Future global challenges to achieve fairness in environmental taxation: moving beyond the dimensions of horizontal and vertical equity

Abstract

Fairness is recognised, almost universally, as the most fundamental ideal of any tax system. With tax systems around the globe being increasingly utilised to implement policies to change emissions behaviour and address the causes of climate change, it is imperative that fairness be a primary consideration. The paper sets out to explore the dilemma of what is meant by ‘fairness’ in the context of environmental taxation. It begins by first establishing the urgent need for climate change mitigation and establishes the role that environmental taxation has to play. It then considers the extent to which the traditional philosophical and moral approaches to decision making can provide a contemporary and relevant framework by which ‘fairness’ can be judged. The tax literature generally recognises fairness as having only two dimensions, namely horizontal and vertical equity. The requirement for the ‘fair sharing’ of the cost of climate change mitigation is considered and additional dimensions of fairness are discussed including the need to look beyond national borders and the current generation of taxpayers. The paper considers the potential conflict that may arise from taking this more holistic and enduring view of fairness and explores the distributional concerns, the dilemma of justice in the international community and the notion of procedural fairness. The paper concludes by acknowledging the complexity of the task facing governments and policy makers in implementing environmental tax systems that reflect a more responsible approach to the concept of fairness. The required changes are identified, including the need within the global arena to show greater leadership and the acknowledgement of the rights of others, both now and in the future.