area of climate change, “a
growing number of cities—including many small suburban cities—are
playing crucial roles in multi-level efforts to address climate change . . .
However, the piecemeal nature of these urban efforts to address climate
change constrains their overall impact.”25 The remainder of this Part will
examine various state and local incentives in order to illustrate the wide
range of tax and non-tax incentives that exist to promote sustainability.
A. State and Local Sustainability Incentives
The National Governors Association has stated, “every single U.S.
state has created some kind of financial incentive to promote clean
energy. These incentives range from deductions for renewable energy
production and energy conservation, to deductions for wood-burning
heating systems, biomass, geothermal, and bio heating and oil use.”26
State grant programs encourage sustainable behavior, with 26 states
utilizing grant programs to promote energy efficient technology, and 24
22 ORI GUTIN & BRENDAN INGARGIOLA, ENVTL. & ENERGY STUDY INST., FACT SHEET:
TIMELINE OF PROGRESS MADE IN PRESIDENT OBAMA’S CLIMATE ACTION PLAN 1 (2015).
23 See Exec. Order No. 13,693, 3 C.F.R. 13693 (2015).
24 Sustainability Performance Plans are to be prepared in accordance with guidance provided by
the Chair of the Council of Environmental Quality and are used to assess an agency’s progress in
meeting performance goals. Id. at § 2.
25 Hari M. Osofsky, Suburban Climate Change Efforts: Possibilities for Small and Nimble
Cities Participating in State, Regional, National, and International Networks, 22 CORNELL J. L. &
PUB. POL’Y 395, 398 (2012).
26 STEVEN COHEN, WILLIAM EIMICKE & ALISON MILLER, SUSTAINABILITY POLICY:
HASTENING THE TRANSITION TO A CLEANER ECONOMY 101 (2015).
8 Virginia Environmental Law Journal [Vol. 35:1
states providing grants for renewable energy technology in 2015.27
Rebates are another means of encouraging renewable energy and energy
efficiency by providing reimbursements that offset the cost of such
A 2010 nationally representative survey of 2,176 local governments
conducted by the International City/County Management Association
indicated that the majority of those surveyed considered environment and
energy conservation as either a “high priority” or a “priority.”29 However,
only about one-third of the respondents indicated they had taken steps to
pass resolutions to adopt policy goals that would work toward
sustainability and energy conservation.30 The survey indicated energy
conservation is an issue which the majority of local governments have
taken at least some preliminary actions to address: two-thirds of the
respondents conducted energy audits of their government buildings,
slightly more than half either retrofitted or upgraded office lighting, and
almost half increased their use of fuel efficient vehicles.31
1. Green Building Incentives
One area garnering increasing interest is that of green building
incentives,32 with state and local governments now offering a wide range
of incentives for sustainable buildings. Table 1 highlights a few of those
incentives: Expedited Permitting, Grants (including fee subsidization),
Loans, Technical Assistance, and Permit/Zone Fee Reduction:
Table 1: State & Local Green Building Incentives
Incentive & Description33 Examples
Streamlining the permitting
process for building, plan, and
site saves green developers
time and money. It is essential
that the permitting bodies have
knowledgeable and trained
Hawaii HRS § 46-19.6: Requires county
agencies to establish an expedited permitting
process, at no cost, for private building that
meet or exceed certain recognized green
Chicago Green Permit Program: Reduces
permitting process for developers and owners
who build green.35
Grants: Grants can be used
to offset some of the increased
development costs. This allows
Pennsylvania: In May of 2016, 114 projects
were awarded a total of over $25 million for the
protection of Pennsylvania’s water resources.36
2016] Sustainability & Tax Policy 9
27 U.S. EPA, ENERGY AND ENVIRONMENT GUIDE TO ACTION 3-3 (2015).
28 As of 2015 all states provided consumers with some variation of energy efficiency rebates
and fifteen states offered rebates for purchase of renewable energy technology. Id. at 3–5.
29 Local Governments Slowly Adopting Sustainability Initiatives – Survey, SUSTAINABLE
BUSINESS.COM (Sept. 23, 2010), http://www.sustainablebusiness.com/index.cfm/
32 See, e.g., JERRY YUDELSON, THE GREEN BUILDING REVOLUTION 1 (2008).
33 Local Leaders in Sustainability – State and Local Green Building Incentives, AM. INST.
ARCHITECTS 6, 9, http://www.aia.org/aiaucmp/groups/aia/documents/pdf/aias076936.pdf (last
visited Nov. 20, 2016).
34 HAW. REV. STAT. § 46-19.6 (West 2008).
35 CITY OF CHICAGO, DEPARTMENT OF BUILDINGS GREEN PERMIT PROGRAM BENEFIT TIER
mitRequirements.pdf; Green Permit, CITY OF CHICAGO, https://www.cityofchicago.org/city/en/
depts/bldgs/provdrs/green_permit.html (last visited Nov. 21, 2016).
36 Press Release, Commonwealth of Pennsylvania Dept. of Environmental Protection (May 18,
37 Green Investment Fund Grant, CITY OF PORTLAND, http://www.portlandoregon.gov/bps/
42134 (last visited Nov. 20, 2016).
38 Grant and Loan Programs, PA. DEP’T ENVTL. PROT., http://www.depreportingservices.
state.pa.us/ReportServer/Pages/ReportViewer.aspx?%2fGrants%2fGrantLoans (last visited Nov.
39 Home Energy Efficiency Programs, N.Y. STATE ENERGY RESEARCH & DEVELOPMENT
(last visited Nov. 20, 2016).
jurisdictions to award monetary
amounts to subsidize the cost of
certification or the total cost of
building or to focus on
particular features, such as
Portland, Oregon: Green Investment Fund
was a competitive grant program primarily
used to support early building and site-related
project activities that are part of a
comprehensive green building project for the
period 2005 through 2009.37
Loans: Loan funds can be
set up to help with green
improvement costs or to
provide reduced interest rate
loans to developers that meet
Pennsylvania: The Small Business
Pollution Prevention Assistance Account
provides low interest loans to small business
investing in projects that reduce pollution,
energy use, or waste.38
New York State Energy Research
Development Authority Program: Provides
low interest loans for energy efficiency
measures and building materials that meet
NY green building standards.39
10 Virginia Environmental Law Journal [Vol. 35:1
2. Recycling Efforts
States promote recycling efforts to varying degrees. Table 2 provides
an overview of various state and local recycling measures:
40 MINN. STAT. § 216B.241 Subd.1b (2012).
41 Solar Santa Monica, CITY OF SANTA MONICA OFFICE OF SUSTAINABILITY & ENV’T,
http://www.smgov.net/Departments/OSE/categories/solar.aspx (last visited Nov. 20, 2016).
42 See CITY OF ASHVILLE, FEE REBATE PROGRAM APPLICATION PERMIT, http://
energy.gov/savings/city-asheville-building-permit-fee-rebates (last visited Nov. 20, 2016); DEV.
SERVS. DEPT., CITY OF ASHVILLE, FEE SCHEDULE (2016).
43 City of Riverhead – Energy Conservation Device Permitting Fees, U.S. DEP’T ENERGY,
visited Nov. 20, 2016).
Government provides quality
service to the development and
design community by training
planners, building inspectors,
and other local officials.
Minnesota: Law requires utilities to create
conservation improvement programs offering a
variety of energy saving options for
Santa Monica, California: Santa Monica
makes solar experts available to provide advice
to residents on energy efficiency and financing
options for solar panels.41
Reduction: In return for
reaching specific levels of
LEED or other green rating
systems, several jurisdictions
waive or partially reimburse the
application, building, or permit
Ashville, North Carolina: Waiver of
building permit fees for certain energy efficient
technologies and certifications.42
Riverhead, New York: Building permit fee
discount for installation of energy conservation
devices on either residential or commercial
2016] Sustainability & Tax Policy 11
Table 2: State and Local Recycling Efforts
Incentive & Description Examples
Efforts: More than half the
states have adopted e-waste
Illinois: Electronic manufacturers and
retailers participate in the management of
discarded and unwanted electronic products.45
Texas: Manufacturers selling new
computer equipment must make a free
recycling program available for consumers.46
West Virginia: Businesses manufacturing
more than 1,000 video display devices per
year must register with the state and also pay
an annual tax that becomes part of the
“Covered Electronic Devices Takeback
Deposits and Refunds on
Beverage Containers: A total
of 11 states are “bottle bill”
states, meaning they have a
container redemption program
that charges a small deposit on
certain containers which is
refunded when those empty
containers are returned.48
Connecticut: Containers for water and
similar products sold in the state must have a
refund value of at least five cents (certain
containers are exempt).49
Maine: All beverages (except for dairy
products and unprocessed cider) must have a
refund value of 15 cents for wine and liquor or
five cents for all other beverages.50
44 E-waste refers to the disposal of electronics and electronic components. It is estimated that
global e-waste may total 65.4 million tons by 2017. See Michelle Heacock et. al., E-Waste and
Harm to Vulnerable Populations: A Growing Global Problem, 124 ENVTL. HEALTH PERSPECTIVES
550, 550 (2016).
45 Map of States With Legislation, ELECTRONICS RECYCLING COORDINATION
CLEARINGHOUSE, http://www.ecycleclearinghouse.org/content.aspx?pageid=10 (last visited Nov.
48 STATE OF CONN. DEP’T OF ENERGY & ENVTL. PROT., THE CONNECTICUT BOTTLE BILL,
http://www.ct.gov/deep/cwp/view.asp?a=2714&q=324838&depNav_GID=1645 (last visited Nov.
49 Bottle Bill FAQ, STATE OF CONNECTICUT DEP’T OF ENERGY & ENVTL. PROT.,
http://www.ct.gov/deep/cwp/view.asp?a=2714&q=324834&deepNav_GID=1645 (last visited
Nov. 20, 2016).
50 Maine, BOTTLE BILL RESOURCE GUIDE, http://www.bottlebill.org/legislation/usa/maine.htm
(last visited Nov. 20, 2016).
12 Virginia Environmental Law Journal [Vol. 35:1
Massachusetts: A five-cent deposit is
charged on sealable containers of beer, malt,
carbonated soft drinks, and mineral water.51
Some states and cities have
enacted mandatory recycling
laws that may fine those who
fail to recycle.
California: Mandatory recycling applies
to (1) commercial businesses and public
entities that generate more than four cubic
yards of solid waste per week and (2) multi-
family complexes with five or more units.52
Seattle, Washington: Households,
apartments, and businesses must recycle basic
items such as paper, cardboard, aluminum,
glass, and plastic or a fine will be imposed.53
Pittsburgh, Pennsylvania: Imposes
mandatory recycling of glass, mixed paper,
plastic, cardboard, and metal on all residents,
businesses, offices, and institutions in the
Despite the wide variety of programs, there seems to be no uniformity
in state and local recycling priorities and efforts. In fact, there are stark
differences in the approaches of various jurisdictions. Consider for
example the single-use plastic bag. California was the first state to pass a
state-wide ban on single-use plastic bags.55 Several local jurisdictions
followed suit. In fact, “between 2015 and 2016 at least seventy-seven
bills have been proposed by twenty-three states regarding the regulation
of plastic bags in retail settings.”56 Every county in Hawaii has a single
use plastic bag ban.57 Contrast this with the situation in Arizona, where in
April 2015, Governor Doug Ducey signed into law legislation that
51 Massachusetts, BOTTLE BILL RESOURCE GUIDE, http://www.bottlebill.org/legislation/
usa/massachusetts.htm (last visited Nov. 20, 2016).
52 A.B. 341, ch. 476 (Cal. 2011).
53 Jennifer Langston, Mandatory Recycling Program Working Well, SEATTLE PI 1 (Mar. 14,
54 Mia Rupani, Pittsburgh Looks to Clean Up with Mandatory Recycling, POINT PARK NEWS
SERV., Dec. 7, 2015, http://www.pointparknewsservice.com/2015/12/07/pittsburgh-looks-to-
55 State Plastic and Paper Bag Legislation, NAT’L CONFERENCE OF STATE LEGISLATURES,
visited Nov. 20, 2016.
56 Id. at 2.
57 Id. at 1.
2016] Sustainability & Tax Policy 13
prohibits cities from passing a single-use plastic bag ban.58 Such
conflicting and contrasting approaches support the need for a cohesive
approach to sustainability efforts.
3. Renewable Energy
State incentives to promote the production and use of renewable
energy vary. Table 3 provides an overview of some of these non-tax
Table 3: State & Local Renewable Energy Incentives
New York: Clean Energy
Designed to make energy bills more
affordable, accelerate the use of clean energy,
and accelerate the adoption of energy
efficiency measures.59 The state’s
commitment to clean energy requires that 50
percent of New York State’s electricity will
come from renewable energy sources by
Cooperative Energy Efficiency
The Oklahoma Electric Cooperative
provides rebates of various dollar limits to
residential customers who install energy-
efficient heat pumps and water heaters.61
Idaho: Power Irrigation
Efficiency Rewards Program
The rewards program helps customers use
electricity more efficiently by defraying the
58 Mike Sunnucks, Ducey Signs Bill Stopping Tempe Plastic Bag Ban, Phoenix Energy Rules,
PHOENIX BUS. J., Apr. 14, 2015, http://www.bizjournals.com/phoenix/news/2015/04/14/ducey-
signs-bill-stopping-tempe-plastic-bag-ban.html. Interestingly, there is currently a pending lawsuit
challenging the ability of the state legislature to dictate such a local matter. See Darren DaRonco,
Tempe Councilwoman Sues Arizona Over Law Blocking Plastic-Bag Bans, AZ CENTR., Sept. 30,
59 N.Y. STATE ENERGY RESEARCH & DEV. AUTH., REFORMING THE ENERGY VISION: CLEAN
ENERGY FUND, http://www.nyserda.ny.gov/About/Clean-Energy-Fund (last visited Nov. 20,
61 Efficiency Rebate Program, OKLA. ELECTRIC COOP., http://www.okcoop.org/rebates (last
visited Nov. 20, 2016).
14 Virginia Environmental Law Journal [Vol. 35:1
cost of energy efficiency features in irrigation
Reno, Nevada: Energy
Efficiency & Renewable
As part of this initiative, projects were
enacted to initiate wind turbine demonstration
programs, solar photovoltaic systems, solar
thermal heating systems, lighting retrofits,
and various HVAC upgrades.63 For example,
as part of this initiative the Reno Arch was
relit with energy efficient LED bulbs.64
Houston, Texas: Lights Out
A voluntary commitment to turn off all
non-essential lights between Thursday, March
17, 2016 at 10:00 pm and the evening of
Sunday, March 20, 2016.65 This initiative
encourages individuals, households, and
businesses to turn off non-essential lighting
and commit to reducing energy
consumption.66 Houston has participated in
this initiative since 2008.67
In addition to the many state and local non-tax incentives available to
encourage sustainable behavior in individuals and businesses alike, there
are also a variety of tax measures offered to bring about behavioral
62 Irrigation Efficiency Rewards Program, IDA. POWER, https://www.idahopower.com/
EnergyEfficiency/Irrigation/Programs/EfficiencyRewards//default.cfm (last visited Nov. 20,
63 CITY OF RENO, ENERGY EFFICIENCY & RENEWABLE ENERGY INITIATIVE, http://
www.reno.gov/residents/sustainability/energy-efficiency-renewable-energy-initiative (last visited
Nov. 20, 2016).
65 Earth Hour + Lights Out Houston 2016, CITY OF HOUSTON, TEX. OFFICE OF
SUSTAINABILITY, http://www.greenhoustontx.gov/earthhour2016.html (last visited Nov. 20,
2016] Sustainability & Tax Policy 15
B. State and Local Tax Incentives to Encourage Sustainable Behavior
Much like the federal government, “states can implement a range of
tax credits, rebates, and subsidies to encourage business and consumers
to take part in sustainability initiatives.”68
1. The General Landscape of State & Local Tax Measures
There are eight incentives that are generally the most utilized: tax
credits, tax deductions, tax exemptions, tax refunds, tax abatements,
favorable tax valuations, exclusions from income, and tax financing
programs.69 Often, “the most popular and highest dollar value incentives
are the tax credits, which provide a dollar-for-dollar reduction in tax
liability of the taxpayer. Tax-exemptions usually provide a simpler tax
incentive mechanism, but at often reduced dollar values.”70
The forms of state tax incentives to encourage sustainability vary
considerably, but those commonly offered seek to incentivize renewable
energy.71 There are over 2,000 state-level incentives in various forms with
one or more available in all states plus the District of Columbia,72 with an
estimated forty-six states offering some form of tax incentive for
renewables and energy efficiency.73
As expected, state and local incentives are generally more limited than
those provided by the federal government. While more generous
incentives are reserved for energy providers—such as those bringing an
infusion of investment and jobs, especially to an economically challenged
community74—individual state-level incentives often include sales tax
and property tax exemptions.75
2. Examples of State & Local Tax Measures
While there are numerous examples of state and local tax measures
that promote sustainability efforts, this section will provide examples in
three distinct areas: renewable energy, green building, and alternative
68 COHEN, EIMICKE & MILLER, supra note 26, at 101.
69 Jerome Garciano, Green Tax Incentives: State and Federal Tax Incentives for Renewable
Energy and Green Building, 56 AM. INST. ARCHITECTS (2012), http://www.aia.org/akr/
72 Summary Tables, DSIRE, http://programs.dsireusa.org/system/program/tables (last visited
Nov. 25, 2016).
74 Garciano, supra note 69.
16 Virginia Environmental Law Journal [Vol. 35:1
a. Renewable Energy
Various state tax credits are available to support projects such as wind
farms and solar equipment by providing a reduction in tax liability for
those who either lease or own such renewable energy facilities.76 One
such example is Pennsylvania’s Resource Enhancement and Protection
(“REAP”) program. This program is administered by the State
Conservation Commission and allows farmers, businesses, and
landowners to earn tax credits of up to 75 percent of eligible costs for
implementing practices that protect natural resources and enhance farm
production.77 Nebraska also supports renewable energy, in part by
providing sales tax exemptions for component parts used in wind farms.78
New York has various programs and tax incentives in place to encourage
solar energy projects, among them a tax credit for the cost of installing
solar equipment on residential property.79
b. Green Building
There are a wide range of green building tax incentives available,
including income tax credits, property tax abatements, and sales tax
exemptions.80 The high value incentives provided by tax credits are
enlarged in the context of green buildings.81 For example, Connecticut
offers a tax credit of up to 10 percent for costs incurred in green-building
83 and New York
84 also offer tax credits to both
owners and tenants for using green building components.85 Property tax
abatements are offered by the city of Cincinnati for construction or
remodeling in accordance with LEED standards, while the city of
Honolulu goes even further by offering a full year property exemption for
76 Green Tax Incentives and Credits for Businesses and Individuals, GRANT THORNTON 1, 6
77 Resource Enhancement and Protection (REAP), PA. DEPT. OF AGRIC., http://
-p3D-Uk (last visited Nov. 20, 2016).
78 COHEN, EIMICKE & MILLER, supra note 26, at 102.
80 State and Local Green Building Incentives, supra note 33, at 6–7.
81 See supra note 69 and accompanying text.
82 Garciano, supra note 69. CONN. GEN. STAT. § 12-217mm (2015).
83 MD. CODE ANN., TAX–GEN. § 10-722(c)(1) (West 2015) (stating that credit is equal to 8
percent if certain green building costs).
84 N.Y. TAX LAW § 19(b)(9)(A) (McKinney 2015) (explaining that a tax credit is available to
be applied against individual or corporate income taxes, but the limit on the credit varies for new
buildings versus rehabilitated buildings).
85 State and Local Green Building Incentives, supra note 33.
2016] Sustainability & Tax Policy 17
developing an industrial, commercial, or resort property that receives
Taxes on gasoline and diesel fuel are common to all states, and in many
jurisdictions sales taxes, gross receipts taxes, and fees for oil inspection
and underground storage tanks have also been imposed.87 Colorado has
implemented a Motor Vehicle Income Credit, available until 2021, that
provides a tax credit for up to $6,000 for the purchase or lease of an
electric vehicle. 88 Colorado has also made available a lower flat
registration fee for plug-in vehicles.89
These state and local tax measures represent just a small portion of the
myriad tax programs and incentives available at the state and local level.
While these incentives and policies help to encourage behavioral changes
that bolster sustainability efforts across the country, federal tax policies
offer a more robust opportunity to accomplish further reaching change.
III. FEDERAL TAX INCENTIVES PLAY AN IMPORTANT ROLE IN
Tax policy often includes consideration of the following principles:
simplicity, transparency, certainty, convenience of payment, equity
(fairness), and neutrality.90 The principle of neutrality means that the
effect of the tax law should have minimal effect on taxpayer behavior,91
for the primary purpose of taxation is to raise revenue to pay for
governmental services and functions.92 In reality, tax laws are often
designed to influence taxpayer behavior.93
Behavioral changes, whether those of an individual or a corporation,
can generally be accomplished either through regulation or incentives.94
Tax has proven to be quite an effective tool in this regard.95 The most
87 Xu Yan, Green Taxation in China: A Possible Consolidated Transport Fuel Tax To promote
Clean Air?, 21 FORDHAM ENVTL. L. REV. 295, 331 (2010).
88 COHEN, EIMICKE & MILLER, supra note 26, at 102.
90 Annette Nellen & Monika Miles, Taxes and Sustainability, 2 J. GREEN BUILDING 57, 58
91 Nick Fiore, Guiding Principles of Good Tax Policy, J. ACCOUNTANCY (Feb. 1, 2002),
92 Taxes and Society, U.S. DEP’T TREASURY, RESOURCE CENTER , https://www.treasury.gov/
resource-center/faqs/Taxes/Pages/taxes-society.aspx (last visited Nov. 22, 2016).
93 Nellen & Miles, supra note 90.
94 Margaret Ryznar & Karen E. Woody, A Framework on Mandating versus Incentivizing
Corporate Social Responsibility, 98 MARQ. L. REV. 1667, 1668 (2015).
95 Id. at 1683.
18 Virginia Environmental Law Journal [Vol. 35:1
popular means of incentivizing behavior via taxes include offering tax
credits that provide taxpayers with a dollar-for-dollar offset against their
tax liability and providing deductions that are used to reduce taxable
income.96 Of course, such efforts are not without costs and, indeed, for
“every tax incentive, there is a corresponding cost resulting from the
foregone tax revenue. However, unless obtained through lobbying, the
cost is borne because of the value placed on the incentivized behavior.”97
Over the years, the U.S. Congress has used the tax code as a way of
influencing the behavior of individuals and entities to advance the U.S.
economy.98 For example, to encourage individuals to provide for family
members and others after death, the Internal Revenue Code provides an
exclusion from gross income amounts received from life insurance
proceeds.99 In a similar manner, the U.S. Congress uses the tax code as a
vehicle for advancing its environmental goals,100 relying heavily on tax
incentives and, to a lesser extent, tax penalties as instruments to achieve
its environmental aspirations.101 Tax incentives (alternatively referred to
as tax expenditures) provide Congress with a way to promote government
policy goals102 and encourage the private sector to contribute to the
achievement of those goals by subsidizing private sector expenditures.103
Tax incentives generally take the form of tax deductions, exclusions, and
credits.104 Although tax incentives result in a loss of tax revenues, they
allow the U.S. government to achieve policy goals without the need to
incur direct costs.105
In the policy area of sustainability, tax incentives assist in achieving
environmental goals by encouraging individuals and entities to make
environmentally-sound decisions with corresponding benefits and
actions.106 Conversely, when corporations circumvent traditional
command-and-control environmental regulations, minimal
environmental benefit is achieved.107 Tax incentives, unlike command-
96 Id. at 1684.
97 Id. at 1689.
98 Waller, supra note 6, at 157.
99 26 U.S.C. § 101 (2012).
100 See Milne, Environmental Taxation in the United States: The Long View, supra note 6, at
101 Ruth Mason, Federalism and the Taxing Power, 99 CAL. L. REV. 975, 978 (2011).
102 Policy Basics: Federal Tax Expenditures, CTR. ON BUDGET & POL’Y PRIORITIES (Feb. 23,
105 Tax Expenditures: What Are They and How are They Structured?, TAX POL’Y CTR., A JOINT
PROJECT OF THE URBAN INST. & BROOKINGS INST., http://www.taxpolicycenter.org/
briefingbook/background/shelters/expenditures.cfm (last visited Nov. 22, 2016).
106 See Milne, supra note 6, at 419.
107 Ryznar & Woody, supra note 94, at 1693.
2016] Sustainability & Tax Policy 19
and-control regulations, yield positive results as they provide a financial
incentive (in the form of tax credits) to make environmentally friendly
investment decisions.108 Thus, tax incentives have the benefit of offering
the federal government a relatively inexpensive way of protecting the
environment by encouraging the private sector to invest in
environmentally-sound goods, services, and structures, thereby relieving
the government from incurring any direct costs associated with
comparable sustainability investments.109 For example, the tax credit for
increasing research activities provides an incentive for taxpayers to
conduct basic research, including sustainability-oriented research,110
which, in turn, allows the government to assume a facilitator role in
protecting the environment.111
Developing a tax incentive structure should help minimize
governmental cost.112 Although a given incentive may seem rather simple
(e.g., receipt of a tax credit for purchasing an electric car),113 in reality
such incentives represent an amalgamation of recordkeeping
requirements, calculations, and integration with other tax provisions that
may result in a reduction of the benefit.114 For example, a company’s
ability to utilize the General Business Tax Credit is limited when its net
income tax for any taxable year exceeds certain threshold requirements
including the corporate alternative minimum tax (“AMT”).115 If a
company is subject to the corporate AMT, it may utilize the PTC for only
the first four years of the PTC.116 For those companies affected by the
corporate AMT, this limitation may be a significant deterrent in deciding
whether to invest in renewable energy facilities.117 Further limiting the
reliability and effectiveness of tax incentives are a variety of sunset
clauses (essentially expiration dates) that often leave taxpayers
wondering whether such provisions will be available in future years.118
109 Waller, supra note 6, at 157–58.
110 26 U.S.C. § 41 (2012).
111 Waller, supra note 6, at 157–58.
113 For example, the tax code provides a tax incentive for the purchase of new qualified plug-in
electric drive motor vehicles. 26 U.S.C. § 30D (2012).
114 Nellen & Miles, supra note 90, at 59.
115 26 U.S.C. § 38(c)(1) (2012).
116 Id. § 38(c)(4)(B).
117 MOLLY F. SHERLOCK, CONG. RESEARCH SERV., R43453, THE RENEWABLE ELECTRICITY
PRODUCTION TAX CREDIT: IN BRIEF 2 (2015).
118 As an illustration of taxpayer uncertainty regarding tax extenders, Congress extended the
Production Tax Credit (“PTC”) for two weeks only at the end of 2014. This type of shortsightedness
on the part of Congress fails to provide the certainty that the renewable energy industry needs to
develop long-term strategies, plans, financing, and contracts. Production Tax Credit for Renewable
Energy, UNION OF CONCERNED SCIENTISTS, http://www.ucsusa.org/clean_energy/smart-energy-
20 Virginia Environmental Law Journal [Vol. 35:1
Although a level of uncertainty exists regarding the long-term
predictability of tax incentives, the U.S. government continues to offer
incentives to consumers and businesses “to support energy efficiency,
encourage the use of renewable energy sources, and support efforts to
conserve energy and lessen pollution.”119 Examples of these incentives,
discussed below, cover a wide spectrum of benefits.
A. Residential Green Tax Incentives
Globally, governmental policies favor an approach of encouraging
consumers and corporations to adopt practices that improve the efficient
use of energy. 120 As part of its environmental and sustainability policies,
the U.S. Congress has offered green tax incentives and other energy
efficiency measures since the 1970s.121 An early and important aspect of
the tax incentive initiative has been Congress’s focus on residential
energy consumption.122 Residential green tax incentives support the
government’s national sustainability goals by increasing the efficient use
In 2014, the residential sector consumed 22 percent of all energy used
in the United States.124 Although residential consumption of energy has
increased by 6 percent during the past 15 years as the U.S. population has
increased, energy efficiency measures introduced during the past 40 years
have resulted in per capita residential energy use remaining relatively
constant.125 Some energy experts believe important energy efficiency
gains remain to be realized in the residential sector.126 However, concerns
exist about whether residential consumers will invest in energy efficiency
technologies at an optimal level.127 This conundrum is sometimes referred
to as the “energy efficiency paradox,” where rational consumers should
invest in products that lower their overall energy costs because of the
solutions/increase-renewables/production-tax-credit-for.html#.VruQTbIrJD8 (last visited Nov. 22,
2016). Subsequent legislation extended the PTC through December 31, 2016 for non-wind
renewable power facilities and through December 31, 2019 for wind power facilities. STAFF OF
JOINT COMM. ON TAXATION, JCX-1-16, LIST OF EXPIRING FEDERAL TAX PROVISIONS 2016–2025
(Comm. Print 2016).
119 Tax Credits, Rebates & Savings, U.S. DEPARTMENT OF ENERGY, http://energy.gov/savings
(lasted visited Nov. 22, 2016).
120 See KPMG INT’L COOP., supra note 2, at 11.
121 MOLLY F. SHERLOCK & MARGOT L. CRANDALL-HOLLICK, CONG. RESEARCH SERV.,
R42089, RESIDENTIAL ENERGY TAX CREDIT: OVERVIEW AND ANALYSIS 1 (2016).
126 Id. at 2.
2016] Sustainability & Tax Policy 21
availability of green tax incentives, yet they often fail to make such cost-
saving investments.128 One explanation for the paradox is that consumers
lack sufficient information about the savings available through the use of
green tax credits, as well as information about the types of energy-saving
1. Residential Energy Conservation Subsidy Exclusion
Consumers who receive a subsidy from a public utility130 to assist with
the installation of products or devices that conserve energy are allowed
to exclude the value of such measures from the calculation of their gross
income.131 The exclusion amount is limited.132 However, unlike other
green tax incentives,133 the residential energy conservation exclusion does
not have a sunset clause.134 To qualify for the exclusion, the subsidy must
meet an energy conservation standard, which requires that “any
installation or modification [be] primarily designed to reduce
consumption of electricity or natural gas or to improve the management
of energy demand135 with respect to a dwelling unit.”136 Because energy
conservation measures must be associated with a “dwelling unit,”137 any
portion of a consumer’s residence that is used “exclusively as a hotel,
motel, inn, or similar establishment” is unavailable for the benefit.138
128 Id.at 4.
129 Id. at 6.
130 26 U.S.C. § 136(c)(2)(B) (2012) (stating that a public utility is “a person engaged in the sale
of electricity or natural gas to residential, commercial, or industrial customers for use by such
customers. For purposes of the preceding sentence, the term ‘person’ includes the Federal
Government, a State or local government or any political subdivision thereof, or any instrumentality
of any of the foregoing.”).
131 Energy Policy Act of 1992, Pub. L. No. 102-486, 106 Stat. 2776; Small Business Job
Protection Act of 1996, Pub. L. No. 104-188, 110 Stat. 1755 (codified at 26 U.S.C. § 136(a) (2012)).
132 26 U.S.C. § 136(b) (stating that “no deduction or credit shall be allowed for, or by reason of,
any expenditure to the extent of the amount excluded under subsection (a) for any subsidy which
was provided with respect to such expenditure. The adjusted basis of any property shall be reduced
by the amount excluded under subsection (a) which was provided with respect to such property.”).
133 Most green tax incentives have a sunset clause, which requires regular legislation by the U.S.
Congress to extend their effective dates. See, e.g., STAFF OF JOINT COMM. ON TAXATION, JCX-1-
16, supra note 118.
134 LYNN J. CUNNINGHAM & BETH COOK, CONG. RESEARCH SERV., R40913, RENEWABLE
ENERGY AND ENERGY EFFICIENCY INCENTIVES: A SUMMARY OF FEDERAL PROGRAMS 1, 21
135 For example, qualified technologies include solar water heat, solar space heat, and
136 26 U.S.C. § 136(c)(1).
137 Id. § 136(c)(2)(A) (citing 26 U.S.C. § 280A(f)(1)(A) in defining a dwelling unit to include
“a house, apartment, condominium, mobile home, boat, or similar property, and all structures or
other property appurtenant to such dwelling unit.”).
138 26 U.S.C. § 280A(f)(1)(B) (2012).
22 Virginia Environmental Law Journal [Vol. 35:1
2. Nonbusiness Energy Property Tax Credit
This green tax incentive allows consumers to receive a benefit in the
form of a credit against their tax liability.139 The incentive focuses on two
aspects of a taxpayer’s principal residence: the building envelope (e.g.,
insulation, exterior windows including skylights, exterior doors, and
roof); and energy property expenditures (e.g., electric water heater,
electric heat pump, central air conditioning, natural gas, propane, or oil
water heater, and biomass fuel stoves).140 To qualify for the credit, all
improvements and property expenditures must satisfy specified energy
efficiency standards.141 The amount of the credit is equal to 10 percent of
building envelope improvements,142 plus the amount of energy property
expenditures capped at various levels.143 The overall maximum lifetime
cap of the credit is $500,144 and it has a scheduled expiration date of
December 31, 2016.145 However, the credit for solar property
expenditures does not expire until December 31, 2021.146
3. Residential Energy Efficient Property Tax Credit
The Residential Energy Efficient Property Tax Credit promotes
sustainability by providing a tax credit to consumers who install in their
residences devices that generate renewable energy, including solar
electric property expenditures, solar water heating property expenditures,
fuel cell property expenditures, small wind energy property expenditures,
and geothermal heat pump property expenditures.147 Unlike the
nonbusiness energy property credit, the energy-efficient property credit
is available for installations of renewable energy generating technologies
on each of a taxpayer’s residences, not just the taxpayer’s principal
139 26 U.S.C. § 25C (2012).
140 Id. § 25C(c)(2)–(3), (d).
141 Generally, improvements must satisfy the criteria established by the 2009 International
Energy Conservation Code. Id. § 25C(c)(1). Exterior windows, skylights, exterior doors, and roofs
must meet the ENERGY STAR program requirements. Id. § 25C(c)(2)(C). ENERGY STAR is a
voluntary program run by the U.S. Environmental Protection Agency (“EPA”) that assists
consumers and businesses develop and adopt sustainable practices. The program “identif[ies] and
promote[s] energy–efficient products and buildings in order to reduce energy consumption,
improve energy security, and reduce pollution through voluntary labeling of or other forms of
communication about products and buildings that meet the highest energy efficiency standards.”
See Origins and Mission, U.S. EPA, ENERGY STAR, http://www.energystar.gov/about/
origins_mission (last visited Nov. 22, 2016).
142 26 U.S.C. § 25C(a)(1).
143 For example, exterior windows have a lifetime cap of $200. Id. § 25C(b)(2).
144 Id. § 25C(b)(1).
145 SHERLOCK & CRANDALL-HOLLICK, supra note 121, at 4.
147 26 U.S.C. § 25D(a).
2016] Sustainability & Tax Policy 23
residence.148 The maximum amount of the credit is 30 percent of
expenditures on property that generate renewable energy,149 including
labor costs.150 Other than expenditures for the acquisition of fuel cells,151
the energy-efficient property credit is not capped. With the exception of
solar technologies, the energy-efficient property credit is scheduled to
expire on December 31, 2016.152
Although residential energy tax incentives seem rational from an
economic perspective (lower utility costs and improved efficiency), the
anticipated benefits emanating from the various residential tax incentives
is unclear.153 Factors contributing to the uncertainty include lack of
consumer awareness of available incentives, major upfront cash
investment without a known tax benefit at the time of purchase,154 non-
strategic purchasing (impulse buying irrespective of the incentives), and
disconnection between buyers and users (e.g., in landlord/tenant
relationships).155 Furthermore, some consumers may purchase energy-
efficient products because of the positive environmental consequence of
their purchase regardless of the tax benefit, resulting in an inefficient tax
windfall for those consumers.156 Complicating the effectiveness of
residential energy efficiency tax incentives, the U.S. Treasury
Department’s Inspector General for Tax Administration (“TIGTA”)
issued a report in April 2011 stating that the processing of residential
energy tax credits provides “numerous opportunities for fraud.”157 The
TIGTA report revealed that the Internal Revenue Service was unable to
determine whether taxpayers who claimed residential energy tax credits
actually made the energy saving modifications and whether the
modifications were actually made to the claimant’s residence.158
B. Commercial/Industrial Green Tax Incentives
In addition to residential energy tax incentives, the U.S. government
provides commercial tax incentives for expenditures related to renewable
148 SHERLOCK & CRANDALL-HOLLICK, supra note 121, at 3 n.6.
149 26 U.S.C. § 25D(a).
150 Id. § 25D(e)(1).
151 Id. § 25D(b)(1).
152 SHERLOCK & CRANDALL-HOLLICK, supra note 121, at 4.
153 See id.
154 Because residential incentives are nonrefundable tax credits, low-income taxpayers may not
be able to utilize the credits as they may have no tax liability at year-end.
155 NAT. RES. DEF. COUNCIL, NRDC ISSUE BRIEF, FEDERAL ENERGY EFFICIENCY TAX
INCENTIVES: DRIVING INNOVATION AND INVESTMENT IN OUR BUILDINGS AND APPLIANCES TO
SAVE MONEY AND ENERGY 1 (2013).
156 See SHERLOCK & CRANDALL-HOLLICK, supra note 121.
157 Id. at 11.
24 Virginia Environmental Law Journal [Vol. 35:1
energy, including the business energy investment tax credit and the
renewable energy production tax credit.
1. Business Energy Investment Tax Credit
The Business Energy Investment Tax Credit (“BEITC”) supports the
use of renewable energy by offering a 30 percent tax credit for
investments in equipment that employ solar power to heat or cool a
building, or to illuminate a building using fiber-optic distributed
sunlight.159 Investments in fuel cell property and small wind energy
property are also eligible for the BEITC.160 Furthermore, the BEITC is
available for taxpayers who invest in equipment that uses microturbine
property,161 and geothermal power to produce, distribute, or use energy.162
However, the credit is 10 percent for other types of energy property.163
The BEITC is scheduled to expire on December 31, 2016.164
2. Renewable Electricity Production Tax Credit
The Renewable Electricity Production Tax Credit (“PTC”) provides an
incentive in the form of a tax credit based on the per-kilowatt hour
(“kWh”)165 production of electricity by qualified energy resources166 at a
qualified facility167 and sold to an unrelated person during the taxable
year.168 The PTC benefits companies for the first 10 years of operations
of a renewable energy facility.169 The base of the maximum credit rate is
set at $0.015 per kWh170 with an annual adjustment for inflation.171
Because the credit reduces a provider’s tax liability, it offers the
opportunity for companies to deliver wind electricity, as an example, to
159 26 U.S.C. § 48(a)(3)(A).
161 Id. § 48(a)(3)(A)(iv). A microturbine property is “a stationary microturbine power plant
which (i) has a nameplate capacity of less than 2,000 kilowatts, and (ii) has an electricity-only
generation efficiency of not less than 26 percent at International Standard Organization conditions.”
Id. § 48(c)(2)(A).
162 Id. § 48(a)(3)(A)(iii).
163 Id. § 48(a)(2)(A)(ii).
164 STAFF OF JOINT COMM. ON TAXATION, JCX-1-16, supra note 118, at 4.
165 26 U.S.C. § 45(a)(2) (2012).
166 Id. § 48(c)(2)(A); id. § 45(a)(2)(A)(i).
167 Id. § 45(a)(2)(A)(ii).
168 Id. § 45(a)(2)(B).
169 Id. § 45(a)(2)(A)(ii).
170 Id. § 45(a)(1).
171 Id. § 45(b)(2).
2016] Sustainability & Tax Policy 25
customers at a lower cost, which in turn lowers the cost of renewable
electricity in the United States.172
The following types of energy technologies qualify for the maximum
PTC amount: wind, closed-loop biomass, and geothermal or solar
energy.173 For other technologies,174 the PTC amount is reduced by one-
half.175 With the exception of wind power,176 the PTC for other types of
renewable energy is scheduled to terminate on December 31, 2016.177
From a policy perspective, by not extending the PTC for a more definite
time period, Congress may not be providing the type of certainty that
industry leaders require to make strategic decisions about initiating new
Since wind power first appeared in California during the 1980s, the
U.S has witnessed an increasing reliance on wind power to satisfy its
demand for electricity.179 Based on a 2013 report by the U.S Department
of Energy, U.S. wind facilities provide approximately 4.4 percent of the
demand for electricity in the United States.180 The same report observed
that, in 2012, wind power represented the primary source of generating
new electric power in the United States, and that $25 billion was invested
in new wind power facilities during the same year.181 Responding to the
increasing demand for wind power electricity,182 approximately 550
companies in the United States in 2012 were engaged in the
manufacturing of turbines, blades, and related equipment for the wind
Proponents of extending the PTC argue that it has propelled investment
in wind power facilities in the United States, and that failure to extend the
PTC could lead to a decrease in the demand for new wind power
172 The Production Tax Credit is Key to a Strong U.S. Wind Industry, U.S. DEP’T OF ENERGY
(Apr. 10, 2014, 2:00 p.m.), http://energy.gov/articles/production-tax-credit-key-strong-us-wind-
173 26 U.S.C. § 45(d).
174 For example, open-loop biomass, id. § 45(d)(3), small irrigation power, id. § 45(d)(5), and
municipal solid waste facilities, id. §§ 45(d)(6), (7).
175 Id. § 45(b)(4)(A).
176 The PTC for wind power is scheduled to terminate on December 31, 2019. STAFF OF JOINT
COMM. ON TAXATION, JCX-1-16, supra note 118, at 11.
Id. at 3.
178 Production Tax Credit for Renewable Energy, supra note 118, at 2.
179 ERIC LANTZ ET. AL., NAT’L RENEWABLE ENERGY LAB., IMPLICATIONS OF A PTC
EXTENSION ON U.S. WIND DEPLOYMENT 1 (2014).
180 Id. (citing R. WISER & M. BOLINGER, U.S. DEP’T OF ENERGY, ANNUAL WIND
TECHNOLOGIES MARKET REPORT (2013).
183 Id. (citing AM. WIND ENERGY ASS’N, AWEA U.S. WIND INDUSTRY ANNUAL MARKET
REPORT: YEAR ENDING 2012 (2013).
26 Virginia Environmental Law Journal [Vol. 35:1
electricity generating facilities.184 Further, proponents point to studies
showing that the PTC has been an important source in motivating
investment in wind power facilities.185 Additionally, prominent scientists
at the Department of Energy argue that the PTC has contributed
significantly to the development of wind power in the United States,
resulting in major economic benefits.186 Although the increase in wind
power electricity is notable, research shows that wind power has not
contributed in a meaningful way to a decrease in greenhouse gas
emissions.187 In support of this observation, one estimate suggests that if
the PTC were not extended, an increase of just 0.3 percent in power-
sector emissions would occur.188
The business energy investment tax credit and the renewable
electricity production tax credit support billions of dollars of investments
in new renewable energy. These energy incentives may play a pivotal role
in the evolution of the United States from a nation highly dependent on
fossil fuels to one relying increasingly on alternative, cleaner energy
C. Green Buildings Tax Incentives
Globally, buildings produce a significant amount of energy-based CO2
emissions.190 However, buildings offer a major opportunity for reducing
emissions in a cost-efficient manner when compared with other types of
CO2 polluters, such as transportation and agriculture.191 Consequently,
governments around the world focus on ways of encouraging the private
sector to reduce the amount of energy consumed by buildings.192 The
United States has two green building tax incentives,193 one that provides
185 SHERLOCK, supra note 117, at 8 n.26 (citing the following studies: Gireesh Shrimali, Melissa
Lynes, & Joe Indvik, Wind Energy Deployment in the U.S.: An Empirical Analysis of the Role of
Federal and State Policies, 43 RENEWABLE & SUSTAINABLE ENERGY REVS., 796 (March 2015);
Claudia Hitaj, Wind Power Development in the United States, 65 J. ENVTL. ECON. & MGMT. 394
(2013); Xi Lu, Jeremy Tchou, Michael B. McElroy, & Chris P. Nielsen, The Impact of Production
Tax Credits on the Profitable Production of Electricity from Wind in the U.S., 39 ENERGY POL’Y
4207 (2011); Gilbert E. Metcalf, Investment in Energy Infrastructure and the Tax Code, 24 TAX
POL’Y & ECON. 1 (2010)).
186 Production Tax Credit for Renewable Energy, supra note 118, at 3.
187 SHERLOCK, supra note 117, at 9.
188 EFFECTS OF U.S. TAX POLICY ON GREENHOUSE GAS EMISSIONS, NAT’L ACADEMY OF
SCIENCES 1, 3 (William D. Nordhaus, Stephen A. Merrill, & Paul T. Beaton eds., 2013).
189 Daniel Cusick, Experts Predict Renewable investment boom as Congress renews tax credits,
CLIMATEWIRE, Dec. 21, 2015, http://www.eenews.net/stories/1060029809.
190 See The KPMG Green Tax Index 2013, supra note 2, at 23.
193 Id. at 24.
2016] Sustainability & Tax Policy 27
a credit for energy-efficient home construction194 and another that offers
a deduction for energy-efficient commercial buildings.195
1. New Energy Efficient Home Credit
The Energy Efficient Homes Tax Credit provides eligible contractors
with a $2,000 credit for each energy-efficient dwelling unit they construct
that is 50 percent or more efficient than standard construction.196
Alternatively, a $1,000 tax credit is available for each energy-efficient
home constructed that is 30 percent more energy efficient than standard
construction.197 An eligible contractor is either the construction company
that builds a qualified home or the manufacturing company that produces
a qualified manufactured home.198 The person purchasing the house must
use the house as a residence.199 In addition to newly constructed homes,
substantially reconstructed or rehabilitated homes may also satisfy the
requirements for establishing a qualified home for tax purposes.200
To satisfy the energy standard, a home’s heating and cooling energy
consumption must be at least 50 percent below that of a similar unit
constructed in accordance with the 2006 International Energy
Conservation Code and the National Appliance Energy Conservation Act
of 1987, with at least 10 percent of the energy improvements attributable
to the building envelope.201 The credit is scheduled to expire on December
2. Energy Efficient Commercial Buildings Tax Deduction
The energy efficient commercial buildings deduction provides a tax
incentive for the development of energy-efficient commercial building
property.203 To qualify for the benefit, the property in question must
otherwise satisfy the requirements for a depreciation deduction (or
amortization in lieu of depreciation) and must be installed in a building
as part of the interior lighting system, the heating, cooling, ventilation,
and hot water systems, or the building envelope.204 Subsequent to
installation, the property must be certified as being capable of reducing
194 26 U.S.C. §45L (2012).
195 Id. §179D (2012).
196 Id. § 45L(a)(2)(A).
197 Id. § 45L(a)(2)(B).
198 Id. § 45L(b)(1)(A)–(B).
199 Id. § 45L(a)(1)(B).
200 Id. § 45L(b)(3).
201 Id. § 45L(c).
202 Staff of Joint Comm. on Taxation, JCX-1-16, supra note 118.
203 26 U.S.C. § 179D(a) (2015).
204 Id. §§ 179D(c)(1)(A), (C).
28 Virginia Environmental Law Journal [Vol. 35:1
annual energy costs of the “interior lighting systems, heating, cooling,
ventilation, and hot water systems of the building by 50 percent or more
in comparison to a reference building.”205 The energy-efficient
commercial buildings deduction is scheduled to expire on December 31,
Green building tax incentives represent one of the most effective and
popular means for stimulating investment in green building energy-
efficient technologies.207 By providing a financial incentive through the
use of tax credits, builders are predisposed to make decisions favoring
energy-efficient building materials and infrastructure installations such
as heating and cooling systems.208
D. Green Vehicle Tax Incentives
Green vehicle tax incentives encourage manufactures to produce and
consumers to purchase more fuel-efficient vehicles, including electric
and hybrid vehicles, which helps reduce dependency on fossil fuels.209
This is important because 62 percent of global oil consumption is
associated with transportation.210 Compounding this problem, the
International Energy Agency expects the number of passenger vehicles
to double in the twenty-five year period between 2011 and 2035, reaching
approximately 1.7 billion passenger vehicles.211 The United States uses
tax incentives to encourage green vehicle use by offering tax credits for
alternative motor vehicles,212 alternative fuel vehicle refueling property,
213 and plug-in vehicles.214
As an illustration of one of these credits, the Plug-In Vehicles Credit
provides a tax incentive for battery-powered vehicles.215 The amount of
the credit varies depending on the amount of propulsion energy a vehicle
draws from the vehicle’s battery.216 To qualify for the credit, the original
use of the vehicle must begin with the taxpayer.217 The taxpayer must
205 Id. § 179D(c)(1)(D) (stating that the reference building must meet the minimum
requirements of Standard 90.1–2001).
206 Staff of Joint Comm. on Taxation, JCX-1-16, supra note 118.
207 Good to Know: Green Building Incentive, U.S. GREEN BUILDING COUNCIL (May 2, 2014),
209 See KPMG INT’L COOP., supra note 2, at 25.
210 Id. at 26.
212 26 U.S.C. § 30B (2015).
213 Id. § 30C.
214 Id. § 30D.
215 Id. § 30D(a).
216 Id. § 30D(b)(2)–(3).
217 Id. § 30D(d)(1)(A).
2016] Sustainability & Tax Policy 29
acquire or lease the vehicle for use and not resale, and it must be produced
by a manufacturer in accordance with Title II of the Clean Air Act.218 An
electric motor powered by a battery must be the primary source of
propulsion for the vehicle.219 The vehicle must weigh less than 14,000
pounds and possess the capacity to use an external source of electricity
for recharging.220 The credit is scheduled to expire on December 31,
E. The Problem with Subsidies
While using subsidies to induce behavioral change has proven useful,
subsidies also present a variety of difficulties. The most obvious
difficulty is that the cost to cover the subsidy must be covered elsewhere
and often comes from an increase in offsetting taxes, and “taxes are likely
to be distorting the economy (a deadweight loss arises)—unless the tax
base refers either to externalities or to land use.”222 As explained more
fully in Part VI.B, there are several perverse subsidies that have outlived
the reasonable basis for their introduction. Such subsidies can take the
form of favorable tax treatment or fees for economic activity that is
harmful. Over the past several decades organizations such as the
Organization for Economic Cooperation and Development (“OECD”),
the International Energy Agency (“IEA”), the World Bank, the
International Monetary Fund (“IMF”), the European Commission, and
the European Environment Agency (“EEA”) have identified those
subsidies that are, in fact, harmful in terms of their impact on the
environment.223 Ultimately, the government must decide who will fund
environmental protection: the general public through the inducements of
tax subsidies, or those responsible for economic harm through application
of a tax directly on those causing the harm.224
IV. USING GREEN TAXES TO REGULATE BEHAVIOR
Environmental tax measures seek to influence behavior while also
raising additional revenue.225 Although some question whether using
green taxes to modify behavior violates equal standing under the law,
218 Id. § 30D(d)(1)(B)–(D).
219 Id. § 30D(d)(1)(F).
220 Id. § 30D(d)(1)(E)–(F).
221 Staff of Joint Comm. on Taxation, JCX-1-16, supra note 118, at 2.
222 HANDBOOK OF RESEARCH ON ENVIRONMENTAL TAXATION 27 (Janet E. Milne & Mikael
Skou Andersen eds., 2012).
223 ENVIRONMENTAL TAXATION AND GREEN FISCAL REFORM, THEORY AND IMPACT 147
(Larry Kreiser et al. eds., 2014).
224 HANDBOOK OF RESEARCH ON ENVIRONMENTAL TAXATION, supra note 222, at 28–29.
30 Virginia Environmental Law Journal [Vol. 35:1
“many economists would argue that any tax can be expected to influence
behavior, regardless of its purpose.”226
A. Existing Green Taxes/Penalties in the United States
Green taxes, also referred to as environmental taxes, typically impose
an excise tax on products that create pollution or on products that use
pollution-generating ingredients.227 As a vehicle for influencing
consumer and corporate behavior, governments use green taxes less
frequently than they use tax incentives as a sustainability tool.228 With the
exception of the Gas Guzzler Tax and the Ozone Depleting Chemicals
Tax,229 green taxes are essentially nonexistent230 in the United States.231
However, as indicated in Part II of this article, a variety of taxes and fees
exist at the sub-national level in the United States, administered by state
governments or municipalities, including beverage deposit-refund
programs and pay-per-bag requirements at local trash transfer stations.232
The United States also imposes an excise tax at the federal level on the
sale of taxable fuels, including gasoline and diesel fuel.233 Opinions differ
about classifying gasoline and diesel fuel taxes as green taxes. Opponents
of classifying these fuel taxes as green taxes argue that over 80 percent
226 Id. at 23.
227 Taxes and the Environment: What are Green Taxes?, TAX POL’Y CTR., A JOINT PROJECT
OF THE URBAN INST. & BROOKINGS INST. (July 31, 2007), http://tpcprod.urban.org/briefing-
229 Although other green taxes have been proposed over the years, the two primary green taxes
in the United States are the Gas Guzzler Tax and the Ozone Depleting Chemicals Tax. See Milne,
Environmental Taxation in the United States: The Long View, supra note 6, at 419.
230 In 1980, Congress passed legislation to impose an excise tax on chemicals to establish a
Superfund trust fund for cleaning up hazardous waste sites. Hazardous Substance Response
Revenue Act of 1980, Pub. L. No. 96-510, § 201, 94 Stat. 2767, 2796 (codified at 26 U.S.C. §§
4661–62). Over the years, Congress has funded the Superfund program through funds generated by
the excise tax imposed under Section 4661 and from general Treasury funds. The excise tax
imposed under Section 4661 expired in December 1995, and funds generated from this source in
the Superfund trust fund were depleted by 2003. Since then, in decreasing amounts, the U.S.
government has provided funds for the Superfund trust exclusively through general Treasury funds.
See Reinstate Superfund Taxes, TAX POL’Y CTR., A JOINT PROJECT OF THE URBAN INST. &
BROOKINGS INST., http://tpcprod.urban.org/taxtopics/2013-Reinstate-Superfund-Taxes.cfm (last
visited Nov. 20, 2016). Attempts have been made to extend and modify the Superfund excise tax.
For example, the Superfund Polluter Pays Restoration Act of 2015 was introduced in the U.S.
Senate on December 14, 2015, by Senators Booker, Menendez, Boxer, and Whitehouse, and was
referred to the Committee on Finance. For more information visit https://
231 Taxes and the Environment: What Green taxes Does the United States Impose?, TAX POL’Y
CTR., A JOINT PROJECT OF THE URBAN INST. & BROOKINGS INST. (July 31, 2007),
233 26 U.S.C. § 4081(a)(1)(A) (2012).
2016] Sustainability & Tax Policy 31
of the revenues generated by the taxes are used to finance road and
highway construction projects, thereby incentivizing the continued use of
fossil fuels and increasing the rate of pollution.234
1. The Gas Guzzler Tax
The Gas Guzzler Tax imposes an excise tax on manufacturers or
importers who sell automobiles that fail to satisfy fuel economy
requirements.235 The tax is based on a graduated scale236 and is imposed
on a per-unit basis.237 The term “automobile” is defined by statute to
include common four-wheeled vehicles designed for public road and
highway travel. 238 Vehicles over 6,000 pounds unloaded gross vehicle
weight are excluded from this tax.239 The Internal Revenue Service
(“IRS”) administers the tax, which is collected directly from
manufacturers and importers.240 The tax is punitive in nature and designed
to dissuade automobile manufactures from producing and selling
passenger vehicles that fail to meet predetermined governmental fuel
2. Ozone Depleting Substances Tax
Production of ozone depleting substances (“ODSs”)242 ended in the
United States in 1996.243 However, the United States has not banned the
use of ODSs.244 Rather, the U.S imposes an excise tax on the use of ODSs
in the country or on the importation of products containing ODSs.245 The
234 Taxes and the Environment: What Green Taxes Does the United States Impose?, supra note
235 Energy Tax Act of 1978, Pub. L. No. 95-618, § 201, 92 Stat. 3174, 3180 (codified at 26
U.S.C. § 4064).
236 For example, a tax in the amount of $1,000 is imposed on the sale of an automobile by the
manufacturer if the fuel economy is at least 21.5 miles per gallon (“MPG”), but less than 22.5 MPG.
At the high end of the range, a tax of $7,700 is imposed on the sale of an automobile if its fuel
economy is less than 12.5 MPG. Id.
238 Id. § 4064(b)(1)(A).
239 26 U.S.C. § 4064(b)(1)(A)(ii). Such exclusion would encompass most trucks and SUVs.
See, Gail Morse and Alexandra Dowling, Jenner&Block: Federal and State Tax Incentives for
Alternative Vehicles and Fuels Research Solutions, July 2008, https://jenner.com/
_Tax_Incentives_for_Alt_Morse_Dowling.pdf?1319811577 (last visited Nov. 21, 2016).
242 Ozone Depleting Substances are also referred to as Ozone Depleting Chemicals.
243 U.S. INTERNAL REV. SERV., OZONE DEPLETING CHEMICALS (ODC) EXCISE TAX AUDIT
TECHNIQUES GUIDE 5 (2007).
245 Revenue Reconciliation Act of 1989, Pub. L. No. 101-239, § 7506(a), 103 Stat. 2106, 2364
(codified at 26 U.S.C. §§ 4681–82 (2012)).
32 Virginia Environmental Law Journal [Vol. 35:1
Ozone Depleting Substances Tax imposes an excise tax on the sale or use
of ODSs by manufacturers, producers, or importers,246 and on the sale or
use in the United States of any “imported taxable product”247 by importers
of such products.248 The IRS administers the tax,249 which has recently
bolstered its audit strategy for examining the ODS excise tax.250
The United States classifies ODSs as either a Class I or a Class II
controlled substance.251 As a means of protecting the earth’s ozone layer,
the United States has adopted a program of phasing out ODSs.252 The
phase out is being administered by the U.S. EPA as part of the Clean Air
Act.253 With several exceptions, the United States has phased out Class I
substances because they have the highest potential for ozone depletion.254
Class II substances, which have a lower ozone depletion impact than
Class I ODSs,255 are scheduled to be phased out in 2020.256
B. An Argument for New Green Taxes in the United States
As evidenced by examples detailed in Parts V and VI.A, green taxes
can be implemented in a way that is revenue-neutral, progressive, and
palatable to most parties on the political spectrum.257 One option is to
refund to all taxpayers a share of the proceeds of a tax, for example, on
fossil fuels. 258 This incentivizes fewer choices that create harmful side
effects while not growing the size of government, and eases the net tax
burden on lower income households—a combination of outcomes that
246 26 U.S.C. § 4681(a)(1).
247 The term Imported Taxable Product means “any product (other than an ozone-depleting
chemical) entered into the United States for consumption, use, or warehousing if any ozone-
depleting chemical was used as material in the manufacture or production of such product.” Id. §
248 Id. § 4681(a)(2).
249 U.S. INTERNAL REV. SERV., supra note 243.
250 Jason Spitzer & Adam Rosner, IRS Taking Firm Approach to Ozone-Depleting Chemical
Excise Tax Compliance, THE TAX ADVISOR (July 1, 2010), http://www.thetaxadviser.com/
251 Phaseout of Ozone-Depleting Substances, U.S. EPA, http://www.epa.gov/ods-phaseout (last
visited Nov. 20, 2016).
252 Learn about the Phaseout of Ozone-Depleting Substances, U.S. EPA,
http://www.epa.gov/ods-phaseout/learn-about-phaseout-ozone-depleting-substances (last visited
Nov. 20, 2016).
254 Phaseout of Ozone-Depleting Substances, supra note 251.
255 Learn about the Phaseout of Ozone-Depleting Substances, supra note 252.
256 Phaseout of Ozone-Depleting Substances, supra note 251.
257 See, e.g., David. G. Duff, Carbon Taxation in British Columbia, 10 VT. J. ENVTL. L. 87
(2008) (discussing the successful implementation of green taxes in British Columbia, Canada).
258 Id. at 93–94.
2016] Sustainability & Tax Policy 33
left-leaning and right-leaning politicians and economists have endorsed
in a variety of contexts.259
This article argues for imposing new green taxes in the United States.260
Proponents of green taxation argue that it is a better approach to
improving sustainability than alternative approaches such as cap and
trade because taxes are “transparent, minimize the involvement of
government, and avoid the creation of new markets subject to
manipulation.”261 Furthermore, economists theorize that imposing green
taxes on pollution-causing activities and their resulting consequences
enhance sustainability efforts and reduce environmental harm “in a least
cost manner, by encouraging changes in behavior by those firms and
households that can reduce their pollution at the lowest cost.”262
Conversely, providing subsidies as an incentive to reduce pollution and
other environmentally harmful practices may result in incentivizing more
consumers and firms to join the subsidized group, thereby increasing the
overall number of polluters with each member polluting less, but without
realizing any net decrease in pollution and environmental harm.263
The goal of green taxation is to improve a government’s sustainability
efforts by reducing the harmful behavior of consumers and organizations
through the imposition of a tax.264 Unlike traditional command-and-
control regulations, green taxation utilizes the market to realize low-cost
gains in the reduction of pollution.265 A green tax incentivizes polluters to
decrease their polluting activities because changing these activities is less
expensive than incurring the tax cost of polluting.266 Pollution creates
many types of costs, including those relating to health care and property
damage caused by certain pollutants.267 However, the consumers and
organizations creating pollution are generally not responsible for paying
for the harm and damages caused by their behavior.268 Consequently,
there is minimal incentive for consumers to consider such costs when
259 Id. at 104–05. See http://climate-xchange.org/massachusetts-campaign/ for policy and
economic and environmental impact analyses of a proposed revenue-neutral carbon fee in
Massachusetts, as well as a link to the proposed legislation and sponsors.
260 See infra Section V.A.
261 Climate Policy Memo #1: Cap and Trade v Taxes, CTR. FOR CLIMATE & ENERGY
SOLUTIONS, http://www.c2es.org/publications/cap-trade-vs-taxes (last visited Nov. 20, 2016).
262 Taxes and the Environment: What Green Taxes Does the United States Impose?, supra note
264 Robert N. Stavins & Bradley W. Whitehead, Greening of America’s Taxes: Pollution
Charges and Environmental Protection 9 (Harvard Univ. Kennedy Sch. of Gov’t, Discussion Paper
No. 92-03, 1992).
265 Climate Policy Memo #1, supra note 261.
266 Stavins & Whitehead, supra note 264, at 9.
34 Virginia Environmental Law Journal [Vol. 35:1
purchasing goods or services, or for organizations to consider pollution
costs in the design and manufacturing of products or the rendering of
services.269 Imposing new green taxes would help to correct this market
V. THE UNITED STATES CAN LEARN FROM THE EFFORTS OF THE
The international accounting firm KPMG has created the KPMG
Green Tax Index to indicate the effectiveness of using a tax system as a
mean of encouraging sustainable behavior.271 The Green Tax Index,
which collects information on 21 countries,272 ranks countries on their
green tax incentives as well as green tax penalties.273 The ranking of the
countries is an indication of how active that country is in using the tax
system to achieve green policy objectives and sustainability goals.274 The
scoring for the ranking accords various weights to both incentives and
penalties in relation to their supposed value and ability to influence
behavior.275 Overall, the United States ranked first, primarily due to the
vast incentives in place for renewable energy and green building.276 The
United States is followed by Japan, the United Kingdom, France, and
South Korea.277 The list was then further subdivided to look more
specifically at country ranking based only on tax incentives and only on
tax penalties.278 The top five countries in terms of tax incentives were: the
United States, South Korea, China, India, and the United Kingdom.279 The
top five countries in terms of tax penalties were: France, Japan, the United
Kingdom, Finland, and China. The United States ranked fourteenth on
the use of Tax Penalties.280
A look at the global use of environmental taxes reveals a mix of green
taxes/penalties and tax incentives. The overall effect of sustainability
270 Climate Policy Memo #1, supra note 264.
271 Kathy Hoffelder, How Taxes Can Drive Sustainability, CFO (Apr. 13, 2013),
272 These countries are: United States, Japan, United Kingdom, France, Korea, China, Ireland,
the Netherlands, Belgium, India, Canada, Spain, South Africa, Singapore, Finland, Germany,
Australia, Brazil, Argentina, Mexico, and Russia.
273 Top Countries Using Tax Code to Shape Sustainable Corporate Activity, ACCOUNTINGWEB
(Apr. 26, 2013), http://www.accountingweb.com/aa/law-and-enforcement/top-countries-using-tax-
274 See KPMG INT’L COOP., supra note 2, at 2.
275 Id. at 3.
276 Id. at 5.
278 Id. at 4.
2016] Sustainability & Tax Policy 35
efforts in the United States and across the globe is to develop a broad-
based green tax landscape.281 While, as indicated above, the United States
lags behind other nations in its use of green taxes, “[i]nternational
organizations, in particular the OECD, have strongly promoted the use of
environmental taxes.”282 For example, in Italy, over a 10-year period
ending in 2012, revenue from environmental taxes increased by 20
percent to reach $60 billion.283 Looking at the EU, some suggest the
European “governments are more likely to use policy tools that force
polluters in the construction industry to pay for the pollution produced.
The prevalence in the European Union of environmental taxes on
construction debris deposited in landfills is but one example of taxing
polluters to encourage sustainable construction.”284 Contrast this to the
United States, where “[r]egulators . . . are less likely to impose financial
burdens on polluters in the construction industry for making
unsustainable design and construction choices.”285
France’s Environmental Charter of 2005, part of French constitutional
law, is the cornerstone of French environmental protection policies.286
Most of France’s laws and administrative decrees are codified in The
Environmental Code.287 Préfets and environmental inspectors enforce
France’s environmental regulations.288 France’s green tax policies are
more heavily weighted towards penalties rather than incentives. The
primary environmental tax is the General Tax on Polluting Activities
(Taxe Generale sur les Activités Polluantes) (“TGAP”).289 The TGAP,
enacted 1999, is levied on a “pay-as-you-pollute” basis.290 While the tax
originally covered only the disposal of waste, atmospheric pollution, and
air traffic noise, it has been extended various times to include items such
281 Waller, supra note 6, at 160.
282 HANDBOOK OF RESEARCH ON ENVIRONMENTAL TAXATION, supra note 222, at 33–34.
283 ERNST & YOUNG, GLOBAL SUSTAINABILITY TAX PRIMER 4 (2016).
284 Nancy J. King & Brian J. King, Creating Incentives for Sustainable Buildings: A
Comparative Law Approach Featuring the United States and the European Union, 23 VA. ENVTL.
L.J. 397, 449–50 (2005).
286 Floriana Bianco, Annalisa Lucifora & Grazia Maria Vagliasindi, Fighting Environmental
Crime in France: A Country Report, EUR. UNION ACTION TO FIGHT ENVTL. CRIME 7 (2015).
287 Vincent Brenot, Environmental Law and Practice in France: Overview, PRACTICAL LAW
(Thompson Reuters, 2015).
288 Id. (discussing Article L. 170-1 of the Environmental Code). In France, préfets are
individuals that represent the state and ministers with the goal of ensuring that the “local branches
of state services function properly.” See What Exactly Does a Prefet Do?, THE CONNEXION (Sept.
289 Brenot, supra note 287, at 23–24.
290 See KPMG INT’L COOP., supra note 2, at 35.
36 Virginia Environmental Law Journal [Vol. 35:1
as washing and insecticide products for agricultural use and, more
recently, single-use plastic bags provided in stores.291 France imposes a
“Carbon Tax” based on CO2 emissions.292 This tax, introduced in 2014,
imposes a surcharge on newly registered passenger vehicles. The amount
of the surcharge is based on a vehicle’s level of CO2 emissions.293 Rates
are reduced by 40 percent for vehicles that use super-ethanol E85.294
While company cars are also subject to the tax, exemptions are available
for hybrids.295 Any passenger car used by a business in France is subject
to the tax, even if the car is not registered in France, and the tax rate varies
according to the vehicle’s CO2 emission rates. 296 Trucks are also taxed,
relative to maximum loaded weight in excess of 3.5 tons.297 France also
utilizes local taxation on drinking water and household waste as a means
of financing local public services.298
Japan seeks to bring about economic and environmental reform
through innovation.299 In fact, “[b]etween 2000 and 2005, Japan
accounted for 30 [percent] of world inventions in air, water and waste
management technologies.”300 Japan also makes use of a variety of green
taxes. “Tax for Climate Change Mitigation” is a carbon tax targeting
crude and refined products, gaseous hydrocarbon and coal, and has been
gradually enforced since October 2012 as part of Japan’s 2012 Carbon
Dioxide Tax of Global Warming Countermeasure.301 Japan imposes
vehicle-related tax penalties including taxes on oil, petroleum, and gas
and vehicles taxes based on vehicle size, types, and use.302 Car owners are
292 Brenot, supra note 287, at 23.
293 See KPMG INT’L COOP., supra note 2, at 26.
298 Brenot, supra note 287, at 23.
299 OECD Environmental Performance Reviews: Japan 2010, ORG. FOR ECON. CO-OPERATION
& DEV. 13 (Nov. 2010), http://www.oecd-ilibrary.org/environment/oecd-environmental-
301 Hideaki Ozawa & Shogo Umeda, Environmental Law and Practice in Japan: Overview,
PRACTICAL LAW 8 (Thompson Reuters, 2015–16); see KPMG INT’L COOP., supra note 2, at 16;
see also Green Tax to Come into Force in October, THE JAPAN TIMES, Sept. 29, 2012,
(reporting that, in 2012, the Japanese government announced it would introduce a new tax to curb
carbon emissions, which was expected to generate revenue of 262 billion Japanese yen (JPY) ($2.7
billion) from fiscal year 2016).
302 See KPMG INT’L COOP., supra note 2, at 26.
2016] Sustainability & Tax Policy 37
charged an annual tax based on engine size.303 Additional taxes are due
upon vehicle registration and registration transfers, although certain fuel-
efficient vehicles may qualify for a reduced rate.304 A motor vehicle
tonnage tax is also due at the time of inspection or registration, the
amount of which varies depending on vehicle type, weight, and intended
use.305 Some jurisdictions in Japan impose an industrial waste/landfill
tax,306 which taxes per ton of industrial waste at a rate set by local
governments.307 The Electric Power-Development Promotion Tax, which
was levied in the 1970s, is imposed on electric utilities to promote the
generation of clean power as an alternative to oil, and is passed on to end
users by the utilities.308 In the 10-year period ending in 2012, Japan’s
environmental tax revenues increased 40 percent, to a total of $93
billion.309 Although, “Japan has managed to reduce some of the pressures
on the environment, notably energy use, air emissions, water abstractions
and municipal waste generation . . . greenhouse gas emissions and
generation of non-municipal waste have grown, pressures on nature and
biodiversity have intensified, and air and water pollution remain of
concern in some areas.”310
C. United Kingdom
The Climate Change Levy is the principal environmental tax in the
United Kingdom311 It is a use tax imposed on agricuture, commerce,
industry and the public energy sector, including electricity, coal, and
gas.312 The Levy is intended to help the United Kingdom meet its goals
for the reduction of greenhouse gases and to encourage energy efficiency.
Industries that are energy intensive have the opportunity to reduce the
levy by up to 90 percent by complying with the carbon saving targets or
energy efficiency standards that are part of the U.K.’s Climate Change
The United Kingdom also imposes a Carbon Price Floor, a tax paid by
electricity generators on CO2 emissions.314 The tax is intended to provide
305 See id. at 26.
306 Ozawa & Umeda, supra note 301, at 9.
307 The KPMG INT’L COOP., supra note 2, at 33.
308 Id. at 21.
309 ERNST & YOUNG, supra 283, at 4.
310 OECD Environmental Performance Reviews: Japan 2010, supra note 299, at 19.
311 Michael Coxall & Elizabeth Hardacre, Environmental Law and Practice in UK (England
and Wales): Overview, PRACTICAL LAW 13 (Thompson Reuters, 2015–16).
312 Id. at 13.
313 See KPMG INT’L COOP., supra note 2, at 14.
38 Virginia Environmental Law Journal [Vol. 35:1
an incentive to invest in low-carbon power generation through increased
support and greater certainty with regard to the carbon price.315 In
addition, the UK also has in place a Carbon Reduction Commitment
Energy Efficiency Scheme, that applies to businesses having a certain
amount of energy consumption. The purpose of this is to ensure that CO2
emissions not already covered by other carbon initiatives are addressed.316
Organizations in this program are required to buy allowances for their
energy use, with significant penalties imposed for non-compliance.317
A country-wide Aggregates Levy is payable on the commercial
exploitation of rock, sand, and gravel.318 The Levy is designed to promote
the efficient use of such materials and increase the use of alternative
untaxed construction materials, such as demolition waste.319 A per-ton
Landfill Tax is imposed on waste sent to a landfill.320 The goal of the tax
is to encourage waste reduction and alternative forms of waste
The United Kingdom also imposes a duty tax on diesel fuel and
unleaded gasoline.322 This duty when combined with the Value-Added
Tax, result in 60 percent of the pump price of diesel and gasoline being
allocated for tax.323 The United Kingdom also imposes an annual
automobile tax based on CO2 emissions and fuel type.324 At the local
level, London imposes a congestion charge fee of ten pounds (fifteen
dollars) per day with exemptions available for low-emission vehicles.325
China’s “rapid economic growth, industrialization and urbanization
have generated high pressures on the environment, and consequent
damage to health and natural resources.”326 In response, China has taken
measures that seek to further sound environmental policies, including
legislative efforts that give additional authority to environmental
institutions and place a priority on managing natural resources.327
318 Coxall & Hardacre, supra note 311, at 14; see KPMG INT’L COOP., supra note 2, at 32.
319 See KPMG INT’L COOP., supra note 2, at 32.
321 Coxall & Hardacre, supra note 311, at 14.
322 See KPMG INT’L COOP., supra note 2, at 21–22.
323 Id. at 22.
324 Id. at 26.
326 ORG. FOR ECON. CO-OPERATION & DEV., OECD ENVIRONMENTAL PERFORMANCE
REVIEWS: CHINA 2007 15 (2007).
2016] Sustainability & Tax Policy 39
To support its goals of resource conservation and environmental
preservation, in 2012 China increased resource taxes on various minerals,
including iron and tin ore.328 China also imposes a standard enterprise
income tax of 25 percent on a company’s profits,329 but makes preferential
treatment available in relation to environmental protection, including: 1)
10 percent of the acquisition and operation costs of equipment used for
water conservations and environmental protection;330 2) a tax exemption
for three years of revenue derived from certain conservation and
environmental protection projects, including, for example, public sewage
treatment and seawater desalination, followed by three years of a half
deduction331 3) a 10 percent deduction for income resulting from products
produced by comprehensive use of major raw materials and resources;332
and 4) a three-year exemption for energy service companies on income
derived from energy performance contracting projects, followed three
years of half deductions of this revenue..333
China has also taken steps to reform fuel taxes, which are low by
international standards, to ensure that “retail fuel prices reflect the full
cost of the environmental damage associated with fossil fuel use—
including GHG emissions and local air pollution.”334
For many years China has been deliberating how to ensure that
companies are more proactive in protecting the environment.335 In 2015,
a draft of China’s first environmental protection tax law was released for
comments in 2015.336 If passed, this law would “impose heavier penalties
on polluters than ever before,” 337 imposing levies on pollutants in air,
water, solid waste, and noise.338 As of this writing, there is no timetable
328 See KPMG INT’L COOP., supra note 2, at 32; see also China Raises Resources Tax on Iron
Ore, Tin, Molybdenum, BLOOMBERG NEWS (Feb. 17, 2012), http://www.bloomberg.com/news/
that, in 2012, China announced increases in resource taxes on six minerals, including iron and tin
ore; reports attributed the increases to China’s policy objective of conserving domestic mineral
resources and the environment).
333 Id. at 29.
334 Bert Brys et. al., Tax Policy and Tax Reform in the People’s Republic of China 29 (OECD
Taxation Working Papers, Paper No. 18, 2013).
335 Zhang Chun, China Issues Draft on Environmental Taxes to Combat Pollution, CHINA
DIALOGUE (June 11, 2015), https://www.chinadialogue.net/article/show/single/en/7975-China-
336 Qin Yu, Environmental Law and Practice in China: Overview, PRACTICAL LAW 29
(Thompson Reuters, 2016).
337 Zheng Jinran and Cao Yin, Pollution Fees Could Become Law of the Land, CHINA DAILY,
Aug. 30, 2016, http://www.chinadaily.com.cn/china/2016-08/30/content_26636015.htm.
40 Virginia Environmental Law Journal [Vol. 35:1
for its finalization.339 Under the proposed law, taxes and levies will
replace the pollution fees that have been in place since 1982, but which
are not meeting their objectives since they are not compulsory and often
remain uncollected.340 A key issue to be decided is how the money that
would result from imposition of the new taxes would be used.341 This
proposed legislation follows a series of other recent efforts in China to
increase accountability, such as 1) higher fines imposed on polluters,342
2) increased power for courts,343 and 3) encouraging NGOs to file lawsuit
With these examples in mind, we now turn to U.S. federal tax policy
and opportunities to use it as a lever to encourage sustainability.
VI. A PROPOSAL FOR MOVING FORWARD: FORTIFYING THE USE OF THE
The Internal Revenue Code may be one of the more optimal (in terms
of outcomes) and expedient (in terms of process) means for bringing
about a coherent, cohesive, and comprehensive framework to encourage
long-term, predictable, and transparent investment in sustainable
development. This is because there is “low hanging fruit” in terms of
large perverse subsidies to eliminate and palatable alternatives to the way
we presently tax that the left, right, and centrist parts of the political
spectrum may agree upon. This approach should include the imposition
of new green taxes/penalties and the elimination of subsidies that have a
harmful net impact on society. In general, green taxes benefit society by
being economically efficient, environmentally effective, socially
transparent, and revenue-raising.345 The tax code can indeed be an
effective driver of change.
As just one element of the environmental reform landscape, taxes are
used as both a revenue source and a means of bringing about behavioral
changes.346 Therefore, it is not surprising that:
339 Qin Yu, supra note 336.
342 Zhang Chun, China’s polluters hit with biggest fines ever, CHINA DIALOGUE (June 1, 2015),
343 Liu Qin, China’s Top Court May Lean on Local Govt to Enforce Environmental Law, CHINA
DIALOGUE (Nov. 2, 2015), https://www.chinadialogue.net/article/show/single/en/7717-China-s-
344 Liu Qin, China Court to Hear 30m Yuan Air Pollution Lawsuit, CHINA DIALOGUE (Mar. 25,
345 ORG. FOR ECON. CO-OPERATION & DEV., ENVIRONMENTAL TAXATION: A GUIDE FOR
POLICY MAKERS 1 (2011).
346 ERNST & YOUNG, supra note 283, at 4.
2016] Sustainability & Tax Policy 41
There has been an increase in environmental and energy taxes in
recent years, including new legislation and the development of
regulations for existing taxes. In fact, the Organisation for
Economic Co-operation and Development identifies more than
5,600 environmental and energy taxes across the major global
economies . . . .These taxes cover activities such as emissions,
manufacturing of certain products, transportation, energy
generation, resource use, and other negative externalities.347
In the United States, political differences between and among the states
have an effect on environmental policy and tax decisions.348 Such factors
certainly may make the ability to implement and enforce environmental
measures difficult.349 As early as the 1960s and 1970s, efforts were
underway to figure out how the tax system could best be used to address
environmental concerns.350 Although President Nixon sought to impose
taxes on gasoline, lead, and sulfur dioxide emissions in the early 1970s,
his efforts failed.351 Soon after these unsuccessful efforts, a tax on
inefficient cars was passed in 1978, followed a few years later by a tax
used to help create the Superfund.352 Unfortunately, after this time period,
there was a shift, in which time “federal environmental tax policy [have]
focused on tax incentives and deductions to create actions with positive
environmental effects, as opposed to penalties and negative price signals
for damaging activities.”353
As detailed below, the United States should take a two-prong approach
to addressing sustainability concerns: 1) implementing green taxes to
help ensure that those most responsible for harm bear its costs, and 2)
eliminating those subsidies which mask the true cost of environmentally
A. Add New Green Taxes to the Internal Revenue Code
Imposing taxes on those actions or products that negatively impact the
environment will result in including the costs of harm in market prices.
354 Such information will better enable consumers to make choices with a
greater sense of the environmental footprint and costs associated with
those choices.355 In addition, as explained more fully in Part VI.A.6,
348 Waller, supra note 6, at 176.
350 Id. at 158.
354 Brys, supra note 334, at 27.
42 Virginia Environmental Law Journal [Vol. 35:1
below, revenue-generating consumption taxes can provide needed funds
to help mitigate the deleterious effects of pollution.356 A study by
researchers at the Inter-American Development Bank examined the
effectiveness of environmental taxes by evaluating the environmental
performance of fifty countries in relation to revenue collected from
environmental taxes and found that “countries with higher revenues seem
to perform better in the environmental domain.”357 This translated into
“lower emissions, including CO2 and PM
10 levels, decreasing water
pollutants, and reducing energy consumption and production, especially
from fossil fuel sources.”358 Such findings support the argument that
green taxes can be effective drivers of change.
A common rationale for using a country’s tax code as a vehicle to
influence consumer and commercial behavior is to respond to
externalities in the marketplace.359 When “there is a difference between
the cost (or benefit) to an individual from consumption or production and
the cost (or benefit) to society as a whole,” an externality exists.360 Thus,
externalities are a function of the consumption and production behaviors
and practices of a society.361 The problem with externalities is that they
cause market failures,362 which occur when too much or too little
economic activity transpires regarding a particular phenomenon in
relation to the optimal societal level of activity for that phenomenon.363
Both positive and negative externalities exist.364 A positive externality
occurs when the benefits of consumption or production for society
exceeds those for the individual (private interests).365 On the other hand,
if the costs of consumption or production are higher for society than they
are for the individual, a negative externality exists.366 Overconsumption
of a good results in a negative externality when such consumption is
matched against the level of consumption that would be optimal from a
societal perspective.367 Correspondingly, under-consumption may result
in a positive externality.368
357 Sebastian J. Miller & Mauricio Vela, Are Environmentally Related Taxes Effective? 16 (IDB
Working Paper Series, Paper No. IDB-WP-467, 2013).
358 Id. at 16.
359 STAFF OF JOINT COMM. ON TAXATION, 112TH CONG., JCX-28-12, PRESENT LAW AND
ANALYSIS OF ENERGY-RELATED TAX EXPENDITURES 22 (2012).
2016] Sustainability & Tax Policy 43
To address the extent to which environmental harms result from
consumption choices, the United States should implement the following
taxing measures: 1) an increase in targeted food taxes; 2) an increase in
taxes on certain choices of building materials and methods; 3) imposition
of pollution taxes; 4) implementation of a carbon tax; and 5) an increase
in gasoline tax rates, which are presently among the lowest in the world.369
In each case, the goal is to ensure that to the extent feasible, the tax be
imposed on the product or action causing the harm.370 Uniform
application of the newly imposed taxes will ease compliance costs both
for the government and for taxpayers, while also making avoidance of
such taxes more difficult.371
1. Increased and Targeted Food Taxes
A choice as basic as the food we eat each day has a significant effect
on the environment.372 While considerable attention has been paid to the
transportation sector as a source of greenhouse gases, agriculture is
responsible for a greater percentage of greenhouse gas production (14.9
percent) than transportation (13.5 percent).373 If agriculture is defined
broadly to include “forestry, land use changes, and crop and cattle
farming, agriculture’s shared contribution of global [greenhouse gas]
emissions rises to 33.1 [percent].”374
Food prices should reflect the cumulative environmental impact of the
production and distribution chain needed to bring that food to market.
Increased costs that take into account the environmental impacts of
production may negatively impact demand and, therefore, possibly harm
entire industries. But, the question remains whether an industry that exists
because of subsidies is a sustainable industry in the long-term. When
environmental harms result from the means of production, shared costs
will be incurred. To illustrate, consider the environmental impacts of
production in the meat industry, as well as the variety of foods made
possible by the unnatural reallocation of water.
369 Gasoline Prices Around the World: The Real Cost of Filling Up, Bloomberg (July 18, 2016),
370 Brys, supra note 334, at 28.
372 How Our Food Choices Impact Global Warming, BORGEN MAGAZINE (May 6, 2013),
373 Annise Maguire, Shifting the Paradigm: Broadening Our Understanding of Agriculture and
Its Impact on Climate Change, 33 ENVIRONS ENVTL. L. & POL’Y 275, 277 (2010).
44 Virginia Environmental Law Journal [Vol. 35:1
a. The Meat Industry
A significant industry both in the United States and in much of the
world is the livestock industry.375 In its current form, livestock production
is unsustainable due to its numerous environmental consequences: large
amounts of water consumption, water pollution, loss of rain forests due
to deforestation, soil erosion and desertification, use of fossil fuels, and
global warming resulting from the release of methane and carbon
dioxide.376 In fact, livestock is estimated to be responsible for up to 20
percent of global methane emissions, which is particularly significant
considering methane is believed to be a greater threat to global warming
than carbon dioxide.377 Consider further the fact that “if every American
eliminated just a quarter-pound serving of beef each week, it would have
the equivalent impact of removing four to six million cars from the
roads.”378 Beef has the largest carbon footprint of any food379 and yet the
one-dollar hamburger remains a value meal in U.S. society, a price that
clearly fails to reflect the burger’s “true cost.”380
b. Products Made Possible by Water Reallocation
Agricultural practices that fail to take into account environmentally
sustainable methods, and instead put greater emphasis on profits, have
detrimental consequences on the ecosystem.381 One problem that arises is
the pattern of water use: “In developing countries agriculture uses 87
[percent] of extracted water . . . in the United States, agriculture is
responsible for 80 [percent] to 90 [percent] of consumptive water use.”382
Consider the Central Valley of California, where over 250 varieties of
crops are grown.383 This area contains 17 percent of the irrigated land in
the United States and is a source of 25 percent of the food in the United
States, supplying up to 40 percent of the country’s fruits and nuts.384 In
375 Robert Smith, Livestock Production: The Unsustainable Environmental and Economic
Effects of an Industry Out of Control, 4 BUFF. ENVT’L. L.J. 45, 47 (1996).
376 Id. at 48–64.
377 Id. at 64.
378 How Our Food Choices Impact Global Warming, BORGEN MAGAZINE (May 6, 2013),
380 This “cost” does not take into account the health costs which can result from a meat-based
diet high in cholesterol, fat, and pesticides of livestock industry as well as the potential harm cause
by the plants of the rain forest with medicinal properties that are destroyed in the process of making
room for cattle pastures. See Robert Smith, supra note 375, at 128–29.
381 Annise Maguire, supra note 373, at 283.
383 California’s Central Valley, U.S. GEOLOGICAL SURVEY, http://ca.water.usgs.gov/projects/
central-valley/about-central-valley.html (last visited Nov. 25, 2016).
2016] Sustainability & Tax Policy 45
2015, California Governor Jerry Brown was criticized for exempting
California farmers, who use 80 percent of the state’s water, from
mandatory cuts in water use.
385 Governor Brown’s defense of the
farmers—”they’re providing most of the fruits and vegetables of America
to a significant part of the world”—is indicative of how reliant the United
States has become on California produce, and also causes one to wonder
what will happen to U.S. food supplies in the event drought conditions
become more commonplace and make such continued California
production levels untenable.386 While some crops, such as grapes, citrus,
and nuts, are best suited to the California climate, a multitude of other
crops, such as tomatoes, lettuce, and carrots, could certainly thrive
elsewhere and with less reliance on water reallocation.387 Imposition of
taxes to ensure that the sales price reflects the environmental impact of
growing agricultural products made possible only by reallocation of
scarce water resources has the potential to provide an incentive for
regional and local farms to once again engage in fruit and vegetable
2. Building Taxes
The EPA reports that buildings are a major contributor to energy
consumption and environmental harm.389 Construction and building use
“account for 39 percent of total energy use, 12 percent of the total water
consumption, 68 percent of total electricity consumption, 38 percent of
the carbon dioxide emissions.”390 In addition, real estate development
generates 136 million tons of waste, amounting to 40 percent of total
landfill material.391 Given the massive impact buildings have on the health
385 Natasha Geiling, California’s Drought Could Upend America’s Entire Food System,
THINKPROGRESS (May 5, 2015), http://thinkprogress.org/climate/2015/05/05/3646965/california-
388 Id. Consider, for example, the tobacco industry of North Carolina. In 2002 tobacco brought
in 12 percent of North Carolina’s agricultural revenue. But, in 2004 federal law eliminated price
protections for tobacco farmers and, as a result, the number of tobacco farms, which had been at
7,000 in 1982 had dropped to only 94 by 2012. But, instead of disappearing, farming diversified
and fruits and vegetables were produced, which met almost 40 percent of the annual needs of the
389 Why Build Green?, U.S. EPA, https://archive.epa.gov/greenbuilding/web/html/
whybuild.html (last visited Nov. 22, 2016).
391 Adam J. Sulkowski, LEEDigation: The Risks, Why We Don’t See More, and Practical
Guidance Related to Green Building Contracts, 39 REAL ESTATE L.J. 192, 195 (2010)
(“Worldwide 40 [percent]—or 3 billion tons annually of raw material is dedicated to
46 Virginia Environmental Law Journal [Vol. 35:1
of humans, the natural environment, and the economy,392 any
comprehensive and meaningful federal framework for sustainability has
to internalize the costs on developers who do not adopt best building
One way for the United States to ensure that most new construction
and remodeling become green would be to impose a Building Green Tax
on all new construction or remodeling projects that do not meet the
requirements of a LEED certification level.393 The tax could be graduated
in a way such that buildings with the highest certification standards are
taxed least or not at all, and tax rates would increase as building projects
fail to meet LEED certification criteria. For example, one green building
option recognized in LEED criteria is brownfielding—building on
previously used land rather than clearing greenfields. With tens of
thousands of acres of land abandoned in hundreds of cities, it makes sense
to tax at a higher rate new construction proposed for virgin land.394
Another green building technique is to equip structures with monitoring
and control systems to better eliminate waste in energy and water use.395
Wasteful buildings ought to be taxed more than smart buildings.396 While
basic LEED certification levels do not assure greater efficiencies in every
regard,397 as more criteria are met and higher certification levels are
achieved, the probability of both saving and eliminating environmental
harms increases.398 Therefore, a graduated tax rewarding best building
practices is both effective as a matter of public policy and environmental
392 Why Build Green?, supra note 389.
393 The following information about LEED (Leadership in Energy and Environmental Design)
is from the U.S. Green Building Council website: “Leaders around the world have made LEED the
most widely used third-party verification for green buildings, with around 1.85 million square feet
being certified daily. LEED works for all buildings—from homes to corporate headquarters—at all
phases of development. Projects pursuing LEED certification earn points across several areas that
address sustainability issues. Based on the number of points achieved, a project then receives one
of four LEED rating levels: Certified, Silver, Gold and Platinum.” More information is available at
LEED, U.S. GREEN BUILDING COUNCIL, http://www.usgbc.org/leed (last visited Nov. 22, 2016).
394 Adam J. Sulkowski, There’s Gold in Them Thar Brownfields: The Legal Framework of
Brownfield Redevelopment and Some Tips for Getting Started, 39 REAL ESTATE L. J. 100, 100–01
395 Adam J. Sulkowski, The Growing Trend of Voluntary Corporate Responsibility Disclosure
and Its Implications for Real Estate Attorneys, 38 REAL ESTATE L.J. 475, 479–80 (2010).
396 Definitions of smart buildings vary greatly, but generally include mentions of technologies
that assure efficiency and low environmental impact. Eight Definitions of “Smart Buildings”,
SUSTAINABLE TECH. FORUM (May 13, 2011), http://sustainabletechnologyforum.com/from-
397 Sulkowski, supra note 394, at 195–96.
398 Id. at 194.
2016] Sustainability & Tax Policy 47
3. Pollution Taxes
Pollution occurs when the earth’s air, water, land, and other
environmental elements become unsafe, unusable, or otherwise
impaired.399 Although a tangible contaminant, such as nanoparticles,400
generally is the source of pollution, intangible factors such as noise, light,
and temperature may serve as a source of pollution when introduced
artificially into a particular environmental setting.401 Toxic pollutants are
pervasive, causing harm and injury to more than 200 million people
In addition to the harm caused by pollutants, pollution itself creates a
negative externality in the U.S. economy,403 because the parties who
create pollution are not responsible for the costs associated with
pollution.404 Rather, the general population of the United States absorbs
the costs of pollution.405 The existence of this type of negative externality
supports the argument that some form of governmental intervention is
required.406 For example, Congress could pass a bill aimed directly at the
industries causing pollution, requiring industry to lower pollution levels
over time.407 For example, “in 2010, Americans produced about 250
million tons (226.8 million kilograms) of garbage, consisting of product
packaging, grass clippings, furniture, clothing, bottles, food scraps,
newspapers, appliances, paint and batteries.”408 In response to this type of
land pollution, Congress could pass a bill requiring a nationwide bottle
bill similar to the type designed and implemented by the Commonwealth
An alternative approach in response to pollution is to impose a
pollution tax.410 There is general agreement among economists that
399 Alina Bradford, Pollution Facts & Types of Pollution, LIVESCIENCE (Mar. 10, 2015),
400 See, e.g., Nanoparticles, THE COMMONWEALTH OF MASSACHUSETTS EXECUTIVE OFFICE
OF ENERGY AND ENVIRONMENTAL AFFAIRS, http://www.mass.gov/eea/agencies/massdep/
401 Bradford, supra note 399.
402 Id. For a list of over 60 toxic pollutants, see 40 C.F.R. § 401.15 (2016).
403 STAFF OF JOINT COMM. ON TAXATION, JCX-28-12, supra note 359, at 23.
404 Id. at 23.
408 Bradford, supra note 399.
409 The Commonwealth of Massachusetts enacted a Bottle Bill 1983, which requires “a five cent
deposit on all carbonated soft drink, beer, malt beverage and sparkling water containers sold in the
state.” See Bottle & Can Recycling, The Massachusetts Bottle Deposit Law, COMMONWEALTH OF
MASS. EXEC. OFFICE OF ENERGY & ENVTL. AFFAIRS, http://www.mass.gov/eea/agencies/
massdep/recycle/reduce/bottle-and-can-recycling.html (last visited Nov. 22, 2016).
410 STAFF OF JOINT COMM. ON TAXATION, JCX-28-12, supra note 359, at 23.
48 Virginia Environmental Law Journal [Vol. 35:1
imposing a direct tax on the activity causing the pollution would be the
most optimal way of eliminating the negative externality, with the
resulting benefit accruing to society as a whole.411 A direct tax is favored
over a more indirect approach, such as providing targeted tax incentives,
to address the pollution problem and corresponding negative
Government intervention in the form of a pollution tax is necessary in
order to incentivize consumers and industry to change their consumption
and production behavior.413 A direct pollution tax on the activity causing
the pollution addresses the negative externality and resulting market
failure by shifting the cost of protecting the environment from society to
the polluter.414 Imposing a direct tax on the industries causing pollution
has not been a popular environmental policy.415 Rather, the policy
approach has been one of “command-and-control” regulations, whereby
certain types of practices and technologies have been banned or pollution
emission levels have been proscribed.416 However, interest in imposing
environmental taxes has gained traction in recent years.417 The benefit of
imposing a pollution tax, rather than trying to control the levels of
pollution through a regulatory structure, is that the industries that cause
pollution, along with the consumers who purchase their goods and
services, directly bear the costs associated with the pollution rather than
the costs being spread across society in general.418 An increase in costs
may serve as a catalyst for the development of new innovations by
business, and for adoption of more environmentally conscious
consumption choices by businesses and consumers alike.419
4. Carbon Tax
Much like a pollution tax, a carbon tax would seek to tax “bad
behavior”, which is “superior to subsidizing goods because the ‘bads’ or
causes of the climate change problem are easier to identify than the proper
solutions.”420 Like most consumption taxes, a carbon tax is a means of
influencing consumer behavior that can bring about effective
411 Id. at 24.
413 ORG. FOR ECON. CO-OPERATION & DEV., supra note 345, at 1.
418 STAFF OF JOINT COMM. ON TAXATION, JCX-28-12, supra note 359, at 23.
419 Brys, supra note 334, at 28.
420 Jeremy Freeman, Efficacy of Carbon Taxes and Recommendations for Cutting Carbon, 15
HOUS. BUS. & TAX L.J. 268, 288 (2015).
2016] Sustainability & Tax Policy 49
environmental change without mandating actions. For example, rather
than regulating consumer behavior through various types of directives, a
carbon tax becomes a part of a consumer’s decision-making process. 421
The goal of designing the carbon tax would be to set a price point such
[T]he marginal damage caused by the polluter would be charged
to the polluter in such a manner that it would no longer be
profitable for the polluter to manufacture beyond a certain point.
If the price is set correctly, then the “right amount” of carbon
emissions would be reduced because “further reductions would
cost too much and lesser reductions would be too
British Columbia, Canada represents a successful model of
implementation of a carbon tax. A carbon tax of ten dollars per ton of
emissions was imposed on individuals and corporations beginning in
2008.423 By, 2012 this amount reached thirty dollars per ton and the
province decided to maintain this level of carbon tax since, “it appear[ed]
to be working quite well,” according to economist James Brander.424 By
2011, British Columbia’s greenhouse gas emissions were 5.8 percent
below their 2007 levels, during a time of population growth and an
increase in the GDP.425 Interestingly, the tax was designed to be revenue-
neutral, meaning that the increased revenues generated by the carbon tax
were returned to individuals and corporations via rebates.426
5. Increase the Gasoline Tax
In 1993, Congress set the gas tax at a rate of 18.4 cents per gallon with
the intention of funding the Federal Highway Trust Fund used to maintain
roads and bridges.427 Although the decades since 1993 have witnessed
increased prices in many areas, the gas tax has remained steady and the
Federal Highway Trust Fund has been depleted.428 Jeffrey Sachs, director
of the Earth Institute at Columbia University, has proposed that the
421 Alex Rice Kerr, Why We Need a Carbon Tax, 34 ENVIRONS ENVT’L L. & POL’Y J. 69, 75
422 Jeremy Freeman, supra note 420, at 286.
423 Jeff Buckstein, Counting the Benefits, Costs of Green Policies, THE BOTTOM LINE, Sept.
2014, at 9.
424 Id. at 9.
425 Id. at 23.
426 Id. at 9, 23.
427 Jeffrey D. Sachs, Why It’s Time to Raise the Federal Tax on Gasoline, POLITICO, Jan. 19,
50 Virginia Environmental Law Journal [Vol. 35:1
current environment of declining world oil prices represents the perfect
opportunity to increase the gas tax by 35 cents per gallon, enabling the
government to add $50 billion a year to the highway fund while at the
same time still allowing consumers to enjoy the bulk of the savings
resulting from falling oil prices.429
A review of worldwide gasoline and diesel fuel taxes indicates that the
United States has the lowest tax share on gasoline and diesel prices of 34
countries reviewed by OECD.430 The United Kingdom has the highest
rates.431 In the United Kingdom, “gasoline tax revenues are several times
highway spending, and the Labour government has argued that if gasoline
taxes are reduced, schools and hospitals will have to close.”432 In the
United States higher gasoline taxes, in addition to funding needed
highway and bridge projects, would more importantly discourage driving
and fuel combustion, and have the benefit of reducing carbon dioxide
emissions, air pollution, traffic congestion, and dependency on oil.433
6. Shouldn’t We Have a Federal “Rainy Day Fund?”
Tax policy offers both an effective and expedient lever with which to
offer the private sector the predictability and support it needs to invest in
innovation and efficiency. In a perfect world, at least some of the revenue
that comes from taxing undesirable activity ought to be put aside for
disaster relief. Regardless of whether a tax or fee is revenue-generating
or revenue-neutral, the first priority, as discussed above, is to associate
the cost of an environmental harm with the creation of the harm. Ideally,
another common sense principle with deep roots in Anglo-American law
is that those creating harms should bear the cost. This is obvious in tort
law, in nuisance law, and the “polluter pays” principle. In an ideal
situation, revenue-positive taxes would allow the government to set aside
at least some revenue in an Environmental Disaster Trust Fund (or a
Disaster Relief Trust Fund, or Rainy Day Fund, as it is known in some
states). As a result, those who contribute to the environmental problem
ultimately pay for the costs of its detrimental effects. Presently, federal
disaster relief efforts are funded by the general fund. As a result, all
taxpayers ultimately bear the costs, even those who do not contribute to
the problem. In the current political climate especially, revenue neutral
430 KPMG INT’L COOP., MAKING GREEN GREENER –TAX INCENTIVES FOR ENERGY
432 Ian W.H. Parry, Is Gasoline Undertaxed in the United States?, 148 RESOURCES 28, 28
2016] Sustainability & Tax Policy 51
taxes are more pragmatic and more realistic, even though such taxes
would deny a logical source of revenue for the creation of a disaster fund.
Anyone doubting the need for a disaster relief fund need only recall
hurricanes Sandy and Katrina, the western wildfires of unprecedented
scale, and extreme storm events and disaster declarations in every region
of the United States.
B. Eliminate Harmful Subsidies
An OECD tally of environmental tax exemptions and other special
environmental tax subsidies indicates that approximately 1,150 such
provisions are currently in place in OECD countries.434 Unfortunately, in
many instances such provisions may further environmental harms rather
than solve an environmental problem.435 Consider, for example, the fact
that “coal is taxed in all but five OECD countries, and in these countries
the most significant coal users are benefiting from many tax exemptions
In the United States, four examples are illustrative of subsidies that are
perverse and should be eliminated. Some may have appeared justifiable
as serving the collective interest at another point in time, but presently all
of these only serve a narrow set of stakeholders at great expense and
detriment to society and the environment. At their most perverse,
subsidies can take the form of favorable tax treatment or permitting fees
for economic activities that are harmful.
1. Eliminate Corn Subsidies—The Farm Bill
Originally introduced in response to crop failures in the 1930s and the
Great Depression, and later used to combat food price inflation, the Farm
Bill437 is a sacred cow of agricultural policy in the United States.438
Neither political party strives to eliminate or fundamentally alter it
because of the power of the businesses with enormous stakes in
perpetuating (in its current form) $20 billion of price supports and crop
insurance.439 Key provisions encourage agribusinesses to overproduce
434 HANDBOOK OF RESEARCH ON ENVIRONMENTAL TAXATION, supra note 222, at 42–43.
437 The Agricultural Act of 2014, Pub. L. No. 113–79 (2014), 128 Stat. 649 (also known as the
2014 U.S. Farm Bill).
438 Should Washington End Agricultural Subsidies?, WALL STREET J., July 12, 2015,
439 Id. Despite claims that the 2014 iteration included reforms, the current amount of subsidies
is actually larger than before and changes to qualification criteria removed food assistance from
some households below the poverty line. For more information, see Anne Weir Schechinger, Crop
52 Virginia Environmental Law Journal [Vol. 35:1
corn and soy.440 While it has achieved a key aim of stabilizing supplies of
food staples, it has distorted the entire supply chain of food.441 Corn is
used for everything from feeding livestock in concentrated feeding
operations to sweetening beverages in the form of high fructose corn
syrup found in most major carbonated drinks.442 Corn is so prevalent that
Americans’ tissue samples can be identified in global comparisons based
on an elevated level of an isotope of carbon found in the corn that we
collectively pay to overproduce.443 Overreliance on a single species of
corn has created a strategic risk because a single blight affecting this
variety could create a costly and destabilizing crisis with widespread
ripple effects throughout the food supply.444
The Farm Bill is therefore a contributing factor to several costly
problems, including the epidemic of obesity in the United States,445 plus
various environmental problems and potentially catastrophic systemic
risks.446 By artificially keeping commodity prices low, it also makes it
difficult for farmers in the developing world to prosper by selling their
produce in export markets—another undesirable impact on sustainable
development.447 While it is not politically feasible at present to drastically
reform the Farm Bill, from the point of view of pragmatic and utilitarian
public policy, it should be reformed to distort the agricultural and food
Subsidies Soar under 2014 Farm Bill “Reforms” (Mar. 13, 2015), http://www.ewg.org/agmag/
440 William Moseley, The Silver Lining in the Drought, N.Y. TIMES, Aug. 7, 2012, http://
442 Tamar Haspel, Why Don’t Taxpayers Subsidize the Foods That Are Better For Us?, WASH.
POST, Jan. 18, 2014, https://www.washingtonpost.com/lifestyle/food/farm-bill-why-dont-
443 ”But carbon 13 [the carbon from corn] doesn’t lie, and researchers who have compared the
isotopes in the flesh or hair of Americans to those in the same tissues of Mexicans report that it is
now we in the North who are the true people of corn. . . . Compared to us, Mexicans today consume
a far more varied carbon diet: the animals they eat still eat grass (until recently, Mexicans regarded
feeding corn to livestock as a sacrilege); much of their protein comes from legumes; and they still
sweeten their beverages with cane sugar. So that’s us: processed corn, walking.” M