Ecological fiscal reform (EFR) can be used in combination with other environmental policies to reinforce environmental objectives. Indeed, in many cases, a combination of policy tools will be needed to best achieve desired environmental outcomes. For example, a regulation can require that some minimum environmental improvement occurs, and EFR can be implemented to offer an incentive to achieve or exceed that minimum. The incentive could be an offer of subsidies, credit card or taxes credit to households or businesses that make investments in particular technologies. Alternatively, the incentive could come in the form of a tax on activities or goods that contribute to the environmental issue that the regulation addresses. In either scenario, the EFR policy is designed to reinforce an environmental regulation.
Similarly, EFR can provide incentives to participate in voluntary programs. Again, this might involve the use of credits, subsidies or taxes to entice households or businesses to participate in a voluntary program. Alternatively, the EFR policy might be used to provide funds needed to finance the voluntary program, while not necessarily directly providing incentives to participate in the program. In this case, the fiscal policy might involve levying a small tax on an activity or good and using the revenue from the tax to fund a voluntary program. A good example of such a policy is the Agricultural Management Account of the state of Iowa’s Groundwater Protection Fund. The Agricultural Management Account is partially made up of revenue from pesticide manufacturer registration fees, pesticide dealer licensing fees and nitrogen fertilizer taxes. The revenue from these charges is used to finance, among other programs, a voluntary education and demonstration project on crop management techniques that reduce the need for fertilizer and pesticide application.