(PDF) SUSTAINABILITY & TAX POLICY: FIXING A PATCHWORK OF POLICIES WITH A COHERENT FEDERAL FRAMEWORK

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-

Yang.

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

I. INTRODUCTION

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

sustainable innovations.

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,

http://www.americanbar.org/publications/infrastructure/2015-

16/winter/epas_clean_power_plan_final_rule_whats_next.html.

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

programs.8

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

cost.”).

7 See KPMG INT’L COOP., supra note 2, at 1.

8 Id.

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-

government-in_b_4759621.html.

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

10 Id.

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,

2016).

16 George B. Wyeth & Beth Termini, Regulating for Sustainability, 45 ENVTL. L. 663, 671–72

(2015).

17 Jonathan H. Adler, Placing the Clean Power Plan in Context, WASH. POST, Feb. 20, 2015,

https://www.washingtonpost.com/news/volokh-conspiracy/wp/2016/02/10/placing-the-clean-

power-plan-in-context/?utm_term=.e74e9732c97d.

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/

supreme-court-puts-the-brakes-on-the-epas-clean-power-plan/?utm_term=.883c47419003.

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

technologies.28

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

Expedited Permitting:

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

professionals.

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

building standards.34

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/

go/news.display/id/21100.

30 Id.

31 Id.

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

STRUCTURE (2014),

https://www.cityofchicago.org/content/dam/city/depts/bldgs/general/GreenPermit/2014GreenPer

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,

2016), http://www.ahs.dep.pa.gov/NewsRoomPublic/articleviewer.aspx?id=20983&typeid=1.

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.

20, 2016).

39 Home Energy Efficiency Programs, N.Y. STATE ENERGY RESEARCH & DEVELOPMENT

AUTH., https://www.nyserda.ny.gov/All-Programs/Programs/Home-Energy-Efficiency-Upgrades

(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

HVAC systems.

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

certain standards.

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,

http://www.energy.gov/savings/city-riverhead-energy-conservation-device-permitting-fees (last

visited Nov. 20, 2016).

Technical Assistance/

Design Assistance:

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

consumers.40

Santa Monica, California: Santa Monica

makes solar experts available to provide advice

to residents on energy efficiency and financing

options for solar panels.41

Permit/Zone Fee

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

fees charged.

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

buildings.43

2016] Sustainability & Tax Policy 11

Table 2: State and Local Recycling Efforts

Incentive & Description Examples

E-Waste44 Recycling

Efforts: More than half the

states have adopted e-waste

legislation.

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

Fund.”47

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.

20, 2016).

46 Id.

47 Id.

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.

20, 2016).

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

Mandatory Recycling:

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

city.54

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,

2006), http://www.seattlepi.com/local/article/Mandatory-recycling-program-working-well-

1198413.php.

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-

clean-up-with-mandatory-recycling/.

55 State Plastic and Paper Bag Legislation, NAT’L CONFERENCE OF STATE LEGISLATURES,

http://www.ncsl.org/research/environment-and-natural-resources/plastic-bag-legislation.aspx (last

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

incentives:

Table 3: State & Local Renewable Energy Incentives

Incentive

Description

New York: Clean Energy

Fund

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

2030.60

Oklahoma: Electric

Cooperative Energy Efficiency

Rebate Program

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,

2015, http://www.azcentral.com/story/news/local/tempe/2015/09/30/tempe-councilwoman-sues-

state-plastic-bags-lauren-kuby/73107130/.

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,

2016).

60 Id.

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

systems.62

Reno, Nevada: Energy

Efficiency & Renewable

Energy Initiative

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

Houston Initiative

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

change.

62 Irrigation Efficiency Rewards Program, IDA. POWER, https://www.idahopower.com/

EnergyEfficiency/Irrigation/Programs/EfficiencyRewards//default.cfm (last visited Nov. 20,

2016).

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).

64 Id.

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).

66 Id.

67 Id.

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

fuel.

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/

Resources/Documents/AIAB096444SPP.

70 Id.

71 Id.

72 Summary Tables, DSIRE, http://programs.dsireusa.org/system/program/tables (last visited

Nov. 25, 2016).

73 Id.

74 Garciano, supra note 69.

75 Id.

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

projects.82 Maryland

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

(2010), http://www.grantthornton.com/staticfiles/GTCom/Tax/Corp-SFTS%20files/GreenTax

CreditsWhitepaper2010.pdf.

77 Resource Enhancement and Protection (REAP), PA. DEPT. OF AGRIC., http://

www.agriculture.pa.gov/Protect/StateConservationCommission/REAP/Pages/default.aspx#.VvG5

-p3D-Uk (last visited Nov. 20, 2016).

78 COHEN, EIMICKE & MILLER, supra note 26, at 102.

79 Id.

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

LEED certification.86

c. Transportation

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

SUSTAINABILITY EFFORTS

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

86 Id.

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.

89 Id.

90 Annette Nellen & Monika Miles, Taxes and Sustainability, 2 J. GREEN BUILDING 57, 58

(2007).

91 Nick Fiore, Guiding Principles of Good Tax Policy, J. ACCOUNTANCY (Feb. 1, 2002),

http://www.journalofaccountancy.com/issues/2002/feb/guidingprinciplesofgoodtaxpolicy.html.

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

419.

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,

2016), http://www.cbpp.org/research/federal-tax/policy-basics-federal-tax-expenditures.

103 Id.

104 Id.

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

108 Id.

109 Waller, supra note 6, at 157–58.

110 26 U.S.C. § 41 (2012).

111 Waller, supra note 6, at 157–58.

112 Id.

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

of electricity.123

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).

122 Id.

123 Id.

124 Id.

125 Id.

126 Id. at 2.

127 Id.

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

technologies available.129

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

(2015).

135 For example, qualified technologies include solar water heat, solar space heat, and

photovoltaics. Id.

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.

146 Id.

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.

158 Id.

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).

160 Id.

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

projects.178

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

power industry.183

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-

industry.

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).

181 Id.

182 Id.

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

sources.189

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

184 Id.

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.

191 Id.

192 Id.

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

31, 2016.202

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,

2016.206

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),

http://www.usgbc.org/articles/good-know-green-building-incentive-strategies-0.

208 Id.

209 See KPMG INT’L COOP., supra note 2, at 25.

210 Id. at 26.

211 Id.

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,

2016.221

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.

225 Id.

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-

book/key-elements/environment/what-is.cfm.

228 Id.

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://

www.congress.gov/114/bills/s2400/BILLS-114s2400is.xml.

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),

http://tpcprod.urban.org/briefing-book/key-elements/environment/usa.cfm.

232 Id.

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

efficiency guidelines.241

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

231.

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.

237 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/

system/assets/publications/741/original/Federal_and_State

_Tax_Incentives_for_Alt_Morse_Dowling.pdf?1319811577 (last visited Nov. 21, 2016).

240 Id.

241 Id.

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).

244 Id.

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. §

4682(c)(1).

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/

issues/2010/jul/clinic-story-01.html.

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).

253 Id.

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

231.

263 Id.

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.

267 Id.

268 Id.

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

failure.270

V. THE UNITED STATES CAN LEARN FROM THE EFFORTS OF THE

INTERNATIONAL COMMUNITY

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

269 Id.

270 Climate Policy Memo #1, supra note 264.

271 Kathy Hoffelder, How Taxes Can Drive Sustainability, CFO (Apr. 13, 2013),

http://ww2.cfo.com/tax/2013/04/how-taxes-can-drive-sustainability/.

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-

code-to-shape-sustainable-corporate-activity.

274 See KPMG INT’L COOP., supra note 2, at 2.

275 Id. at 3.

276 Id. at 5.

277 Id.

278 Id. at 4.

279 Id.

280 Id.

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

A. France

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).

285 Id.

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.

2010), http://www.connexionfrance.com/prefet-france-what-do-they-do-10662-news-article.html.

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

B. Japan

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

291 Id.

292 Brenot, supra note 287, at 23.

293 See KPMG INT’L COOP., supra note 2, at 26.

294 Id.

295 Id.

296 Id.

297 Id.

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-

performance-reviews_19900090.

300 Id.

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,

http://www.japantimes.co.jp/news/2012/09/29/business/green-tax-to-come-into-force-in-october

(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

Agreements.313

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

303 Id.

304 Id.

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.

314 Id.

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

management.321

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

D. China

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

315 Id.

316 Id.

317 Id.

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.

320 Id.

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.

325 Id.

326 ORG. FOR ECON. CO-OPERATION & DEV., OECD ENVIRONMENTAL PERFORMANCE

REVIEWS: CHINA 2007 15 (2007).

327 Id.

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/

articles/2012-02-17/china-raises-resources-tax-on-iron-tin-molybdenum-production (reporting

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).

329 Id.

330 Id.

331 Id.

332 Id.

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-

issues-draft-on-environmental-taxes-to-combat-pollution.

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.

338 Id.

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

against polluters.344

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

TAX CODE

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.

340 Id.

341 Id.

342 Zhang Chun, China’s polluters hit with biggest fines ever, CHINA DIALOGUE (June 1, 2015),

https://www.chinadialogue.net/blog/7643-China-s-polluters-hit-with-biggest-ever-fines/en.

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-

top-court-may-lean-on-local-govt-to-enforce-environmental-law.

344 Liu Qin, China Court to Hear 30m Yuan Air Pollution Lawsuit, CHINA DIALOGUE (Mar. 25,

2015), https://www.chinadialogue.net/article/show/single/en/7790-China-court-to-hear-3-m-yuan-

air-pollution-lawsuit-.

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

harmful activities.

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,

347 Id.

348 Waller, supra note 6, at 176.

349 Id.

350 Id. at 158.

351 Id.

352 Id.

353 Id.

354 Brys, supra note 334, at 27.

355 Id.

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

356 Id.

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).

360 Id.

361 Id.

362 Id.

363 Id.

364 Id.

365 Id.

366 Id.

367 Id.

368 Id.

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),

http://www.bloomberg.com/graphics/gas-prices/.

370 Brys, supra note 334, at 28.

371 Id.

372 How Our Food Choices Impact Global Warming, BORGEN MAGAZINE (May 6, 2013),

http://www.borgenmagazine.com/how-our-food-choices-impact-global-warming/.

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).

374 Id.

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),

http://www.borgenmagazine.com/how-our-food-choices-impact-global-warming/.

379 Id.

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.

382 Id.

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).

384 Id.

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

production.388

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-

drought-and-agriculture-explainer/.

386 Id.

387 Id.

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

local community.

389 Why Build Green?, U.S. EPA, https://archive.epa.gov/greenbuilding/web/html/

whybuild.html (last visited Nov. 22, 2016).

390 Id.

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

construction.”).

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

practices.

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

protection.

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

(2010).

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-

inspired-to-awful-8-definitions-of-smart-buildings_18078.html

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

globally.402

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

of Massachusetts.409

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),

http://www.livescience.com/22728-pollution-facts.html.

400 See, e.g., Nanoparticles, THE COMMONWEALTH OF MASSACHUSETTS EXECUTIVE OFFICE

OF ENERGY AND ENVIRONMENTAL AFFAIRS, http://www.mass.gov/eea/agencies/massdep/

toxics/sources/nanoparticles.html.

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.

405 Id.

406 Id.

407 Id.

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

externalities.412

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.

412 Id.

413 ORG. FOR ECON. CO-OPERATION & DEV., supra note 345, at 1.

414 Id.

415 Id.

416 Id.

417 Id.

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

that:

[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

environmentally harmful.422

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

(2010).

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,

2015, http://www.politico.com/magazine/story/2015/01/why-its-time-to-raise-the-federal-tax-on-

gasoline-114380.

428 Id.

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

429 Id.

430 KPMG INT’L COOP., MAKING GREEN GREENER –TAX INCENTIVES FOR ENERGY

SUSTAINABILITY (2011).

431 Id.

432 Ian W.H. Parry, Is Gasoline Undertaxed in the United States?, 148 RESOURCES 28, 28

(2002).

433 Id.

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

and rebates.”436

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.

435 Id.

436 Id.

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,

http://www.wsj.com/articles/should-washington-end-agriculture-subsidies-1436757020.

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

industries less.

Subsidies Soar under 2014 Farm Bill “Reforms” (Mar. 13, 2015), http://www.ewg.org/agmag/

2015/03/crop-subsidies-soar-under-2014-farm-bill-reforms.

440 William Moseley, The Silver Lining in the Drought, N.Y. TIMES, Aug. 7, 2012, http://

www.nytimes.com/2012/08/08/opinion/the-droughts-alert-for-corn.html.

441 Id.

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-

taxpayers-subsidize-the-foods-that-are-better-for-us/2014/02/14/d7642a3c-9434-11e3-84e1-

27626c5ef5fb_story.html.

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

SUSTAINABILITY & TAX POLICY: FIXING A PATCHWORK OF POLICIES WITH A COHERENT FEDERAL FRAMEWORK

Figures