This comprehensive and accessible textbook addresses important relationships between economics and environmental policy, especially highlighting the role of taxation. It also connects environmental policy to social accounting by describing how measures of welfare and sustainable development depend on whether policies successfully internalize market failures.The authors discuss how the modern literature on environmental taxation and tradable permits has evolved. Environmental taxation is examined from a purely corrective perspective, and as part of a broader system of optimal taxation that reflects distributional objectives. Cost benefit rules of environmental policy reforms are also examined in various contexts. Key features include: • Examination of optimal tax policy in static and dynamic general equilibrium models with environmental externalities•Examination of cost benefit rules for environmental policy reforms•Essential historical background to the modern literature on environmental policy• Discussion of measures of welfare and sustainable development• Environmental policy from a fiscal federalism perspective.This textbook will be essential reading for those studying environmental economics and environmental policy, working effectively as both an in-depth supplementary text in general courses on environmental economics and a strong main source for environmental policy courses.