Financial instruments can help to ensure that not only does the price of the environmental costs become visible on the bill, but that it is also paid. This serves to correct imperfections in the market', explained D. Witteveen, chairman of the Netherlands Tax Reform Commission, at the European Commission conference on Economic incentives and disincentives for environmental protection, held in Rome last year. In real terms, this means, for example, that the cost of petrol should reflect the cost of treatment for pollution-linked asthma, or that pesticide use should internalise any soil or water remediation work involved in removing pesticide residues. A key component of any form of environmental taxation is fiscal neutrality, so that the overall tax burden is not increased. Governments are under increasing pressure to keep taxes low, and any green tax that is introduced solely as a revenue raiser would be generally regarded as unjust and would threaten the credibility of any true green taxes.
Most policy makers favour using environmental taxation to reduce taxes on labour.
This much hyped double dividend is one of the key arguments in favour of fiscal instruments. This will be difficult to achieve in the current economic climate, he acknowledges, where manpower is the most expendable resource. A medium to long term strategy which shifts the focus of taxation on to resource use is also central for the support of emerging green industries, which have an enormous potential as employers in all member states'. A number of studies have been carried out to estimate the potential impact of a programme of environmental taxation on the labour market. If an environmental tax is effective then eventually the revenue will decline.