What Is Environmental Tax and Why Does It Matter?
Environmental taxes are designed to price the real cost of pollution and resource use into everyday business decisions. In the United States, many of these levies are federal excise taxes that are reported on IRS Form 720. Understanding what environmental tax is, how it appears in the US tax system, and where it intersects with your operations can help finance and tax leaders reduce risk, improve margins, and stay compliant.
Environmental tax is a charge on products, activities, or emissions that harm the environment. The policy goal is to change behavior by making pollution and resource depletion more expensive, while generating revenue that can support cleanup or prevention. Economists often call these Pigovian taxes because they aim to correct a market externality by embedding environmental costs into prices.
In practice, environmental taxes in the US include excise taxes on ozone-depleting chemicals, certain hazardous chemicals and imported substances, and petroleum products. Many of these are reported on Form 720 with an attached Form 6627, Environmental Taxes. This is different from a broad carbon tax that prices all greenhouse gas emissions, which the US does not have at the federal level.
Environmental Taxes in the US, where they show up on Form 720
The US relies on targeted excise taxes rather than a single, economy-wide environmental tax. If you manufacture, import, sell, or use products in the categories below, you may have exposure.
| Environmental tax category | How it is reported | Typical filers | Key compliance inputs |
|---|---|---|---|
| Ozone-depleting chemicals and products (ODCs) | Form 720 with Form 6627 | Importers and manufacturers of listed ODCs and products using them | Quantities by chemical, mixtures, and product content |
| Superfund chemical excise taxes | Form 720 with Form 6627 | Manufacturers, producers, and importers of listed chemicals and certain imported substances | Weight by chemical, substance composition, and rate schedules |
| Petroleum-related environmental excise taxes | Form 720 with Form 6627 | Refiners, importers, and certain terminal operators | Barrels or gallons moved or sold, inventory and terminal data |
For details, see IRS resources for Form 720 instructions and Form 6627, Environmental Taxes. The IRS also publishes guidance on the reinstated Superfund chemical excise taxes, including rate tables and FAQs, which are updated periodically. A good starting point is the FAQs regarding the reinstated Superfund chemical excise tax.
Important reminder, Form 720 also covers non-environmental items like the PCORI fee. The PCORI fee is an annual charge on applicable self-insured health plans that is paid with the second quarter Form 720, generally due July 31, and it should not be confused with environmental taxes. The IRS maintains current details on the Patient-Centered Outcomes Research fee.
Why it matters now
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Regulatory momentum is increasing. Congress reinstated certain Superfund chemical taxes in 2022, and rates and lists can change. The EPA’s methane emissions charge for specific oil and gas facilities begins phased application in 2024 to 2026, which, while not filed on Form 720, is part of the broader cost landscape many energy and midstream businesses must manage.
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Cost and margin impact. Environmental excise taxes can materially change costs on high-volume inputs. Without clear data and contracts that address tax pass-through, these costs can compress margins or create pricing disputes.
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Investor and stakeholder expectations. Investors and customers increasingly evaluate how companies manage environmental risk. Even where taxes are small in dollar terms, tight compliance and transparent controls are viewed positively in ESG reviews.
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Penalties and interest. Excise taxes have strict quarterly due dates, and mistakes compound quickly. Building a clean audit trail is essential.
The data behind the shift
Internationally, environmental taxes represent a larger revenue share than in the US. According to the OECD’s overview of environmental taxation, environmental tax revenue typically accounts for around 1.5 to 2.5 percent of GDP across advanced economies. The US remains below that range, while the European Union averages closer to the top of it, reflecting heavier use of fuel and transport taxes. See the OECD’s summary for context and definitions in Environmental taxation at the OECD.
While the US relies less on environmental taxes than many peers, recent federal changes have expanded coverage and enforcement. Companies that manufacture or import listed chemicals or substances are now seeing recurring Form 720 obligations where none existed a few years ago.
Trends to watch in 2026
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Superfund chemical excise taxes, continued refinement of IRS guidance on listed substances, rates, and calculation methods. Supply chain documentation remains a pain point for importers.
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Petroleum-related environmental excise taxes, rate updates and continued emphasis on accurate terminal and movement data.
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State and global spillover, US multinationals must monitor state initiatives and foreign border measures that can affect sourcing and costs, even if federal Form 720 exposure is limited.
Strategic playbook for finance and tax teams
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Map product exposure to the tax base. Start with your materials master and bills of material to identify potential matches with listed chemicals and imported substances. Align codes, CAS numbers, and tariff classifications where relevant.
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Get quantities and compositions right. Environmental excise taxes are quantity driven. Establish a single source of truth for weights, volumes, mixture percentages, and conversion factors, and validate it with procurement and operations.
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Fix contracts and pricing. Ensure supplier and customer agreements spell out responsibility for excise taxes and documentation. Without clear pass-through language, you may be stuck with costs you did not model.
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Build monthly accruals and analytics. Do not wait for quarter end. Model tax exposure monthly and compare to actuals. This reduces surprises and smooths the cash impact.
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Document, then automate. Maintain calculation workpapers, source reports, and copies of invoices that support quantities and tax. Use an e-filing workflow that keeps your Form 720 and Form 6627 attachments organized, so audits do not derail operations.
Compliance calendar snapshot
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Form 720, due quarterly on April 30, July 31, October 31, and January 31 for the preceding quarter.
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PCORI fee, generally due July 31 each year on the second quarter Form 720 for applicable self-insured health plans.
Always verify dates and rates with the current Form 720 instructions, since Congress or the IRS can update rules midyear.
About eFile Excise720
eFile Excise720 is an IRS-authorized e-filing platform for Form 720. You don’t have to pay to start just make an account and you’re in. No software downloads, no weird setup stuff. You can file everything right from the browser and actually get help that feels like it’s meant for you, not some generic FAQ. It works for pretty much all the Form 720 things you’d expect: the usual categories, the environmental taxes that go with Form 6627, fixes and changes with Form 720-X, and even claims with Form 8849. Your info is handled securely in the background, and the dashboard does a decent job of keeping all your filings in one place so you’re not scrambling if someone ever asks for them during an audit. If you have seen the name E Eile Excise 720, that refers to the same e-filing solution.
Start your next return with eFile Excise720, then attach Form 6627 where required and transmit securely.
Frequently Asked Questions
What is environmental tax in the US?
Environmental tax is a levy on products or activities that cause environmental harm, such as listed chemicals, ozone-depleting substances, or petroleum products. Many of these taxes are federal excise taxes reported on Form 720, often with Form 6627.
How is this different from a carbon tax?
The US does not have a broad federal carbon tax. Instead, it uses targeted excise taxes on specific products and activities, along with credits and incentives for clean energy. Some states and foreign jurisdictions use different approaches.
Who must file Form 720 for environmental taxes?
Businesses that manufacture, produce, sell, or import listed chemicals, imported substances, ozone-depleting chemicals and products, or certain petroleum products may need to file. Check the current Form 720 and Form 6627 instructions to confirm applicability.
How do environmental taxes relate to the PCORI fee?
The PCORI fee is not an environmental tax. It is a separate annual fee for applicable self-insured health plans, filed on the second quarter Form 720 and generally due July 31.
What are the consequences of getting quantities wrong?
Since environmental excise taxes are quantity based, errors in weights, volumes, or product composition can lead to underpayments, penalties, and interest. Maintain strong source data, reconciliations, and documentation.
Where can I find authoritative guidance?
Use the IRS pages for Form 720 instructions, Form 6627, the PCORI fee, and IRS FAQs on the Superfund chemical excise tax. For international context, see the OECD’s overview of environmental taxation.
Ready to file or amend your Form 720, including environmental tax schedules and the PCORI fee? File securely with the IRS-authorized portal at eFile Excise720.