Water taxation - from theory to practice: a case study of the Environmental Contribution Levy in Victoria, Australia

Elliot Legendre

Chapter 13 in Biodiversity and Climate, 2024, pp 198-215 from Edward Elgar Publishing

Abstract: Water is becoming increasingly scarce, due in large part to excessive human exploitation for the purposes of agriculture and industry. This paper examines a taxation measure as one response to this challenge in Australia, the driest inhabited continent on Earth. The Environmental Contribution Levy (ECL) on water revenue in the State of Victoria was implemented in 2004 following the worst drought ever recorded (1997-2010). The ECL is evaluated through the lens of two key principles: efficiency, which requires a strong incentivisation towards sustainable water management, and equity, which necessitates a differentiated tax burden among water users and uses. The ECL has served as a highly effective budgetary tool, raising significant revenues. However, a closer analysis reveals two concerning aspects: first, incentivisation of water users to modify their behaviour has been neglected; second, current tax design highlights a fundamental conflict, as the most water-intensive users (irrigators) currently pay the least.

Keywords: Economics and Finance; Environment; Law - Academic; Politics and Public Policy Sustainable Development Goals (search for similar items in EconPapers)
Date: 2024
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