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Eco tax, which is an abbreviated term for Environment taxation, is a tax levied on environmentally- degrading activities and practices. It propounds the concept of collecting taxes as a way of compensation for causing harm to the environment.[1] It is aimed at penalising the polluters and to deter further pollution into the environment. It also aims at putting a check on the use of non-renewable resources in order to attain sustainability. The idea of sustainable development has emerged from the Rio declaration that was formulated in 1992 at the Earth summit. The central dogma behind the concept of sustainability is the fine balance between present demands and future needs owing to the presence of limited resources. The Public trust doctrine postulates a duty upon the State to look after the natural environment and discourage the processes in which the environment is compromised. The ongoing COVID-19 pandemic has changed the existing scenario and has pushed countries to reanalyse climate change and the importance of preserving the environment.


The idea of eco tax is based on the international principle of ‘Polluter Pays’.[2] This doctrine suggests that it is upon the person who pollutes the environment to restore it and compensate for any loss caused by him/her. It is only logical to recover the losses from the creator of the misfeasance. It was popularised in 1972 by the member nations of the Organisation for Economic Cooperation and Development (OECD). The Supreme Court of India clarified in the case of Research Foundation for Science v. Union of India[3] that the doctrine of polluter pays does not portray that one can pollute and then pay for it. It suggests that merely having the resources to pay for the losses that might occur in the process, does not render the process environmentally viable. Individuals and industries cannot be allowed to pollute even if they promise to pay for any injury caused thereby. India has, therefore, adopted the stronger version of precautionary principle which attempts to stop environmentally harmful activities even before scientific evidence confirms it to be so. The stronger version, as interpreted by the Supreme Court, entails that there is reverse onus of proof upon the respondents. That essentially means that when any petitioner submits before the Court or the green tribunal that a person or an industry or factory is releasing pollutants into the surrounding air, water or other resources, then he is not required to prove any injury that has been caused to him directly due to the activities of the respondent(s). Since the onus is reversed, it is upon the polluters to prove that their activities are environmentally benign.

A shift is underway from an anthropogenic approach to a more ecological centric approach. The planet is not only for humans to enjoy or exploit. It is the duty of the present generation to recognise and appreciate the needs of the future generation. We cannot treat the resources irresponsibly or unsustainably. There can be no gambles with the environment and we must ensure the governance of the whole ecosystem in accordance with the rule of law.[4] We are only trustees of the resources that we are holding in trust for the future generations who are beneficiaries of those resources, and this is cyclic. No one has the authority to extinguish the claims of the future generations in respect with their just share of resources. Intergenerational equity was recognised as a part of Article 21 of the Indian Constitution.[5] So, a more holistic view should be adopted while drafting green legislations. Even the Supreme Court, in T.N. Godavarman Tirumalpad v. Union of India[6], stressed on the eco centric approach that is nature centred and recognises the obligations of humans towards the environment. Also, it is the Fundamental duty of citizens under Article 51A-(g) to protect and preserve the environment, and not just an obligation of the government.[7]


The main aim of legislating eco tax is the aspect of taxing the polluters and using the money so collected into restoring the environment and reverse as much as possible the damages done to it. The Supreme court of India, while interpreting the international doctrine of polluter pays, in Vellore Citizens’ Welfare Forum v. Union of India[8], stated that “the polluters are under an absolute liability to not only compensate the victims but are also liable for the cost of restoring the degradation of the environment”. This cost is being collected as eco tax. The idea is to tax all such activities that pollute the environment in order to promote the adoption of eco friendly practices by the industries. And the cost of pollution should be borne by the polluter, and not by the public or by the government. If the government is made liable to undertake all such tasks on its own, then it will essentially mean that the whole public is being charged for the pollution that has been caused by a few, because the government will act on the taxpayers’ money only. This practice will not only hold the wrong people liable, and will also lead to the polluters getting away with their harmful activities, but will also lead to diversion of funds to an area which should not ideally be using public money. That is why there is a need to tax the polluters to fix liability as well as to generate revenue for undertaking environment protecting and promoting activities.

Also, we cannot ignore the effects of environment pollution that the revenue generated as eco tax is aiming to compensate for. The pollution is impacting the health of the people, more so in the rural areas. Owing to the low income per capita in India, many cannot afford to pay for more expensive health amenities which are required in order to reverse the impact of pollution. The Economic Survey of India 2019-20 highlighted that if the government finance for healthcare is increased by 2% of the GDP, as postulated by the makers of the National Health Policy in 2017, it can dramatically reduce out-of-pocket expenses for many poor families.   Alternate sources of spending for health services need to be explored and levying eco taxes can be one such tool.

Such fiscal restructuring will essentially encompass the reorganisation of the existing tax regime in order to make them more pro-environment. It may require the government to abolish such incentives or subsidies that are being extended for activities that result in damage to the environment. For instance, the fuel which is used in the generation of energy should be taxed more so that greener alternatives are sought by people, like the renewable sources of energy. The waste generation should not only be monitored but also more effective and healthier ways of waste management must be explored. In the transport sector, GPS based congestion charges can be imposed.[9] Different rates of tax should be levied on vehicles using different types of fuel, so that clean energy can be brought into use more and more. India has worked on this front of decarbonising transport to some extent, with the proactive role of both the Parliament and the Judiciary, after the Delhi Vehicular Pollution case[10]. This led to the entire city bus fleet, both government and privately owned buses, in the National Capital to convert to CNG (Compressed Natural Gas). Also, Bharat Stage compliances must be monitored strictly.

The Madras School of Economics has suggested that the eco taxes must be integrated into the goods and service tax (GST) framework of India and should be collected as an indirect tax.[11] The regime should be based on the concept of Pigovian tax which will balance the marginal social cost with respect to the pollution generated by the businesses. This will help in the overall welfare of the public.


India has extraordinary potential for generating revenue in this domain by way of an enviro-fiscal reform. The main task is deciding a price to put on the environment. Environmental directives may manifest in the form of a command-and-control approach or a cap-and-trade approach. The former approach sets down a limit for emission of pollutants and/or makes the use of certain technologies compulsory that aid in controlling pollution. This approach is prominently seen in the environmental legislations formulated by the United States. The drawback of this approach is that there exist no incentives for going beyond the prescribed limits.[12] This can be done away with while drafting an eco tax legislation, by granting additional benefits to businesses and persons who go above and beyond in order to ensure their activities do not harm the environment. Also, the monitoring agency should certify which processes or technology is pro-environment and uses clean energy and those technologies should be promoted by the government in the form of extending incentives, lower tax rate, and granting eco-subsidies. This will not only ensure use of certified and approved technology, but will also encourage businesses and research teams to find newer and cleaner ways to do the work while protecting the environment.

The latter approach, as mentioned above, is the cap-and-trade method. Under this, the authority sets a cap on the emissions or pollution generated and creates a trading programme in which businesses can trade their allowances if they fall below their permitted limit of emissions. The cap is the firm limit on pollutants released by the business. It is dependent on the market forces for price determination.[13] This model has been reaffirmed in the Kyoto Protocol of 1997, which extended the scope of the United Nations Framework Convention on Climate Change (UNFCCC). It talks about the Clean Development Mechanism which functions on a system of credits for the nation that ensures emission reduction beyond the prescribed cap, and such credits can be traded with countries that need increased cap and are ready to grant monetary or technological aid in return.  However, India is not bound by these commitments as it is a developing nation.

The revenue generated as eco taxes should be divided into two parts, first the money should be used in maintaining the health of the environment by undertaking all steps necessary to protect it. The government shall endeavour to do this because there exists a duty upon the State to protect and preserve the environment, as per the Directive Principles of State Policy, primarily Articles 47 and 48A contained in the Constitution of India, 1950. Secondly, a part of the revenue should go towards promoting businesses that use clean energy or eco friendly alternatives that cause less or no pollution to the environment. Such initiatives can be supported by extending them grants as well as tax free benefits in the form of exemptions and deductions under the Income tax regime. Subsidies should also be extended to people who undertake research in order to develop newer and safer alternatives for existing products. By encouraging research and development (R&D), India can establish a culture where eco friendly options are given preference and environmentally harmful products and activities are looked down upon. This will manifest into a shift in the mindset of the people and they will become more environmentally aware and cautious of their activities towards the planet.

However, the imposition of a new tax may have a detrimental effect on the private sector and the manufacturing sector because of the increased costs of compliance and lower productivity. It will not only lead to the prices shooting up, but also decrease the ease of doing business in India. It may also lead to a political and business dilemma that what if companies prefer to move out of India into a jurisdiction which has less or no eco tax?[14] That will not be in the favour of the country’s economy, as well as the environment because the emissions are not being checked, but only transported from one place to another. But once the compliances are met, it will a major step towards creating a better world for both humans as well as the environment since advanced technology and clean energy will be used to create better and pro-environment products.


In a world where resources are depleting at a rate faster than ever and the population is at an all-time high, it is important to keep in mind the carrying capacity of the planet. The non-renewable resources will not get replenished at the rate at which it is being used up, so we should consider the needs of the future generation while using such resources. If no measures are taken to decrease the consumption rate of natural resources, a day will come when it will not be available in the markets for use, not to mention an increase in the already-inflated prices because of the scarcity. It will become a luxury which only a handful of people will be able to enjoy. The impact of such a crisis can be huge, because we live in a world where we are so familiarised with the use of cars, trains, and other vehicles for commute that it is difficult to imagine a life without them. What if one day there comes a point that there be no more oil which can be extracted from the oil wells? At the rate of consumption of petrol and diesel, that day does not seem far off into the future.

So, the idea of sustainability is to fulfil the present demands without bargaining with the future needs of the product. Incomplete perceptions about the role of policymakers in combating environmental harm should be addressed.[15] Humanity has to move on to alternatives before the day comes on which no more oil can be extracted. This can be done in various ways, like switching to renewable sources of energy, using Compressed Natural Gas as a fuel, or developing alternate methods for running vehicles and producing energy. Some might argue that nuclear energy, like Uranium as a fuel, can be used in place of fossil fuels since it has huge potential for energy production. But the effects of using radioactive elements can be disastrous and long lasting. It may lead to generation of radioactive waste which cause pollution problems and may pose a serious concern to the environment. Electric cars can also prove to be a good option in the future when more and more people adopt it. But this will put immense pressure on the already strained electricity manufacturing industry in India. Moreover, electricity should be generated from renewable sources, like windmills and turbines because they use air and water which are naturally occurring resources. In case a coal or solid fuel furnace is used to generate electricity, then it will not be sustainable for a long period of time. When the amount of available coal depletes, even electricity will become scarce. So, sustainability is not a choice anymore, but a prerequisite in today’s time. There is a need to find and deploy renewable and better ways of generating energy so that we can afford a more sustainable future.


The International principles of the Rio Declaration, especially Principles 13 and 16, envisages the adoption of environment friendly rules and regulations by the member countries through national and local legislations. Many nations have imposed green taxes and eco taxes on different industries in order to curb pollution and promote green activities. For instance, France has levied a green tax on aircrafts with an aim to promote other transportation modes which cause lesser pollution.[16] Sweden is among one of the countries in the OECD with the highest eco tax rate.[17] But the imposition of eco taxes on different industries have different impacts over the economy and the business culture of the country. Some have proven to be highly beneficial, while others are not so.[18] However, most countries have adopted green taxes in some form or the other, especially the European Union nations. Germany has its own policies for energy pricing through eco taxes.[19] The eco tax rates are lower in the United States as compared to most nations. The UK imposes four categories of eco tax in the form of climate change levy, landfill levy, carbon price support and aggregates levy.[20] Some EU research-based companies are collaborating and extending technological and monetary support to companies in other countries as well. The Scandinavian countries are one of the most environmentally proactive countries in the world, and they have managed to keep pollution at bay. For instance, Norway has pushed its oil industry to adapt to more advanced technology in order to cut down the emission of carbon dioxide.[21]

Some researchers and environmentalists also suggest a worldwide approach of adopting a global green tax. It proposes the creation of a global environmental fund under which all countries will have to contribute the amount proportionate to the pollution they are causing to the environment. Various parameters like carbon emissions, air and water pollution indices, etc. can be decided upon for the ascertainment of the amount of tax that a nation will have to incur.[22] Then, the funds so collected is to be used to curb pollution and will be redistributed in proportion to their contribution as well as the need, i.e., less developed countries need more help to combat environmental pollution because they are low on finances as well as have less advanced technology, so they will be allocated more share from the global fund. In 1988, a similar recommendation of setting up a World Atmospheric Fund was put forth in the Toronto Conference on the Changing Atmosphere. A mixed approach can also be adopted by linking the domestic and global emission trading scheme, as envisaged by the UNFCCC, and industries will be free from paying the local green taxes as long as they confer to the international permit system of emissions and contribute directly to the global fund.[23]

Incentives will be extended to countries who not only reduce emissions, but also to those who develop new and innovative ways of reducing pollution sustainably. This will provide cost-effectiveness to the scheme. Countries will be awarded for successfully mitigating environmental pollution and climate change with reduced tax rates or increased returns.


The United Nations framework convention on Climate Change (UNFCCC) held its 25th session of conference of parties (COP 25) in Spain in the year 2019, where India reinstated its goals and implementation programs that are in harmony with the principles of the Convention and critiqued the lack of strong action taken by first world countries in addressing climate change.[24] A part of India’s Statement highlighted that a carbon tax is being charged on coal production at the rate of 6 dollars per tonne. This decision reflects India’s acknowledgement towards its duty to protect the environment and the gravity in the implementation of the same by charging a tax on coal and carbon emissions that are likely to degrade the environment. Using taxation as an effective tool to curb the use of non-renewable resources and cut down pollution at point sources is a popular device.

India has also enforced the system of carbon tax for encouraging businesses to make a green switch by using clean energy in place of fossils. Carbon based fuels not only releases greenhouse gases, increase air pollution which causes lung and other health problems, but also are low on efficiency when it comes to generating energy. So, it is basically a lose-lose situation for humans as well as the environment. India’s dependence on fossil-based fuels needs to be checked and more ambitious steps should be taken to limit pollution.[25] Therefore, the government decided to increased tax on petroleum and petroleum-based products and also raised the cess on coal. This approach discourages businesses to delve deeper into energy generation using fossil fuel, and they are compelled to explore greener options. It also increases employment elasticity in the clean energy, osmotic energy and bio-energy sector. However, the shortcoming of this taxation is the fact that it is regressive in nature. It distresses the informal sector more who cannot afford the highly taxed prices of fuel. An increased cost of transportation is likely to attract inflation as well.

There is an imposition of green tax by the Ministry of Road Transport and Highways on vehicles which are 8 years or older (15 years for personal vehicles).[26] Exemptions have been granted to greener alternatives like CNG and electric vehicles, and public transport vehicles are charged lower. Also, Indian companies have collectively agreed to implement Internal carbon pricing, which takes into concern the impact of all its activities with respect to its impact on climate change, and it endeavours to meet the targets set by the Paris Agreement of 2016 to combat climate change.


The levying of eco taxes will be an enviro-fiscal reform that will not only be a tool for increasing the revenue of the government to finance basic public services, but it will also act as a deterrent to people and industries that carry out any environmentally degrading activity, and the tax so collected will be used to restore the damages done to the ecology and environment. It also promotes the use of clean energy by providing them tax free incentives or charging tax at a discounted rate. Proper economic and urban planning needs to be done to maximise the benefits of eco taxes. It will help India move closer to defining a more robust environmental law regime and support its stance in a world where environmental awareness and sustainable development is the need of the hour. India must also strive to stay on track with the international agreements for fighting climate change and protecting the environment and strive to achieve the short term as well as the long-term targets set by Aichi during the Earth Summit in Rio. Therefore, it is high time for India to adopt a comprehensive regime on eco taxation. By following environmentally appropriate behaviour and regulating all those who perform otherwise, we can combat climate change and protect the environment in a sustainable manner.

[1] Eduardo Araral and Surjith Karthikeyan, “The many benefits of an eco tax”, The Hindu, May 24, 2021.

[2] N.I. Meyer et al., “Equity, Economic Growth, and Lifestyle”, in F.P. Sioshansi (ed.), Energy, Sustainability and the Environment 89 (Butterworth-Heinemann, 2011).

[3] SCC (2005) 13 186.

[4] Hanuman Laxman Aroskar v. Union of India, SCC (2019) 15 401.

[5] Amarnath Shrine v. Union of India, SCC (2013) 3 247.

[6] SCC (2012) 3 277

[7] Rural Litigation and Entitlement Kendra v. State of U.P., SCC (1986) Supp 1 517.

[8] SCC (1996) 5 647.

[9] L. Fu, M. Liu and C. Jia, “A Real-time congestion Pricing System Based on GPS Technique”, International Conference on Service Systems and Service Management 1489-1494 (2006).

[10] SCC (1991) 2 353.

[11] “Madras School of Economics experts call for eco-tax in GST”, The Economic Times, Mar. 14, 2012.

[12] James A. Swaney, “Market versus Command and Control Environmental Policies”, 26(2) Journal of Economic Issues 623 (2021).

[13] Jason F. Shogren (ed.), Encyclopaedia of Energy, Natural Resources, and Environmental Economics (Elsevier Science, USA, 1/2013).

[14] P.G. Cornelia and T.C. Lenuta, “Assessing the impact and effectiveness of environmental taxes”, 3 Procedia Economics and Finance 729 (2012).

[15] Sharachchandra, “Sustainable development: A critical review”, 19(6) World Development 607 (1991).

[16] “France to impose green tax on plane tickets from 2020”, The Hindu, July 9, 2019.

[17] T. Sterner, “Environmental tax Reform in Sweden”, International Journal of Environment and Pollution 135 (1995).

[18] Adam Chase, “Ecotax International: Comments on ‘Taxation for Environmental Protection: A Multinational Legal Study’”, 23(2) Environmental Law 723 (1993).

[19] Michael Mehling, “Germany’s Ecological Tax Reform: A Retrospective”, in M. Achilles and D. Elzey (eds.), Environmental Sustainability in Transatlantic Perspective 91 (Palgrave Macmillan, London, 2013).

[20] “Climate Change: UK not checking if green taxes work- spending watchdog”, BBC News, Feb. 12, 2021.

[21] Marion Tanguy, “Norway has set Europe an eco example”, The Guardian, Aug. 11, 2020.

[22] M. Hoel, “Carbon taxes: an international tax or harmonized domestic taxes?”, 36(2) European Economic Review 400 (1992).

[23] Philippe Thalmann, “Global environmental taxes”, Handbook of Research on Environmental Taxation 472 (2012).

[24] Kapil Subramanian, “Climate Emergency CoP 25: India’s mixed role”, Down to Earth, Dec. 16, 2019.

[25] Vinod Thomas and Ed Araral, “The benefits of a carbon tax”, The Hindu, Sept. 28, 2020.

[26] Dipak K Dash, “Govt proposes ‘green tax’ for 15-year-old petrol, diesel vehicles”, Times of India, Jan. 26, 2021.

Author: Parul Chaudhary, Symbiosis Law School, NOIDA

Editor: Kanishka VaishSenior Editor, LexLife India.

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