Green economy or 'greenonomics' refers to an economic system that prioritizes environmentally friendly, sustainable and inclusive development. One that focuses on protecting the earth along with economic growth. It embraces measures such as the promotion of clean energy, taxation of environmentally polluting goods, and the development of a climate-friendly budget and tax system.

Currently, as the global climate crisis deepens, concepts such as green economy and green tax have become major issues of international debate. Although Nepal has a low contribution (less than 0.1 percent) to greenhouse gas emissions in the world, it is facing the negative effects of climate change (melting glaciers, decreasing agricultural production) due to which it is necessary to pay attention to clean energy and environment-friendly practices in the country.

According to the Paris Agreement, Nepal has set a goal of zero carbon emissions by 2045. For this, the government has been increasing investments in renewable energy, electric vehicles (the goal is to make 90 percent of new vehicles electric by 2030) and environment-friendly infrastructure.

Many countries around the world are reducing their use of biofuels and investing in solar, wind and hydropower. They are giving incentives to choose clean alternatives by imposing taxes on polluting items. A green economy thus helps build a sustainable future by maintaining a balance between economic growth and environmental protection.

A green tax refers to a tax levied on activities that pollute the environment, usually based on the 'polluter pays' principle. Such a tax aims to reduce pollution, reduce the use of harmful energy and promote clean energy.

Finland first introduced a green tax in 1990. After that, countries like Denmark, Norway, Sweden have also adopted it. Green taxes help reduce demand for fossil fuels, adopt cleaner technologies, and increase government revenue. In 2019, Denmark and the Netherlands collected 8 and 8.6 percent of their total tax revenue from green taxes. OECD countries collect an average of 2.4 percent of GDP from green taxes.

International practices

International practices of the Green Deal mainly use two methods – the Emissions Trading System (ETS) and the Carbon Tax. Under the ETS, high-polluting industries can trade permits with low-emitting industries, which set the market price for emissions. Carbon taxes, on the other hand, attempt to reduce emissions by directly taxing fossil fuels based on their carbon content.

In addition, indirect measures such as fuel taxes, removal of subsidies on biofuels and covering the social cost of carbon are also adopted. Currently, more than 40 countries and 20 provinces around the world are using carbon pricing systems.

In developed countries, taxes are levied on the basis of production, while in import-based economies, taxes are levied at the customs point. Some countries have also imposed it on raw materials. A carbon tax could hit lower income groups more. Its effectiveness is seen to be better if the revenue raised from this is used for cash assistance or health insurance.

Green tax in Nepal

In Nepal, so far, green tax has not been imposed under a separate title, but through various taxes, goods and services that pollute the environment have been indirectly taxed. Pollution control charges have been levied on petrol and diesel. From which, in the financial year 2080/81, about 3.12 billion rupees were collected.

has so far collected 25 billion 39 million 66 million. Similarly, revenue has been collected in the form of road repair and improvement fees and road construction and maintenance fees on vehicles. From which 8 billion 7 billion and 4 billion 53 billion rupees have been collected in the year 2080/081 respectively. Such taxes are not purely green taxes but are based on environmental impact factors.

The policy to promote clean energy in Nepal needs to be made more clear and fact-based. A carbon tax on transport and brick industries may not generate much revenue, but environmental transformation and the use of green technologies can be encouraged. Given the existing energy emissions mix, although the revenue from a carbon tax would be low, the revenue raised could be used to provide relief to communities most affected by greenhouse gas emissions. Also, the tax structure can be improved by placing higher taxes on luxury vehicles and lower tariffs on clean energy vehicles. 

Problem

Although the implementation of green tax in Nepal aims to contribute to environmental protection and pollution control, many problems have emerged in its implementation. The definition and purpose of green tax is unclear which makes implementation complicated due to lack of policy and roadmap. Petrol per liter Rs. 1 and coal at Rs. Rates as low as 0.50 risk being ineffective.

Also there is a problem of double taxation with pollution control charges. There is a lack of transparency and accountability in the use of the funds collected, which has created a situation where it is not spent on environmental protection and research. The burden of additional taxes on consumers has made small businesses and common people suffer from price hikes. Lack of coordination between various ministries (Finance, Forest and Environment, Energy) and delays in integration with customs infrastructure tax have added to the policy problems.

Lack of effective implementation of green tax on brick kilns and high polluting vehicles has weakened control over polluting industries. There is a lack of awareness among the general public and businesses about the purpose and benefits of green tax, which has hampered the promotion of green practices in cooperatives and local communities.

The lack of technical system and administrative capacity in green tax collection and management has resulted in weakness in implementation. The lack of regular monitoring and evaluation of the environmental impact of the green tax, as well as the lack of standards and mechanisms, have made it difficult to measure its effectiveness.

The lack of a solid plan to invest the collected funds in electric vehicles, renewable energy or green technology and the weak involvement of the private sector has hindered the development of the green economy. Duplication of green tax with pollution control fee, road maintenance fee and infrastructure tax has made the taxation system complex and confusing. 

High-level tax reform committee recommendations (eg, conversion of excise duty to green tax) and delays in tax adjustments on electric vehicles have slowed policy implementation. Green taxes risk disproportionately affecting low-income communities, leading to social and economic inequality. The lack of a clear legal framework and regulation on green taxation, as well as the lack of effective implementation of tax exemptions and incentive policies, have added to the long-term challenges. 

The suggestions made by the High Level Tax Reform Committee for the implementation of green tax and promotion of green economy in Nepal can contribute significantly to environmental protection and revenue management. Effective implementation of these suggestions requires policy coordination, transparency and public awareness.