1. Introduction

Market based and fiscal instruments have long been proposed by the economists for tackling environmental degradation; however, India for some reason has till date remained largely elusive to these instruments and has focused on the command and control (CAC) measures which could not bring effective control in the CO₂ emissions in India. The concern for using ecotaxes to reign pollution emerges primarily from the failure and inefficiency of the command and control measures on one hand and market price-based instruments on the other in curbing the unabated pollution. As the opening chapter, the concept of ecotaxes/other measures have been explored through the understanding of its brief history in the Indian context. An attempt is undertaken here to comprehend this in the context of the theoretical foundations of these instruments with Prof. A. C. Pigou’s arguments and thereafter exploring the critical issues pertinent to these instruments by categorising them into descriptive, economic and fiscal issues. The issues to be considered for effective design of ecotaxes have been distilled down to the issue of non-existence of a comprehensive definition and thereafter the issue pertaining to base and optimal rates of ecotaxes and issues of incidence, double dividend and competitiveness.